Question

The Wave Crave is a​ take-out food store at a popular beach resort. Juliaa Jones​, owner of the Wave Crave​,

is deciding how much refrigerator space to devote to four different drinks. Pertinent data on these four drinks are as​ follows:

Jones

has a maximum front shelf space of 12 feet to devote to the four drinks. She wants a minimum of 1 foot and a maximum of 6 feet of front shelf space for each drink.Read the requirements

				Natural
	Cola	Lemonade	Punch	Orange Juice
Selling price per case	$19.10	$20.25	$27.30	$39.40
Variable cost per case	$14.00	$16.40	$20.50	$30.50
Cases sold per foot of shelf space per day	25	4	6	23

.

Requirement 1. Calculate the contribution margin per case of each type of drink.

				Natural
	Cola	Lemonade	Punch	Orange Juice
Selling price per case	$19.10	$20.25	$27.30	$39.40
Variable cost per case	14.00	16.40	20.50	30.50
Contribution margin per case

Requirement 2. A coworker of

JonesJones​'s

recommends that she maximize the shelf space devoted to those drinks with the highest contribution margin per case. Do you agree with this​ recommendation? Explain briefly.

A.

This recommendation does not make sense. The company should allocate equal shelf space to each product so the customer has plenty of options.

B.

This recommendation does not make sense. It fails to recognize that the company has limited shelf space and therefore wants to maximize the contribution margin per foot of shelf space.

C.

This recommendation makes sense. It will allow the company to maximize their contribution margin.

Requirement 3. What​ shelf-space allocation for the four drinks would you recommend for the

Wave CraveWave Crave​?

Show your calculations.

Begin by calculating the amount that should be used to determine the allocation. ​(Round your answers to the nearest​ cent.)

				Natural
	Cola	Lemonade	Punch	Orange Juice

Allocate the shelf space to each product and show the effect it will have on the

Wave CraveWave Crave​'s

operations. ​(Round your answers to the nearest​ cent.)

			Total
	Feet of	per Foot of
	Shelf Space	Shelf Space	per Day
Cola
Lemonade
Punch
Natural Orange Juice
Total

Answer 1

Ques 1
	cola	lemonade	punch	juice
Selling price	$         19.10	$                        20.25	$                        27.30	$    39.40
Variable cost per case	$         14.00	$                        16.40	$                        20.50	$    30.50
contribution margin per case	$           5.10	$                          3.85	$                          6.80	$       8.90
Ques 2
This recommendation does not make sense. It fails to recognize that the company has limited shelf space and therefore wants to maximize the contribution margin per foot of shelf space . The argument fails to recognize that shelf space is the constraining factor. There are only 12 feet of front shelf space to be devoted to drinks.
							cola	lemonade	punch	juice
						contribution margin per case	$           5.10	$                          3.85	$                          6.80	$       8.90
						Sales(no of cases) per foot of shelf space	25	4	6	23
Daily contribution per foot of front shelf space	$       127.50	$                        15.40	$                        40.80	$ 204.70
Ques 3
	cola	lemonade	punch	juice
contribution margin per case	$           5.10	$                          3.85	$                          6.80	$       8.90
Sales(no of cases) per foot of shelf space	25	4	6	23
Daily contribution per foot of front shelf space	$       127.50	$                        15.40	$                        40.80	$ 204.70
		Daily Contribution
	Feet of	per Foot of	Total Contribution
	Shelf Space	Front Shelf Space	Margin per Day
Natural Orange Juice	6	$                     204.70	$                  1,228.20
Cola	4	$                     127.50	$                     510.00
Punch	1	$                        40.80	$                        40.80
Lemonade	1	$                        15.40	$                        15.40
			$                  1,794.40