Question

Problem 2 (25 points). The Kankakee Bakery produces three types of cakes: birthday, wedding, and special occasion. The cakes are made from scratch and baked in a special cake oven. During the holiday season, the two month period from November through January 1, total demand for the cakes exceeds the capacity of the cake oven. The cake oven is available for baking 690 hours per month, but because of the size of the cakes, it can bake only one cake at a time. Management must determine how to ration the oven time among the three types of cakes. Information on costs, sales prices, and product demand are attached. Monthly fixed costs are $1,200 for fixed manufacturing overhead and $800 for fixed selling and administrative costs. REQUIRED: (1) (2) Calculate the contribution margin per cake for each type of cake. Show appropriate calculations. Calculate the contribution margin per hour of oven time for each cake. Show appropriate calculations. Round your answers for the hours per cake to three decimal places and the contribution margins per hour to three decimal places Calculate the number of each type of cake that the bakery should produce each month during the holiday season in order to maximize the company's profit. Show appropriate calculations for your answers. Compute the total income before taxes that the company will earn for the period November 1 through January 1 based upon your answers to (3) above. Show appropriate calculations.

Answer 1

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Kankakee Bakery
Contribution statement	Birthday	Wedding	Special
Sell Price	25.00	100.00	40.00	A
Less: Variable cost
Direct materials	5.00	30.00	10.00
Direct Labor	5.00	15.00	8.00
Variable Overhead	2.00	5.00	4.00
Variable selling expense	3.00	12.00	5.00
Total Variable cost	15.00	62.00	27.00	B
Contribution per cake	10.00	38.00	13.00	C=A-B	This is answer 1
Oven mins per cake	10.00	80.00	18.00	D
Contribution per minute	1.00	0.48	0.72	E=D/C
Contribution per hour of oven time	60.00	28.50	43.33	F= E*60	This is answer 2
Rank	1.00	3.00	2.00
Answer 3
Oven hours available		690.00	G
Demand for Birthday cake	2,000.00		H	Birthday cake has highest contribution per hour so it should be made first.
Oven hours for Birthday cake		333.33	I=H*D/60
Oven hours available		356.67	J=G-I
Demand for Special Cake	720.00		K	Special cake has second highest contribution per hour so it should be made after Birthday cake.
Oven hours for Special Cake		216.00	L=K*D/60
Oven hours available		140.67	M=J-L		Bitmap Bitmap Bitmap Bitmap Bitmap Bitmap Bitmap Bitmap Bitmap Bitmap Bitmap Bitmap Bitmap Bitmap Bitmap Bitmap Bitmap Bitmap
Oven mins per Wedding cake		80.00	N
Number of Wedding cake		105.50	O=M/N*60	As wedding cake has lowest contribution per hour so in the remaining oven time wedding cake should be made.
Answer 4
Income statement	Birthday	Wedding	Special	Total
Sell Price	25.00	100.00	40.00
Less: Variable cost
Direct materials	5.00	30.00	10.00
Direct Labor	5.00	15.00	8.00
Variable Overhead	2.00	5.00	4.00
Variable selling expense	3.00	12.00	5.00
Total Variable cost	15.00	62.00	27.00
Contribution per cake	10.00	38.00	13.00		See C
Number of cakes made each month	2,000.00	105.50	720.00		See Answer 3
Total Contribution	20,000.00	4,009.00	9,360.00	33,369.00	P
Less: Fixed cost
Fixed Manufacturing Overhead				1,200.00
Fixed selling expense				800.00
Net Income each month				31,369.00	Q
Net Income for 2 months (November 1 to January 1)				62,738.00	R=Q*2