I believe there is a detail overlooked on the case information. It is mentioned that indirect costs per unit remain constant. As this is an allocated metric it must mean that indirect costs have increased (to maintain the same cost per unit with an increased ammount of units sold). As this business has a considerable portion of indirect costs (33%) those indirect costs could also be playing a role on profit margin decline (on top of the effect of selling more of a less profitable product).
Shouldnt we be expected to at least ask about what are the changes on indirect costs to evaluate if any low hanging fruits there could also help to bring profit margins back up?
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