Easton Corporation makes two different boat anchors—a traditional fishing anchor

Question

Easton Corporation makes two different boat anchors—a traditional fishing anchor and a high-end

yacht anchor—using the same production machinery. The contribution margin of the yacht anchor is

three times as high as that of the other product. The company is currently operating at full capacity

and has been doing so for nearly two years. Bjorn Borg, the company’s CEO, wants to cut back on

production of the fishing anchor so that the company can make more yacht anchors. He says that

this is a “no-brainer” because the contribution margin of the yacht anchor is so much higher.

Required

Write a short memo to Bjorn Borg describing the analysis that the company should do before it

makes this decision and any other considerations that would affect the decision

Explanation / Answer

the company need to consider contribution..

the product which has the higher contribution gets the more profit than lower contribution product..here yacht anchor contribution is three times more than other product..so it is better to take decission...to cut back on fishing anchor..

contibution = fixedcost +profit

here ficed cost remains constant to make both products.. so yacht product has more profit contribution than fishing because

yacht product contribution = 3( shipping product contribution)

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