Question
A company sells 2 products – A and B. Product A
sales were Rs.2 lac and it had a contribution margin of 20% while Product B sales were Rs.1 lac with contribution margin of 40%. If the sales of Product A and Product B were reversed to 1 lac and 2 lac respectively how would the total contribution to the company change?Solution
Contribution in Case I Contribution of Product A with Sales of Rs 200000 and Contribution Margin of 20% = 2,00,000 @20% = 40,0000 Contribution of Product B with Sales of Rs 100000 and Contribution Margin Of 40% = 1,00,000 @40% = 40000 Total Contribution (Case I) = 40,0000 + 40,000 = 80,000 Profit in Case II Contribution of Product A with Sales of Rs 100000 and Contribution Margin of 20% = 1,00,000 @20% = 20000 Contribution of Product B with Sales of Rs 200000 and Contribution Margin Of 40% =2,00,000 @ 40% = 80000 Total Contribution (In case II) = 1,00,000 Difference in Contribution (Case I and Case II) = 1,00,000 – 80,000 = Increase of Rs 20,0000.
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