Famous Pie Company
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Famous Pie Company
A company may suddenly be faced with an unexpected dilemma such as a lack of materials needed for production. Making the optimal decision in view of a constraint on resources can be crucial to maximize profit until the situation eases or a new long-term plan is developed. Let's assume that Famous Pie Company makes and distributes frozen gourmet foods. The company is the most famous for the two kinds of pies it makes. The basic pie uses 2 lbs. of berries and the deluxe pie uses 5 lbs. of the same berries. Herta Company currently has 6,000 lbs. of imported berries on hand. The company is planning to purchase another 6,000 lbs. of to make 1,000 basic pies and 2,000 deluxe pies. More information about the contribution margin for each type of pie is shown below.
Pie
Selling price
$8.10
Less variable expenses
Direct materials (ingredients)
$2.00
Direct labor
$2.10
Variable overhead (flour, etc.)
$1.00
Contribution margin
$3.00
Deluxe Pie
Selling price
$13.90
Less variable expenses
Direct materials (ingredients)
$5.00
Direct labor
$1.40
Variable overhead (flour, etc.)
$1.50
Contribution margin
$6.00
The company has just received word that the source of the berries has been shut down by regional disturbances. Consequently, the company will not be able to import the 6,000 lbs. it planned on using in the coming month's production. There's no other source of berries.
Required:
Computations (use Excel).
Determine the optimal usage of the company's inventory of 6,000 lbs. of berries. Show your computations in good format.
Compute the total contribution margin that the company would have earned if all 12,000 lbs. of berries were available.
How many of each pie should Herta Company make and distribute in order to maximize the contribution margin?
Compute the total contribution margin for the product mix that you recommend.
Memo (use Word).
Write a memo to the production manager explaining how to handle production for the next month. Refer to your analysis in your response. Write a four or five paragraph memo to the owner of the business. Start with an introduction and end with a recommendation. Each of the four or five paragraphs should have a heading.
Short essay (use Word).
Use the background material and do research as needed to comment on different types of limitations on resources a company may encounter and strategies to maximize profit.
Start with an introduction and end with a summary or conclusion. Use headings. Maximum length of two pages.
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Solution Summary
The famous pie company is examined. The response addresses the query Posted in 963 words with APA references.
Solution Preview
The response addresses the query Posted in 963 words with APA references
//The restricted supply of direct material creates few issues for the management to decide the optimal production mix. In this context, in the following discussion, a memo for management has been given that deals with the issues encountered in the production in the case of restrictions on the supply of direct materials to Famous Pie.//
Memo
Introduction:
The manufacturing firms can face the constraints on their activities in the form of restricted supply of direct material, direct labor, or other resources required to run a business (Drury, 2007). In the present paper, problems related to restricted supply of direct material in case of Famous Pie have been discussed. In the further sections of this paper, the aspects optimal production mix has also been discussed, and the overall discussion has been concluded with certain recommendations.
Supply of Berries Restricted:
Famous Pies has restricted the supply of berries, which are one of the major raw materials used in the production of the pies. In the cases where the company comes across the problems of short supply of raw materials or direct labor, the production manager should analyze the situation carefully and design the product mix in such a way that results in the highest contribution margin to the company (Drury, 2007). In the case of Famous Pie, the total requirements of the company are 12000 lbs berries but the stock available is only 6000 lbs, and the imports are restricted for more purchase.
Optimal Production Mix:
The optimal product mix means ...
Education
- MBA (IP), International Center for Internationa Business
- BBA, University of Rajasthan
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