Due to limited production space, Computer Inc needs to adjust its sales mix. Current production is 500 flash drives (contribution margin $7 each) and 500 charging cords (contribution margin $8 each). There has been a surge in sales on the flash drives and Computer Inc could sell 1000 of them if they could make them! There is only space to manufacture a total of 1150 items. What should they do?

Question

Megan Powell

Business

14 August, 15:32

Due to limited production space, Computer Inc needs to adjust its sales mix. Current production is 500 flash drives (contribution margin $7 each) and 500 charging cords (contribution margin $8 each). There has been a surge in sales on the flash drives and Computer Inc could sell 1000 of them if they could make them! There is only space to manufacture a total of 1150 items. What should they do?

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Answers (1)

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Troy Obrien · Answer 1

Computer Inc should produce and sell 500 charging cords since their contribution margin is the highest, resulting in a gross profit of $8 per unit x 500 units = $4,000. And produce and sell 650 flash drives with a contribution margin of $7 per unit which results in a gross profit = $7 x 650 units = $4,550.

Explanation:

Companies must focus on producing and selling the products that generate them the largest profit.