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Contribution Margin - Sales Mix

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In response to a growing awareness of gluten allergies, Wildhorse 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 $125 $125 $125
Variable Cost $75 $80 $78
Fixed Cost $17 $14 $21
Total Cost $92 $94 $99
Gross Profit $33 $31 $26
Pounds of Flour 2.50 2.50 2.00
a) 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

Chocolate Chip
Sugar
Oatmeal Raisin

What type of cookies would maximize the company's contribution margin?

b) Assume that, based on typical customer demand, Wildhorse will sell 11,800 batches of chocolate chip cookies, 7,800 batches of sugar cookies, and 9,800 batches of oatmeal raisin cookies. What will the company's contribution margin be?

The company's contribution margin

c) Wildhorse's flour supplier has announced a shortage of gluten-free flour. As a result, Sheridan will only be able to purchase 49,100 pounds of flour.

How many batches of each type of cookies should the company bake?

Batches
Chocolate Chip
Sugar
Oatmeal Raisin

What will the company's contribution margin be?

The company's contribution margin
d) If Wildhorse uses gluten-free flour in other products, will the allocation you recommend in part c change?

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Solution Summary

The solutions shows the calculation of the contribution margin for a sales mix when there is no constrained resource and when there are constrained resources.

Solution provided by:
Manal Elkhoshkhany, MBA
Education
  • BA, Ain Shams University, Cairo Egypt
  • MBA, California State University, Sacramento
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