Question

The following information is provided for two products:
Product X Product Y
Selling price per unit $35 $25
Variable cost per unit 20 15

Assume the products will be sold in a store where shelf space is a scarce resource and there is sufficient room for only one of the two products. Expected sales for Product X are 6,000 units, and expected sales for Product Y are 8,000 units. Which product should be sold and why?

A) Product Y should be sold solely because the expected demand for this product is greater than the expected demand for Product X.
B) Product Y should be sold because sales of this product will provide a greater profit.
C) Product X should be sold because it provides a greater contribution margin per unit.
D) Product X should be sold because sales of this product will provide a greater profit.

Answer 1

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

A B C D E Answer - Total contribution margin of Product X = no. of unit sold * contribution margin per unit = = 6000 * ( 35-20) = = $ 90000 - Total contribution margin of Product Y = no. of unit sold * contribution margin per unit = 8000 * ( 25-15) = $ 80000 2 Since, the total contribution margin of Product X is more, so product X should be sold 3 4 So the correct answer is 5 D) Product X should be sold because sales of this product will provide a greater profit. 7 Thank You