Question

IM Enterprises sells two products, Crunchies and Munchies. Crunchies have a 32 percent contribution margin and Munchies have a 35 percent contribution margin. Profit earned from each box of Crunchies is $8 and the profit earned from each box of Munchies is $7. If the company is planning to generate revenue of $100, what should the company do

Answer 1

Answer:

The multiple choices are:

A. No recommendation can be made by the data

B. It should sell more crunchies

C. It should sell an equal number of each product

D. It should sell more munchies

Option D, it  should sell more munchies , is correct

Explanation:

In order to cover generate more margin while the fixed cost remains the same, hence profitability is improved overall, the best course of action would be to sell more munchies with a higher contribution margin.

In essence, I am in strong support of the company, IM Enterprises , selling more of munchies, option D, as that would improve its bottom-line in terms of more profit generation.

Whatever contribution is made on additional sales,directly impacts net income since fixed cost has been covered ,hence a product with higher contribution would have impact on increased profit