Posted: November 16th, 2015
Mortonson 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. Steve Gantner,
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.
Write a 2 page memo to Steve Gantner describing the analysis that the company should do before
it makes this decision and any other considerations that would affect the decision.
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