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    Increase the organization's operating income

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    Could you please help me to understand these concepts:
    Explain how producing more products that can be sold in a period can increase the organization's operating income. Is this a sustainable tactic to increase the organization's operating income? Would this happen in a service type company or is it an issue only in manufacturing companies? Explain.

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    Solution Preview

    Selling more products can lead to an additional contribution margin which can increase the profit of the organization. The contribution margin is the difference between the sales and the variable cost. Hence, if additional sales are yielding positive contribution margin then only extra sales should be done. On the other hand, if the contribution margin is negative then it doesn't make sense to sell and produce additional products. The contribution margin per unit is the difference between the revenue and the variable ...

    Solution Summary

    This solution explains how producing more products that can be sold in a period can increase an organization's operating income. Additionally, the solution comments on this tactic. The solution includes the link to one source for further research of the topic.