Question

The Seashore Stand (SS) is a take-out food store at a popular beach resort. Susan Sexton, owner of SS, is deciding how much refrigerator space to devote to four different drinks. Pertinent data on these four drinks are as follows:

	Cola	Lemonade	Punch	Natural Orange Juice
Selling Price per case	$16.25	$24.30	$20.50	$38.40
Variable Cost per case	11.10	18.30	16.00	29.60
Cases sold per foot of shelf space per day	25	5	13	14

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

REQUIRED:

1. Calculate the Contribution Margin for each type of drink
2. A coworker of Sexton’s recommends that she maximize the shelf space devoted to those drinks with the highest contribution margin per case. Evaluate this recommendation.
3. What shelf space allocation for the four drinks would you recommend for Seashore Stand? Support all calculations and recommendations.

Answer 1

Solica) X 1n I Statement Showing Contribution Margin Per Case of each drink Particular's Cola Lemonade Punch Natural Orange Juice - Selling Price per Case | $16.25 | $24.30 | $20.50 1 $38.40 lesso-Variable Cast ber Case $(11.10) $(18.30) | $(16.00)| $(29.60) _Contribution Martin Per Case $5.15 | $6.00 $4.50 $8.80

Sol. (B) Particulars. Cola Lemonade Punch Natural Orange Juice $6.00 $4.50 $8.80 A. Contribution Margin per Case | $ 5.15 B. Saules (alumber of Case) Perfoot of Shelf space Perday Il 25 6. Daily Contribution per fook of front Shelf Space (AⓇB)] $128.75 5 | 13 | 14 $30.00 $58.50 | $123.20 m The argument fails to gecognize that shelf space is the constraining factor nu There are only 12 feet of front shred of space to be devoted to drinks. Sexton should aim to get the highest daily Contribution Margin per foot of front Shelf space. Sol.cco The Allocation that maximizes the from drink Sailes is - bution Type of doinfi's Cola Natural Orange Juice lunch Lemonade Feet of Daily Contributions to trail Courribution Shelf Space Perfoot of front Margin Per Day. | Shelf space $128.75 $712.50 $123.20 $492.80 $58.50 $ 58.50 $ 30.00 $ 30.00 $1353.80

The maximum of 6 feet of frout shelf Space will be devoted to cola because it has the highest Contribution Margin per unit of the Constraining factor. Four (4) feet of front shelf space will be devoted to Natural Orange Juice, which has the second highest Contribution margin per Unit of the Constrewning factor. No more Shelt space Cambe devoted to Naturoul Orange Juice because Minimum one feet of Frout Shelf space will devoted to each type of drink.