As previously discussed, contribution margins identify how much is available from the sale of each unit that can be used to pay for variable cost and fixed costs and still provide a profit for the company (Merritt, 2014). While conducting research and completing the Capsim Management Simulation experiment, quantitative data has been assessed to aid in determining if a high contribution rate leads to profitability. Using the Capstone Courier Report data for years 2014- 2022 (simulation rounds 1-8); team Chester had the following contribution margins which are presented in the graph and table provided below.
Figure 2: Contribution Margin results
Table 1: Team Chester’s Contribution Margin calculation
Sales Variable Cost Contribution Margin
2014 $101,073 $72,513 28.3%
2015 $126,903 $88,183 30.5%
2016 $141,831 $96,634 31.9%
2017 $158,266 $111,850 29.3%
2018 $197,881 $140,920 28.8%
2019 $223,545 $168,716 24.5%
2020 $220,721 $168,614 23.6%
2021 $243,282 $181,782 25.3%
2022 $273,965 $207,362 24.3%
As displayed in the table provided above team Chester started the simulation with a contribution margin of 28.3%, which was calculated by selling $101,073,437 in merchandise and spending $72,513,000 in variable costs. After making major investments in product segments, pricing modification, and increased marketing, raising variable cost to $88,183,000 and increasing sales by $25,829,736 to earn $126,903,173. 2015 resulted in a 2.2% increase, leaving the contribution margin at 30.5%. The following year resulted in continued increase in the contribution margin to 31.9%, after spending $96,634,000 in variable costs, and selling $141,831,879 of merchandise.
In 2017 Chester experienced a loss in contribution margin, to 29.3%. This o...
... middle of paper ...
...for several rounds. According to Bushong & Talbott (2001) the key to maximizing profit is to concentrate on selling and products that provide the highest throughput out per unit of constraining factor. This fact is something that Chester did not realize until after the competition. Chester agrees strongly with this study. After evaluating Erie, Chester realized that the competitor eliminated products that did not have high selling quantities and increased investments in the products that maximized profits. All teams started with five products in different segments. Chester introduced two new products so it concluded the competition with a total of seven products; on the other hand, Erie concluded the competition with four products. This led the team to win with a high contribution margin because Erie was investing in the products that were profitable to the company.
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