Dave operates his business out of a small storefront, so he does not have a lot of shelf space for his products. Recently, a section of shelf space became available because a product was discontinued. Dave is trying to decide which of his products to put in that space. Product 1 has a contribution margin per unit of space of $2,000 and is very large in size. Product 2 has a contribution margin per unit of space of $1,200 and is very small in size. Based on this information alone, what product would be best for the open space

Question

Asa Barrera

Business

9 July, 22:55

Dave operates his business out of a small storefront, so he does not have a lot of shelf space for his products. Recently, a section of shelf space became available because a product was discontinued. Dave is trying to decide which of his products to put in that space. Product 1 has a contribution margin per unit of space of $2,000 and is very large in size. Product 2 has a contribution margin per unit of space of $1,200 and is very small in size. Based on this information alone, what product would be best for the open space

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Answers (1)

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Moran · Answer 1

Hence, product 1 should be allocated the shelf space

Explanation:

Whenever a company is faced with a situation of large shortage in resources, To maximize the use of the resource in short supply the business should allocate the resource to the product that maximizes the contribution per unit of the scare resource.

For example, the resource in short supply here in the question is the shelf space, hence the contribution per shelf should be used to decide how to allocate the available shelf space to the product.

Product 1 gives a contribution per unit of shelf space of $2000 which is higher by $800 that of product 1.

Hence, product 1 should be allocated the shelf space