The Eastwood Cake Factory sells chocolate cakes, birthday decorated cakes, and s
ID: 2476328 • Letter: T
Question
The Eastwood Cake Factory sells chocolate cakes, birthday decorated cakes, and specialty cakes. The factory is experiencing a bottleneck and is trying to determine which cake is more profitable. Even though the company may have to limit the orders that it takes, Eastwood is concerned about customer service and satisfaction.
Chocolate Cake
Birthday Cake
Specialty Cake
Sales price
$20.00
$45.00
$60.00
Variable cost per cake
$5.00
$12.00
$20.00
Hours needed to bake, frost, and decorate
1 hour
2.5 hours
2 hours
(a.) Calculate the contribution margin per hour per cake.
(b.) Determine which cakes the company should try to sell more of first, second, and then last.
Chocolate Cake
Birthday Cake
Specialty Cake
Sales price
$20.00
$45.00
$60.00
Variable cost per cake
$5.00
$12.00
$20.00
Hours needed to bake, frost, and decorate
1 hour
2.5 hours
2 hours
Explanation / Answer
Statement showing computations Particulars Chocolate Cake Birthday Cake Speciality Cake Sales Price 20.00 45.00 60.00 Variable Cost per Cake 5.00 12.00 20.00 Contribution per cake = Sales Price - Variable cost 15.00 33.00 40.00 Hours Required 1.00 2.50 2.00 Contribution per hour = Contribution/Hours reqd 15.00 13.20 20.00 Ranking 2.00 3.00 1.00 Company should try to sell Speciality cake with top priority then Chocolate cake and the Birthday cake
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