Question

In response to a growing awareness of gluten allergies, Carla Vista Bakery tried using gluten-free flour in its three most popular cookies. After several attempts and a lot of inedible cookies, the company perfected new recipes that yield delicious gluten-free cookies. The costs of producing a batch of 100 cookies are as follows:

		Chocolate Chip				Sugar				Oatmeal Raisin
Sales price			$129.20				$111.00				$131.60
Variable cost			$80				$63				$89
Fixed cost			19				16				19
Total cost			99.00				79.00				108.00
Gross profit			$30.20				$32.00				$23.60
Pounds of flour			2				2				1.5

Assuming no raw material constraints and unlimited demand for cookies, calculate contribution margin per batch for Chocolate Chip, Sugar, Oatmeal Raisin cookies. (Round answers to 2 decimal places, e.g. 52.75.)

Cookies		Contribution Margin
Chocolate Chip		$Enter a dollar amount rounded to 2 decimal places
Sugar		$Enter a dollar amount rounded to 2 decimal places
Oatmeal Raisin		$Enter a dollar amount rounded to 2 decimal places

What type of cookie would maximize the company’s contribution margin?

Select a type of cookie                                                                      SugarChocolate ChipOatmeal Raisin

  

  

Assume that, based on typical customer demand, Carla Vista will sell 12,700 batches of chocolate chip cookies, 8,700 batches of sugar cookies, and 10,700 batches of oatmeal raisin cookies. What will the company’s contribution margin be?

The company’s contribution margin

$Enter the company’s contribution margin in dollars

  

  

Carla Vista’s flour supplier has announced a shortage of gluten-free flour. As a result, Carla Vista will only be able to purchase 41,450 pounds of flour.

How many batches of each type of cookie should the company bake?

		Batches
Chocolate Chip		Enter a number of batches
Sugar		Enter a number of batches
Oatmeal Raisin		Enter a number of batches

What will the company’s contribution margin be?

The company’s contribution margin

$Enter the company’s contribution margin in dollars

  

  

If Carla Vista uses gluten-free flour in other products, will the allocation you recommend in part (c) change?

Select an option                                                                      NoYes

Answer 1

	Choc chip	Sugar	Oatmeal raisin
Sales price	129.2	111	131.6
Variable cost	80	63	89
Fixed cost	19	16	19
Total cost	99	79	108
Gross profit	30.2	32	23.6
Pounds of flour	2	2	1.5
Cost of producing a batch of 100 cookies

Assuming no raw material constraints and unlimited demand for cookies, calculate contribution margin per batch for Chocolate Chip, Sugar, Oatmeal Raisin cookies. (Round answers to 2 decimal places, e.g. 52.75.)

Contribution margin is defined as price minus all variable costs. Contribution margin is incremental profit per product sold that takes cares of all fixed costs and balance amount available is profit

so contribution margin for chocholate chip = 129.2 - 80 = 49.20

Cookies	Contribution margin
Choc chip	49.20
Sugar	48.00
Oatmeal raisin	42.60

What type of cookie would maximize the company’s contribution margin?

From above, chocolate chip has the highest contribution margin and hence will maximize the company's contribution margin

Assume that, based on typical customer demand, Carla Vista will sell 12,700 batches of chocolate chip cookies, 8,700 batches of sugar cookies, and 10,700 batches of oatmeal raisin cookies. What will the company’s contribution margin be?

Total contribution margin = 12700X49.2 + 8700X48 + 10700X42.6 = 1,498,260

The company’s contribution margin

= $1,498,260

Carla Vista’s flour supplier has announced a shortage of gluten-free flour. As a result, Carla Vista will only be able to purchase 41,450 pounds of flour.
How many batches of each type of cookie should the company bake?

Let a,b,c be the no of batches of the three cookies to be baked

So, 2a + 2b + 1.5c <= 41450

Here a,b,c should be such that the overall contribution margin is maximised

The problem is formulated in excel as shown:

The solver screenshot is given below:

The solution obtained is given below:

So we will be making only 27,633 batched of oatmeal raisin cookies

The company's contribution margin here will be $1,177,166 which is basically 42.6X27,633

If Carla Vista uses gluten-free flour in other products, will the allocation you recommend in part (c) change?

Select an option                                                                      NoYes

No because to maximise contribution margin, the allocation will be as given earlier