Cole sells both designer and moderately priced fashion accessories. Top manageme

Question

Cole sells both designer and moderately priced fashion accessories. Top management is deciding which product line to emphasize. Accountants have provided the following data: (Click the icon to view the data.) The Cole store in Grand Junction, Colorado, has 13,000 square feet of floor space. If Cole emphasizes moderately priced goods, it can display 780 items in the store. If Cole emphasizes designer wear, it can only display 520 designer items. These numbers are also the average monthly sales in units Prepare an analysis to show which product the company should emphasize. (Enter the units displayed per square foot and the contribution margin per square foot to two decimal places.) Data Table Designer Moderately Priced Units displayed per square foot: Designer Per Item Moderately priced Contribution margin per unit Contribution margin per square foot of display space Capacity-Square feet of display space Total contribution margin at capacity Moderately Designer Priced 195 S Average Sale Price Average Variable Costs Average Contribution Margin Average Fixed Costs (allocated) Average Operating Income 85 110 20 90 S 79 21 58 53

Explanation / Answer

Units displayed per square foot = Units displayed ÷ Capacity square foot of display space

Units displayed per square foot of Designer = 520÷13,000 = 0.04

Units displayed per square foot of Moderately Priced = 780÷13,000 = 0.06

From the above analysis, the company should emphasis on Designer Product. Because, it has the higher Contribution margin than Moderately Priced Product.

Designer Moderately Priced Units displayed per square foot: Designer 0.04 Moderately Priced 0.06 Contribution margin per unit × $110 × $58 Contribution margin per square foot of display space $4.40 $3.48 Capacity-square foot of display space × 13,000 × 13,000 Total Contribution margin at capacity $57,200 $45,240

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