PC Pros is a company that builds and sells personal computers. In the past, the
ID: 2517092 • Letter: P
Question
PC Pros is a company that builds and sells personal computers. In the past, the company was simply a parts supplier for other computer companies. However, recently they have been attempting to break into the market with their own personal brand as well. But to ensure a steady revenue stream, PC Pros is still producing some parts to sell to other companies After expanding their production operations, PC Pros has seen great success in sales. However, they are currently producing at 90% capacity (of total floor space occupied), and are unsure whether to devote that extra capacity to producing more of their own computers or to simply increase the number of parts they supply to other companies Following is information regarding the three options management is considering PC Pros Sales Price/Unit Variable Costs Contribution Margin Fixed Costs Gross Profit/Unit Units that can be produced per Computers $780 $350 $430 (S150) Part 1b S35 (S12 $23 (S 3) S20 Part 2c $45 (S10) S35 (S18) S1Z 100 square feet of floor space 3.20 50 40 PC Pros' factory has a total of 10,000 square feet of floor space a) Which option has the highest contribution margin per square foot of floor space? b) If we dedicated the remaining 10% of floor space to the option answered in (a), what would be the increase in contribution margin?Explanation / Answer
(a)
Computers has the highest contribution margin per square foot of floor space.
(b)
Remaining 10% of floor space = 10,000 * 10% = 1,000 square feet
Increase in Contribution margin = 1,000 square feet * 1.34375 per square feet
= 1,343.75
PC Pros Computers Part 1b Part 2c Sales Price/Unit 780 35 45 Variable costs (350) (12) (10) Contribution Margin 430 23 35 Units that can be produced per 100 square feet of floor space 3.2 50 40 Contribution margin per 100 square feet of floor space 134.375 (430/3.2) 0.46 (23/50) 0.875 (35/40) Contribution Margin per Square foot of floor space 1.34375 (134.375/100) 0.0046 (0.46/100) 0.00875 (0.875/100)Related Questions
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