Question

Steadigen Company sells two generators—Model A and Model B—for ​$454 per unit and​ $396 per​ unit, respectively. The variable cost of Model A is​ $408 per unit and of Model B is​ $314 per unit. If Steadigen​ Company's sales incentives reward sales of the goods with the highest contribution margin per​ unit, the sales force will be motivated to push sales of Model A more aggressively than Model B.

True or False?

Answer 1

The answer has been presented in the supporting sheet. All the parts has been solved with detailed explanation and format. For detailed answer refer to the supporting sheet.

Answer 2 The correct answer is False 4 Explanation and calculations 6 Firstly we have to calculate the contribution margin of each Model Statement of contribution margin 9 Partciulars Model A Model B 10 Selling Price 454 396 11 Variable cost 408 314 12 Contribution margin 46 82 13 14 From the above table we can conclude that Model B has Higher Contribution margin then Model A 15 If steadigen companys sales incentive rewards sales of goods with highest contribution margin per unit, then sale force will be motivated to sell Model B instead of Model A as Model B has higher contribution margin then Model B. So the statement given in question is incorrect. 16 17 So the correct answer is False 18 19