The Good Health Baking Company produces a salt-free whole-grain bread and a caro

Question

The Good Health Baking Company produces a salt-free whole-grain bread and a carob-chip cookie. The demand for these products is exceeding Good Health's production capacity. The company has only 80,000 direct labor hours available. A case of bread requires one direct labor hour, while a case of cookies requires half a direct labor hour. The company estimates that it can sell 100,000 cases of bread and 60,000 cases of cookies in the next year. The following financial information is available: Calculate the contribution margin per direct labor hour. How should Good Health allocate its production capacity between bread and cookies?

Explanation / Answer

Contribution margin for bread is 60 - 27 / 60 = 55%. Contribution margin / labour hour is 0.55/1 = 0.55

Contribution margin for cookies = 40 - 9 / 40 = 77.5 %. Contribution margin / labour hour is 0.775/0.5 = 1.55

1)

60,000 cases of cookies as cookies have highest contribution per labour hour and then the rest 80,000 - 60,000 * 0.5 = 50,000 hours for bread resulting in 50,000 cases of bread.

hence 50,000 bread and 60,000 cookies

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