Problem:
Westfield 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. Ralph Sampson, the company's CEO, want 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.
Instructions:
As a team, explore the factors that Westfield management should consider before making their final decision. Write a one-page memo to Ralph Sampson describing the analysis that the company should perform. Be sure to address the following in your analysis:
Q1. What role might contribution margin per unit of limited resource play in this decision?
Q2. Should the marketing department be involved in the decision making process? How important is consumer demand?
Q3. Should the company consider expanding their production facilities or purchasing additional equipment?
Q4. How might this change affect their company brand or the customer's perception of their brand? Will they be appealing to a different market by only offering yacht anchors?