Delta Retail Solutions

Scenario: Multi-Product Profitability Analysis

Product Details:

• Product A:
  • Selling Price per Unit: $150
  • Variable Cost per Unit: $100
  • Fixed Costs: $120,000

• Product B:
  • Selling Price per Unit: $200
  • Variable Cost per Unit: $120
  • Fixed Costs: $180,000

Requirements:

1. Contribution Margin and Profitability Analysis:
   • Calculate the contribution margin per unit and contribution margin ratio for Product A and Product B at Delta Retail Solutions. Analyze which product is more profitable and explain why.

1. Break-Even and Sensitivity Analysis:
   • Perform a break-even analysis considering the sales mix of Product A and Product B. Conduct a sensitivity analysis to assess how changes in variable costs would impact the break-even point.

1. Optimal Sales Mix:
   • Determine the optimal sales mix that maximizes Delta Retail Solutions' overall contribution margin. Justify your recommendation with a quantitative analysis of different sales scenarios.

1. Strategic Decision Making:
   • The company is considering discontinuing Product B due to declining profitability. Using marginal costing insights, advise whether this decision is justified and suggest alternative strategies.

1. Cost Management Strategies:
   • Propose two cost management strategies that Delta Retail Solutions could implement to reduce variable costs without compromising product quality or customer satisfaction.