Question

Yumminess has asked Jordon and Taylor to consider making Extra Attack Brownies and Nutty Attack Brownies, in addition to Chocolate Attack Brownies. The selling price to Yumminess would be $12 and $14.50 per tin, respectively, compared to the original $10 for Chocolate Attach Brownies. In addition to the current fixed common cost of $79,000, you have figured the additional costs to manufacture each new recipe. For 50,000 tins of Extra Attack Brownies, additional variable costs would be $75,000. For 20,000 tins of Nutty Attack Brownies, additional variable costs would be $100,000. Remember that the contribution margin for Chocolate Attack Brownies per tin is $1.995

Answer questions 1 and 2 as a sell now or process further scenario. Question 3 is sales mix with a weighted-average contribution margin.

1. What would be the incremental income/loss per tin for manufacturing Extra Attack Brownies? (If a net loss, use “( )” or “-“ in your answer.) (4 points)

2. What would be the incremental income/loss per tin for manufacturing Nutty Attack Brownies? (If a net loss, use “( )” or “-“ in your answer.) (4 points)

3. If Jordan and Taylor sold 100,000 tins of Chocolate Attach Brownies, 70,000 tines of Extra Attack Brownies, and 30,000 tins of Nutty Attack Brownies to Yumminess, what would be the weighted-average contribution margin per tin. (7 points)

Answer 1

Solution 1:

Incremental price per tin for extra attack brownies = $12 - $10 = $2 per tin

Incremental cost per tin for extra attach brownies = $75,000 / 50000 = $1.50 per tin

Incremental income / (Loss) per tin for extra attack brownies = $2 - $1.50 = $0.50 per tin

Solution 2:

Incremental price per tin for Nutty attack brownies = $14.50 - $10 = $4.50 per tin

Incremental cost per tin for Nutty attach brownies = $100,000 / 20000 = $5 per tin

Incremental income / (Loss) per tin for extra attack brownies = $4.50 - $5 = ($0.50) per tin

Solution 3:

Contribution margin per tin for choclate attack brownie = $1.995

Contribution margin per tin for Extra attack brownie = $1.995 + $0.50 = $2.495

Contribution margin per tin for Nutty attack brownie = $1.995 - $0.50 = $1.495

Total unit sold = 100000 + 70000 + 30000 = 200000 tin

Weighted average contribution margin per tin = ($1.995 * 100000/200000) + ($2.495 * 70000/200000) + ($1.495 * 30000/200000)

= $0.9975 + $0.87325 + $0.22425 = $2.095 per tin