Ms. E runs a business that packages various fresh and dried herbs under contract to restaurants across a broad geographical area. Her business found a niche with specialized restaurants that promote their brand of imaginative cuisine using fresh ingredients. Ms. E’s business recently gained attention in a broader market for the variety and quality of the ingredients. As a result, the business is experiencing much greater demand, pushing current capacity to their limits.
Ms. E reached out to the head of operations for alternative investment plans for meeting rising demand, while still meeting quality standards. Additionally, Ms E requested that the investment alternatives clarify the components of costs in terms of fixed investment and variable costs, and to further address the marginal revenue needed to make a positive contribution margin.
Assuming yourself to be the head of operations, exploring the outlines of the different alternatives that utilize only variable costs, or only fixed costs, or a mix of variable and fixed costs.
Explain the approach for determining the contribution margin.
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