Question

On I-5, you see the bright pink Almond Roca sign. You know they produce Almond Roca, but you wonder if they have ever thought about Brazil Roca, or Cashew Roca! You think these would be delicious, and you aren’t really an almond fan.

Industry Background

Candy has been a part of our world for thousands of years. The first candy was made from honey. It was reserved, as were most good things, for the wealthy for a long time. In the Industrial Revolution, candy started to be more widely available. Latest figures place candy sales at $118 billion world-wide.

There are about 100 different candy manufacturers in the US, both large and small, from Mars, Inc. which is the 6^th largest company in the US with $33 billion in sales; to local Almond Roca, with an estimated $50 million in sales.

Current Issues

One of the biggest issues facing this company is the rise in prices of raw materials, especially the iconic almond, which due to drought in California, has seen a price rise in recent years (although market forces are starting to correct for this).

In order to diversify their product, Almond Roca, Inc., has started to expand its repertoire to including other nuts, such as cashews and macadamia nuts. They are considering expanding to even more types of nuts, even mixed nuts!

Part 1 – Manufacturing Methods

Almond Roca is considering three nut mixes for inclusion in a new product line, Mixey Nuts!: Regular Mix, Deluxe Mix, and Holiday Mix. Each mix is made from 5 nuts, in different combinations.

Type of Nut	Shipment Amount (pounds)	Cost per Shipment
Almond	6000	$7500
Brazil	7500	$7125
Filbert	7500	$6750
Pecan	6000	$7200
Walnut	7500	$7875

The Regular Mix consists of 15% almonds, 25% Brazil nuts, 25% filberts, 10% pecans, and 25% walnuts. The Deluxe Mix consists of 20% of each type of nut.

The Holiday Mix consists of 25% almonds, 15% Brazil nuts, 15% filberts, 25% pecans, and 20% walnuts.

An accountant at Almond Roca, Inc., analyzed the cost of packaging materials, sales price per pound, etc, and determined that the profit contribution per pound is $1.65 for the Regular Mix, $2.00 for the Deluxe Mix, and $2.25 for the Holiday Mix. The price of the nuts can vary from month to month.

The estimate the customer orders for the different types to be as follows:

Type of Mix	Orders (pounds)
Regular	10,000
Deluxe	3,000
Holiday	5,000

The president of Almond Roca wants to commit to these a minimum, even if not immediately profitable, in order to introduce these new mixes to the market.

Report:

Summarize this problem, and discuss the following topics, in a Word Document:

1.     The cost per pound of the nuts included in the Regular, Deluxe, and Holiday mixes.

2.     The optimal product mix and the total profit contribution.

3.     Recommendation regarding how the total profit contribution can be increased if additional quantities of nuts could be found.

4.      A recommendation as to whether Almond Roca should purchase an additional 1000 pounds of almonds for $1000 from a supplier who overbought.

5.      Recommendations on how profit contribution could be increased (if at all) if Almond Roca does not satisfy the minimums listed above.

Answer 1

Calculation of Price of nuts per pound

1. Almond =    7500/6000 = $1.25/pound

2. Brazil =        7125/7500 = $0.95/pound

3. Filbert =      6750/7500= $0.9/pound

4. Pecan =      7200/6000= $1.2/pound

5. Walnut=      7875/7500= $1.05/pound

Calculation of cost of Mixes, assuming one mix of 1 pound.

1. Regular Mix: 15% almonds+25% Brazil nuts,+25% filberts+10% pecans+25% walnuts

                        = (0.15*$1.25) + (0.25*$0.95) + (0.25*$0.9) + (0.1*$1.2) + (0.25*$1.05)

                        = $0.1875 + $.2375 + $0.225 + $0.12 + $0.2625

                        = $1.0325

2. Deluxe Mix:   20% of each type of nuts.

                        = (0.2*$1.25) + (0.2*$0.95) + (0.2*$0.9) + (0.2*$1.2) + (0.2*$1.05)

                        = $0.25 + $0.19 + $0.18 + $0.24 + $0.21

                        = $1.07

3. Holiday Mix: 25% almonds, 15% Brazil nuts, 15% filberts, 25% pecans, and 20% walnuts

                        = (0.25*$1.25) + (0.15*$0.95) + (0.15*$0.9) + (0.25*$1.2) + (0.2*$1.05)

                        = $0.3125 + $0.1425 + $0.135 + $0.3 + $0.21

                        = $1.1

Calculation of total profit contribution

Regular Mix: 10,000 * $1.65 = $16,500

Deluxe Mix: 3,000 * $2 = $6000

Holiday Mix: 5000 * $2.25 = $11,250

3. The additional quantity of nut will help in increasing production and meeting the customer demand on time with the quality product. the apparent increase in sale help in meeting the fixed cost as early as possible and contributing to the profit.

4. As we can see, the almonds are supplied 1000 pounds for $1000 which is less than earlier price. Almond Roca should purchase the additional almonds.

5. If Almond Roca does not satisfy the minimums listed above, then it should reduce the production.