Question

The Seafood Galore is a take-out food store at Banana Beach Resort. Mildred Sibanyoni, owner of Seafood Galore, is deciding how much refrigeration space to devote to four different cool drinks. Pertinent data on these four cool drinks are as follows:

Coke
Fanta
Schweppes
Orange Juice

Selling price per case
R18.75
R20.50

R27.75
R39.30

Variable cost per case
R13.75
R15.60
R20.70
R30.40

Cases sold per m² of shelf space per day
22
12
6
13

Mildred has a maximum front shelf space of 12 m² to devote to the four cool drinks. She want a minimum of 1 m² and a maximum of 6m² of front shelf space for each cool drink.

Required:

4.1 Calculate the contribution margin per case of each type of cool drink.

4.2 A co-worker of Mildred recommends that she maximise the shelf space devoted to those cool drinks with the highest contribution margin per case. Evaluate this recommendation.

4.3 What shelf space allocation for the four cool drinks would you recommend for the Seafood Galore? Show your calculations.

Answer 1

Coke Fanta Schweppes 4.1 Selling price per case Variable cost per case Contribution per Case 18.75 13.75 5.00 Less: 20.50 15.60 4.90 27.75 20.70 Orange Juice 39.30 30.40 8.90 7.05 4.2 5.00 4.90 7.05 8.90 Contribution per Case Multiply: Cases sold per m² of shelf space per day Total Contribution per m2 of shelf space per day 6 22 110 12 58.8 13 115.7 42.3 Recommendation of co-worker needs to be examined because however cooldrink may have lower contribution per case but aggregate number per day unit sold is relatively higher than that of the cool drink with higher contribution margin per case. In above case highest contribution margin per case is highest for "Coke - R8.90" and Total Contribution per m² of shelf space per day is also highest - R115.7, hence recommendation is viable. 4.3 to allocate shelf space, let us rank the all 4 cool drinks based on Total Contribution per m2 of shelf space per day Coke Fanta Schweppes Orange Juice 115.7 Total Contribution per m² of shelf space per day Rank 110 2 58.8 3 42.3 4 Now, minimum shelf space and maximum shelf space required pre cool drink is respectively 1 m² and 6m2 we will try to allocate maximum space to those which have highest Total Contribution per m2 of shelf space per day and will allocate lowest shelf space to those wich earns lower Total Contribution per m2 of shelf space per day Coke Fanta Schweppes Total Total Contribution per m2 of shelf space per day Rank Orange Juice 115.7 1 110 2 4m? 58.8 3 42.3 4 1m2 1m2 6m2 12m2

***********************************************************************************************************************************

Please like if you got your query solved, reach back to us via comment if any query to understand. All the Best!