Question

Nutty Nuts Company produces three nut mixers: Regular, Deluxe and Holiday. Currently Nutty Nuts has purchased the following shipments of nuts at the prices shown

Type of Nut Shipment Amount (lbs) 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 nuts, the Holiday Mix consists of 25% almonds, 15% Brazil nuts, 15% filberts, 25% pecans, and 20% walnuts. Nutty Nuts’ accountant analyzed the cost of packaging materials, sales price per pound, and so forth, and determined that the profit contributions per pound is $1.65 for the Regular Mix, $2.00 for the Deluxe Mix, and $2.25 for the Holiday Mix. These figures do not include the cost of specific types of nuts in the different mixes because that cost can vary greatly in the commodity markets. Nutty Nuts already received orders of 10,000 pounds of Regular Mix, 3000 pounds of Deluxe Mix and 5000 pounds of Holiday Mix.

Because demand is running high, Nutty Nut expects to receive many more orders than can be satisfies. Nutty Nuts is committed to using the available nuts to maximize profit over the fall season; nuts not used will be given to the Free Store. Even if it is not profitable to do so, Nutty Nut president indicated that the orders already received must be satisfied. Managerial Report Perform analysis of Nutty Nuts’ product mix problem, and prepare a memo (no more than 2 pages) for Nutty Nuts’ president that summarizes your findings and recommendations. In the Appendix, be sure to include your analysis on the following:

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. Recommendations regarding how the total profit contribution can be increased if additional quantities of nuts can be purchased

4. A recommendation as to whether Nutty Nuts 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 Nutty Nut does not satisfy all existing orders.

Answer 1

Answers:

1) The cost per pound of the nuts included in the Regular Mix, Deluxe Mix, and Holiday Mix is as follows:

Particulars	Shipment Amount (pounds)	Cost per Shipment ($)	Cost per pound
Almond	6000	$       7,500.00	$                   1.25
Brazil	7500	$       7,125.00	$                   0.95
Filbert	7500	$       6,750.00	$                   0.90
Pecan	6000	$       7,200.00	$                   1.20
Walnut	7500	$       7,875.00	$                   1.05

.

Statement for cost per pound
	Regular Mix	Deluxe mix	Holiday Mix
	%	Amount	%	Amount	%	Amount
Almond	15%	$       0.19	20%	$       0.25	25%	$       0.31
Brazil	25%	$       0.24	20%	$       0.19	15%	$       0.14
Filbert	25%	$       0.23	20%	$       0.18	15%	$       0.14
Pecan	10%	$       0.12	20%	$       0.24	25%	$       0.30
Walnut	25%	$       0.26	20%	$       0.21	20%	$       0.21
Total	100%	$       1.03	100%	$       1.07	100%	$       1.10

.

2) The optimal product mix and the total profit contribution are as follows :

Product	Number of Units	Contribution per unit	Total Contribution
Regular Mix	17500	$ 1.65	$ 28,875
Deluxe mix	10625	$ 2.00	$ 21,250
Holiday Mix	5000	$ 2.25	$ 11,250
Total	33125		$ 61,375

3) If additional quantities of nuts can be increased, then optimal production mix =

Product	Number of Units	Contribution per unit	Total Contribution
Regular Mix	41500	$ 1.65	$ 68,475
Deluxe mix	3000	$ 2.00	$ 6,000
Holiday Mix	5000	$ 2.25	$ 11,250
Total	49500		$ 85,725

Therefore, profit gets increased by $ 85,725 - $ 61,375 = $ 24,350

4) If 1000 pounds of almonds are purchased at $ 1000, then profit would be:

Product	Number of Units	Contribution per unit	Total Contribution
Regular Mix	11666	$ 1.65	$ 19,248.90
Deluxe mix	17917	$ 2.00	$ 35,834.00
Holiday Mix	5000	$ 2.25	$ 11,250.00
Total	34583		$ 66,332.90
Less: Cost of additional units of Almond	$ 1,000.00
Profit	$ 65,332.90

Therefore, additional profit = $ 65,332.90 - $ 61,375 = $ 4,957.90

5) If all orders does not need to be satisfied then optimal mix would be :

Product	Number of Units	Contribution per unit	Total Contribution
Regular Mix	15000	$ 1.65	$ 24,750
Deluxe mix	18750	$ 2.00	$ 37,500
Holiday Mix	0	$ 2.25	$ 0
Total	33750		$ 62500

Therefore, additional profit = $ 62,500 - $ 61,375 = $ 875