A doughnut shop makes three basic types of doughnuts: cream filled, chocolate filled, and jam filled. The doughnut shop manager is analyzing the product mix and has collected the following information:
| Chocolate Filled |
Cream Filled |
Jam Filled |
|
| Sales price per dozen | $ 4.00 | $ 3.00 | $ 2.50 |
| Direct cost per dozen | (2.10) | (0.90) | (2.00) |
| Fixed overhead per dozen | (0.40) | (0.50) | (1.00) |
| Profit per dozen | $ 1.50 | $ 1.60 | (0.50) |
The fixed costs are unavoidable and are allocated to each doughnut type based on the quantity produced. The doughnut shop has excess capacity.
Required:
-
Which product should the doughnut shop promote if the promotion will result in an increase in sales of 50 dozen of the promoted product?
-
Should the jam-filled doughnuts be dropped from the product line? Why or why not?
-
How does the decision to drop the jam-filled doughnuts change if the shop is currently producing at capacity?
Homework Answers
,1
| Chocolate Filled | Cream Filled | Jam Filled | |
| Sale price per dozen | $4 | $3 | $2.50 |
| Direct cost per dozen | (2.10) | (0.90) | (2.00) |
| CM per dozen | $1.9 | $2.1 | $0.5 |
The shop should promote Cream Filled doughnuts if the promotion would increase sales by 50 dozen.
1. No, the jam-filled doughsnuts should not be dropped as Fixed overhead cost allocated to jam filled is unavoidable and will continue to be incurred by shop even if jam-filled doughnuts is dropped from product line.
2. No.
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