Prepare an analysis to show which product the company should emphasize. Explain your answer. (Do not round intermediate answers.)
Peacock Purse sells designer and everyday priced handbags. Top management is deciding which product line to emphasize. Company accountants have provided the following data:
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.
The decision rule for constraints is to emphasize the product with the higher contribution margin per unit of the constraint. Peacock Purse should emphasize designer handbags because the contribution margin is $20.40 per square foot of display space, whereas the contribution margin for everyday handbags is only $14.00 per square foot of display space.
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