Question

Perform a "product-by-value" analysis on the following problems: A B C D E Unit Contribution $0.75 $0.33 $1.25 $0.85 $0.75 Total Contribution $63,000 $82,000 $95,000 $115,000 $57,000 Arrange the products in descending order of their individual dollar contribution to the firm: C, D, A, E, B. Arrange the products in descending order of their total dollar contribution to the firm: D, C, B, A, E. Based on the product-by-value" analysis, which products are the 3 lowest in total dollar contribution and therefore possible candidates for replacement? Products ___ should be investigated for replacement. a. A, B, and E b. B, C, and D c. A, C, and D

Answer 1

A product-by-value analysis has identified products A, B, and E as the ones contributing the least to the total dollar contribution of the firm. An example given from the WipeOut Ski Company shows that the firm makes a loss when the marginal cost is higher than the selling price per unit.

Step-by-step explanation:

The question asks for a product-by-value analysis based on unit and total dollar contributions of various products to the firm. Starting with the total dollar contribution, the products in descending order are D, C, B, A, E. This means the three lowest total contributors are A, B, and E, which are the candidates for replacement.

To give an example of the financial implications for the company, the analysis drawn from the WipeOut Ski Company case shows that if the firm produces 5 units to sell at $25 each, the total revenue would be $125, but the total costs for producing these units is $130, leading to a loss of $5.

Additionally, since the marginal cost of producing an additional unit is $30, which is greater than the selling price of $25, the marginal unit does not contribute to profit, further indicating inefficiencies in production.