Question

Klintan Company sells both designer and moderately priced fashion accessories. Top management is deciding which product line to emphasize. Accountants have provided the following​ data:

		Per Item
			Moderately
		Designer	Priced
	Average sale price	$175	$80
	Average variable costs	70	24
	Average contribution margin	105	56
	Average fixed costs (allocated)	15	10
	Average operating income	$90	$46

The Klintan Company store in Grand​ Junction, Colorado, has 12,000 square feet of floor space. If Klintan Company emphasizes moderately priced​ goods, it can display 720 items in the store. If Klintan Company emphasizes designer​ wear, it can only display 480 designer items. These numbers are also the average monthly sales in units.

		Product
		Designer		Moderately Priced
	Units displayed per square foot:
	Designer
	Moderately priced
	Contribution margin per unit	x	105	x	56
	Contribution margin per square foot of display space
	Capacity-Square feet of display space	x		x
	Total contribution margin at capacity

​Decision:

▼

Emphasize designer goods

Emphasize moderately priced goods

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Answer 1

20.04 Answert Designer moderately priced units displayed per square foot: Designer 480/12,000 Moderately priced 720/12,000 = 0.06 contribution margin per unit 105 56 contribution margin per square 105x0.04 56% 0.06 foot of = 4.2 -3.36 display space capacily square feet of display space 12,000 12,000 Total contribution Margin ateapacila 12,000$ 1.2 12,000x336 = 50400 = 40,320 Decision !- Emphasize Designer goods.