Andrews corp. Ended the year carrying $75,161,000 worth of inventory. Had they sold their entire inventory at their current prices, how much more revenue would it have brought to andrews corp.?
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Explanation:
There will be no effect on the company's revenue. The contribution margin of a product is it's price after deducting all the associated variable costs. It results in an incremental profit that can be earned for each unit that is sold. Therefore, the total contribution margin generated by a business represents the total earnings available for paying the fixed expenses and for generating a profit. The contribution margin concept can be very helpful to decide whether to allow a lower price in case of special pricing conditions. If the contribution margin at a particular price point is very low or is in the negative, it would be unwise to continue the selling at that price.
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