Easton Corporation makes two different boat anchors a traditional fishing anchor and a high-end yacht anchor using the same production machinery. The contribution margin of the yacht anchor is three times as high as that of the other product. The company is currently operating at full capacity and has been doing so for nearly 2 years. Bjorn Borg, the companys CEO, want to cut back on production of the fishing anchor so that the company can make more yacht anchors. He says that this is a no-brainer because the contribution margin of the yacht anchor is so much higher.

(Weygandt, Kimmel, & Kieso, 2012).

Instructions

Write a 1-page memo to Bjorn Borg describing the analysis that the company should perform. Be sure to address the following in your analysis:

What role might contribution margin per unit of limited resource play in this decision?

My Answer:The equation for the contribution margin per unit is: unit sales price- unit variable cost this is basically used to solve the equation when there is an unknown. For example, if you have a cost structure and estimation of the sales volume for the upcoming period the equation therefore predicts the profits for that period and another example would be if the firms cost structure and the equation indicates the required sales volume to achieve a targeted level of profit it the targeted profits are zero then the equation would be Q (sales volume) = FC/ Unit contribution margin.

Should the marketing department be involved in the decision-making process? How important is consumer demand?

My Answer: Yes, it is very important that the marketing department be involved in the decision making process because they are involved in the plans for the firms marketing activities and it could pertain to one item or many throughout the business. It is also important to the consumer demand because they conduct research to where the product would be most successful and useful, and what type of consumers will be able to afford the product as well.

Should the company consider expanding their production facilities or purchasing additional equipment?

How might this change affect their company brand or the customer's perception of their brand? Will they be appealing to a different market by only offering yacht anchors?