Explain what is meant by “contribution analysis”

Week 3Discussions and Required Resources

 

Two-part assignment – All parts must be at least 300 words unless otherwise noted. Please read all attachments and follow ALL instructions.

 

Part 1: Relevant Costs

 

Two partners own together a small landscaping business in North Carolina, called Summer Lawn Care. They have been specializing in summer grass seeding, installation, and maintenance. Recently, the partners acquired special technology and know-how for winter grass installations and maintenance. They also added a tree cutting service as recent storms in the area had caused demand for this service to soar. One of the partners insists that the name of the business should change to Lawn and Tree Care, so that it better reflects the range of services and, thus, generates more customer interest, and thus contracts. The second partner wants to keep the old name and argues, “We have already paid for business cards, vehicle paint, signage, and ads in Yellow Pages”.  Evaluate the arguments of the two partners. Explain and illustrate their points by identifying the relevant and irrelevant costs for this decision.

 

Guided Response: In 300 words or more, please, provide your response to the above discussion question. Identify all the costs in the decision process, including explicit costs, implicit costs and sunk costs.

 

Part 2:  Contribution Analysis

 

Explain what is meant by “contribution analysis”. Carefully define the term and provide examples to illustrate it.

Guided Response: Can you think of a recent example where you had to evaluate the incremental costs and benefits of different options in order to make a decision? In 300 words or more, please, provide your response to the above discussion question.

 

 

 

 

 

Required Resources

Text

 

Please read the following chapters in: Managerial Economics:

 

Douglas, E. (2012). Managerial Economics (1st ed.) [Electronic version]. Retrieved from https://content.ashford.edu/

 

  • Chapter 5: Production and Cost Analysis
  • Chapter 6: Managerial Cost Analysis and Estimation

 

Recommended Resources

Multimedia

 

Websites

  • Bloomberg (http://www.bloomberg.com)
  • Cable News Network (http://www.cnn.com)
  • The Economist (http://www.economist.com)

 

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