Question

3. A small school desires to earn $10,000 for a new playground. They are considering the following two projects. Cost Information Project A - Candy Bar Sale $ 800.00 Cost for Advertising $ 25.00 Cost for Secretarial Support $ 100.00 Cost for party to the winning class $ 0.75 Cost per candy bar $ 0.10 Cost per candy bar for incentive prizes The bars sell for $2.00 per bar. Project B-Cookie Sale $ 0.00 Cost for Advertising* $ 25,00 Cost for Secretarial Support $100.00 Cost for party to the winning class $ 4.00 Cost per box of cookies $ 0.125 Cost per box of cookies for incentive prizes Advertising is provided by supplier The cookies sell for $6 per box. (1) For each project, compute the number of items that must be sold to earn the desired profit. (2) Recommend on project and explain your answer. Identify other information you would obtain to improve the quality of your decision

Answer 1

please see the answer in attachment for part A

part(a) Project A Project B Fixed cost : advertising cost cost for secetarial support cost for party to winning class 800 100 25 Fixed cost : advertising cost cost for secetarial support cost for party to winning class 100 Total fixed cost $925 Total fixed cost $125 Variable cost: cost per candy bar cost per candy bar for incentive prizes 0.75 0.1 Variable cost: cost per cookie box cost per cookie boxfor incentive prizes 0.125 Total Variable cost 0.85 4 125 sale price per candy less variable cost Contribution margin per candy 2 -0.85 1.15 sale price per box of cookie less variable cost (c) Contribution margin per box of cookie -4.125 1.875 Desired profit fixed cost desired Contibution margin $10,000 $925 Desired profit Fixed cost (d) desired Contibution margin $10,000 $125 10125 (b) $10,925 9,500 sales unit to earn desired contribution sales unit to earn desired contribution bla 10925/1.15 sales unit to earn desired contribution 5,400 sales unit to earn desired contribution dio 10125/1.875 units needed to earn profit of $ 10000 units needed to earn profit of $10000 5400 Sales = variable cost + contibution margin Contibution Margin = Fixed cost + gross Margin

In above answer Advertising cost of project b is beared by supplier , and common cost of project a and b are considered as fixed cost

Part (b) as per the evaluation of part (a) answer we see that fixed cost of project A is $925 , where as for project B is $ 125 ,

which shows that if no sales are there then project A will have to bear loss of $ 925 of fixed cost and project B is $125 ,

so we should select the project which has less fixed cost , in this case we should select project B which has $125 ,

If we see the contribution margin per unit then project A has $1.15 and project B has $1.875 , so project B should be selected for Better Gross margin

As we have to earn $ 10000 , we should select project which has higher gross margin per unit and less fixed

So project B has both higher contribution margin and less fixed cost so we should select project B

Every project selected in multiple factors first we see , fixed cost while selecting the project , in this case we have used the common cost beared by both project A & B as fixed cost , if these cost are variable cost then the answer might change as variable cost totally depends on number of unit sold ,.