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Peacock Purse Sells Designer and Everyday Priced Handbags The Store Has 5,000 Square Feet of Floor Space

Question 123

Essay

Peacock Purse sells designer and everyday priced handbags.Top management is deciding which product line to emphasize.Company accountants have provided the following data:

DesignerEverydayPer ItemPer Item Average Sales Price $250$95 Average Variable Costs 10025 Average Contribution Margin 15070 Average Fixed Costs (allocated) 3010 Average Operating Income $120$60\begin{array}{lrr}&Designer& Everyday\\ &Per~ Item& Per~ Item\\\\\text { Average Sales Price } & \$ 250 & \$ 95 \\\text { Average Variable Costs } & \underline{100} & \underline{25} \\\text { Average Contribution Margin } & 150 & 70 \\\text { Average Fixed Costs (allocated) } & \underline{30} & \underline{10} \\\text { Average Operating Income } & \underline{\$ 120} & \underline{\$ 60}\end{array} The store has 5,000 square feet of floor space.If the company emphasizes everyday handbags,it can display 1,000 items in the store.If the store emphasizes designer handbags,it can display only 680 items.These numbers are also the average monthly sales in units.
Prepare an analysis to show which product the company should emphasize.Explain your answer.
(Do not round intermediate answers.)

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* 680 designer items / 5,000 square fee...

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