In response to a growing awareness of gluten allergies, Cullumber Bakery tried u
ID: 2561484 • Letter: I
Question
In response to a growing awareness of gluten allergies, Cullumber Bakery tried using gluten-free flour in its three most popular cookies. After several attempts and a lot of inedible cookies, the company perfected new recipes that yield delicious gluten-free cookies. The costs of producing a batch of 100 cookies are as follows:
1. Assuming no raw material constraints and unlimited demand for cookies, calculate contribution margin per batch for Chocolate Chip, Sugar, Oatmeal Raisin cookies. (Round answers to 2 decimal places, e.g. 52.75.)
Chocolate Chip
Sugar
2. Assume that, based on typical customer demand, Cullumber will sell 13,200 batches of chocolate chip cookies, 9,200 batches of sugar cookies, and 11,200 batches of oatmeal raisin cookies. What will the company’s contribution margin be?
The company’s contribution margin $
3. Cullumber’s flour supplier has announced a shortage of gluten-free flour. As a result, Cullumber will only be able to purchase 43,200 pounds of flour.
How many batches of each type of cookie should the company bake?
What will the company’s contribution margin be?
$ ?
If Cullumber uses gluten-free flour in other products, will the allocation you recommend in part (c) change?
Cookies Contribution MarginChocolate Chip
Sugar
Oatmeal Raisin What type of cookie would maximize the company’s contribution margin? Oatmeal Raisin $128.10 $87 21 108.00 $20.10 1.5 Chocolate Chip Sales price Variable cost Fixed cost Total cost Gross profit Pounds of flour $128.40 $80 16 96.00 $32.40 2 Sugar $109.80 $62 16 78.00 $31.80 2Explanation / Answer
1) Chocolate Chip Sugar Oatmeal Raisin Sales price per batch 128.40 109.80 128.10 Variable cost per batch 80.00 62.00 87.00 Contribution margin per batch 48.40 47.80 41.10 Chocolate chip cookies will maximise the company's contribution margin. 2) Total contribution margin = 13200*48.40+9200*47.80+11200*41.10 = $ 1,538,960 3) As the flour is in short supply the contribution margin per pound of flour is to be maximised. Chocolate Chip Sugar Oatmeal Raisin Contribution margin per batch 48.40 47.80 41.10 Pound of flour needed for 1 batch 2.0 2.0 1.5 Contribution margin per pound 24.2 23.9 27.4 As Oatmeal raising gives the maximum contribution per pound of flour, it will be producted to the maximum extent possible; that is upto 11200 batches (as per the demand schedule given under (2) above; next would be Chocolate chip and the last preference will be for Sugar. 11200 batches of oatmeal raising will require 11200*1.5 = 16800 pounds of flour 13200 batches of Chocolate chip will require 13200*2 = 26400 pounds of flour Balance flour available = 43200-16800-26400 = 0 Therefore there wont by any flour available for Sugar. Hence, the number of batches for each type of cookie that the company should bake is: Chocolate Chip 13200 Sugar 0 Oatmeal Raisin 11200 Company's contribution margin = 13200*48.40+11200*41.10 = $ 1,099,200 If Cullumber uses gluten-free flour in other products, will the allocation you recommend in part (c) change? Yes, it will change as the contribution margin per pound of flour for other products would also have to be reckoned to take a decision.
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