Question

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 Oatmeal Raisin Sugar 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 1.5 N N

Answer 1

	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‼!