Question

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 98.00 $24.00 $22.00 $31.00 2.5 2.5 Your answer is correct. Assuming no raw material constraints and unlimited demand for cookies, calculate contribution margin per batch for Chocolate Chip, Sugar, Oatmeal Raisin cookies. (Round answers to 2 decimal places, e.g. 52.75.) Cookies Contribution Margin 49 Chocolate Chips C 39 Sugar Oatmeal Raisins What type of cookie would maximize the company's contribution margin? Chocolate Chip

Answer 1

The product with maximum contribution margin per unit of constraint resource will be produced

Chocolate chip cookie = 49/2.5 = $19.6

Sugar = 39/2.5 = $15.6

Oatmeal = 42/2 = 21

Hence, oatmeal cookies will be produced

Chocolate chip = 0

Sugar 0

Oatmeal (50,000/200) = 250 batches

Contribution Margin = 50,000*21 = $1,050,000