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

a) Assuming no raw material constraints and unlimited demand for cookies, calculate contribution margin per batch for Chocolate Chip, Sugar, Oatmeal Raisin cookies. What type of cookie would maximize the company’s contribution margin?

b)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?

c) 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?

d) If Outland uses gluten-free flour in other products, will the allocation you recommend in part (c) change? Why or why not?

Answer 1

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