Question 4.3 Rolling in Dough current produces 540 units of standard bread and 130 units of...

Question 4.3

Rolling in Dough current produces 540 units of standard bread and 130 units of gluten-free bread per day. The capacity of Rolling in Dough is 720 units. Thus, it has the capacity to produce and additional 50 units of bread per day. A client has requested 100 units of a special seed blend for use in their restaurant with a selling price of $9.75 per unit and variable costs of $4.50 per unit. Based on this information, should Rolling in Dough accept the order if

 They may accept as much or as little of the 100 units they want

 Must provide all 100 units of the bread.

1. Use the information provided to complete the necessary calculations.

2. Make a recommendation for Rolling in Dough with full justification.

Expert Solution

1. They may accept as much or as little of the 100 units they want :

Contribution of the special bread = 9.75 - 4.5 = $5.25

If the "Rolling in Dough" has present contribution of Higher than $5.25, then 50 units of the special bread can be accepted.

If the "Rolling in Dough" has present contribution of Lower to $5.25, then whole 100 units of the special bread can be accepted.

2) Justification:

If the special order is contributing less towards the fixed cost, than the company should accept the unutilised capacity of 50 units only. By doing so, the company is adding on to its income.

If the special order is contributing more towards fixed cost than the contribution margin in company is having with standard and gluten-free bread, then it would be better to accept the complete 100 units order. Thus, adding additional income to the overall income because special bread to providing more contribution per unit.

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ekkarill92 answered 1 year ago

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