byp19 5 mortonson corporation makes two different boat anchors 541952

BYP19-5 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.

Instructions

Write a short 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.