Question

Lovejoy's Cake Shop makes three types of cakes: White, Chocolate, and, Swirl on one assembly line that has a limit of 400 labour-hours per week. Lovejoy can sell all the cakes it can make under current operating capacity. Manufacturing information per cake for each product is as follows:

                                         White     Chocolate        Swirl

Selling price                       $16            $10               $20

Variable costs                      10                5                 18

Labour-hours per cake         .4               .2                  .4

Required:

Determine the total weekly contribution margin when all labour-hours are allotted to the product with the highest:

a.   Unit selling price.

b.   Unit contribution margin.

c.   Contribution per labour-hour.

d.    Assume we have 400 labour hours of capacity and demand as follows White-500; Chocolate-600; & Swirl 700. If we should produce at least half of the demand of each product; how should the 400 hours be allocated?

Answer 1

Req 1.
Contribution margin per unit and per DLH
			White	Chocolate	Swirl
Selling price		16	10	20
Less: variable cost per unit	10	5	18
Unit contribution margin	6	5	2
Divide: DLH used per unit	0.4	0.2	0.4
Contribution per DLH	15	25	5
Rank			Second	First	Third
a. Highest unit selling price (Swirl)
Total Labour hours available		400
Divide: Hours required per unit of Swirl	0.4
Units of Swirl produced		1000
Multiply: Unit contribution margin of Swirl	2
Weekly contribution margin		2000
b. Highest Unit contribution margin (White)
Total Labour hours available		400
Divide: Hours required per unit of White	0.4
Units of White produced		1000
Multiply: Unit contribution margin of White	6
Weekly contribution margin		6000
c. Highest Contribution per DLH (Chocolate)
Total Labour hours available		400
Divide: Hours required per unit of Chocolate	0.2
Units of Chocolate produced		2000
Multiply: Unit contribution margin of Chocolate	5
Weekly contribution margin		10000
Req d.
			White	Chocolate	Swirl	Total
Maximum demand		500	600	700
Minimum demand to be met	250	300	350
Multiply: Hours required per unit	0.4	0.2	0.4
Total Hours		100	60	140	300
Total available hours					400
Remaining Hours					100
Remaining hours utilized	40	60		-100
Total Hours utilized		140	120	140	400
		Labour hours allocated
White		140
Chocolate	120
Swirl		140