Question

The

Shell Hunter

is a​ take-out food store at a popular beach resort.

Samantha Jones​,

owner of the

Shell Hunter​,

is deciding how much refrigerator space to devote to four different drinks. Pertinent data on these four drinks are as​ follows:

Natural

Cola

Lemonade

Punch

Orange Juice

Selling price per case

$18.50

$20.75

$28.10

$39.30

Variable cost per case

$14.75

$16.30

$20.50

$30.40

Cases sold per foot of shelf space per day

7

12

13

14

has a maximum front shelf space of 12 feet to devote to the four drinks. She wants a minimum of 1 foot and a maximum of 6 feet of front shelf space for each drink.

1.

Calculate the contribution margin per case of each type of drink.

2.

A coworker of

Jones​'s

recommends that she maximize the shelf space devoted to those drinks with the highest contribution margin per case. Do you agree with this​ recommendation? Explain briefly.

3.

What​ shelf-space allocation for the four drinks would you recommend for the

Shell Hunter​?

Show your calculations.

Answer 1

Answer 1:-

	Natural	Cola	Lemonade	Punch
Selling Price per case	18.5	20.75	28.1	39.3
Variable Cost per case	14.75	16.3	20.5	30.4
Contribution Margin per case	3.75	4.45	7.6	8.9

Answer 2:- No we dont agree with the recommendation of Jones's co worker since we should take decision on the basis of Highest Contribiution Margin per foot of shelf space per day and not just on the basis of Highest Contibution Margin per case .

	Natural	Cola	Lemonade	Punch
Contribution Margin per case (A)	3.75	4.45	7.6	8.9
Ranking	4	3	2	1
Cases sold per foot of shelf space (B)	7	12	13	14
Contribution Margin per foot of shelf space per day (A) * (B)	26.25	53.4	98.8	124.6
Ranking	4	3	2	1

Answer 3: Recommended shelf space allocation for the four drinks for Shell Hunter:-

	Ranking	Shelf Space Allocation (in foots)
Natural	4	6	Maximum
Cola	3	4
Lemonade	2	1	Minimum
Punch	1	1	Minimum
Total		12