In response to a growing awareness of gluten allergies, Ivanhoe 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: Chocolate Chip Sugar Oatmeal Raisin Sales price $130.00 $110.80 $128.70 Variable cost $81 $63 $87 Fixed cost 19 16 20 Total cost 100.00 79.00 107.00 Gross profit $30.00 $31.80 $21.70 Pounds of flour 2 2 1.5
Chocolate Chip | Sugar | Oatmeal Raisin | |
Selling price per unit (i) | 130.00 | 110.80 | 128.70 |
Variable cost per unit (ii) | -81.00 | -63.00 | -87.00 |
Contribution margin (iii) = (i)- (ii) | 49.00 | 47.80 | 41.70 |
Pounds per flour (iv) | 2.00 | 2.00 | 1.50 |
Contribution margin per pound (iii)/(iv) | 24.50 | 23.90 | 27.80 |
Since contribution margin per pound of flour is highest for Oatmeal Raisin, hence from the available flour, only Oatmeal Raisin should be produced.
Quantity of flour available = 35,850 pounds
Pound per unit of Oatmeal raisin = $1.5
Production of Oatmeal Raising = Quantity of flour available / Pound per unit of Oatmeal raisin
= 35,850/1.5
= 23,900 units
Batches | |
Chocolate Chip | 0 |
Sugar | 0 |
Oatmeal Raisin | 23,900 |
Contribution margin per batch of Oatmeal Raisin = $41.7
Total batch of oatmeal = 23,900
Total contribution margin = Contribution margin per batch of Oatmeal Raisin x Total batch of oatmeal
= 41.7 x 23,900
= $996,630
The company's contribution margin = $996,630
Kindly comment if you need further assistance. Thanks‼!
In response to a growing awareness of gluten allergies, Ivanhoe Bakery tried using gluten-free flour in...
Exercise 8-15 In response to a growing awareness of gluten allergies, Outland 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: Chocolate Chip $130.00 $81 Sugar $125.00 $86 Oatmeal Raisin $120.00 $78 Sales price Variable cost Fixed cost Total cost Gross profit Pounds of flour 99.00 101.00...