The Eastwood Cake Factory sells chocolate cakes, birthday decorated cakes, and s

Question

The Eastwood Cake Factory sells chocolate cakes, birthday decorated cakes, and speciality cakes. The factory is experiencing a bottleneck and is trying to determine which cake is more profitable. Even though the company may have to limit the orders that it takes, Eastwood is concerned about customer service and satisfaction. Chocolate Cake Birthday Cake Specialty Cake $60.00 $20.00 Sales price Variable cost per cake Hours needed to bake, frost, and decorate $20.00 $45.00 $5.00 $12.00 hour 2 hours REQUIRED (a) Calculate the contribution margin per hour per cake. (b) Determine which cakes the company should try to sell more of first, second, and then last.

Explanation / Answer

a)

Contribution margin per hour per cake is given by row E

b)

The company should sell cakes based on ranking of contribution per hour per cake, that is, Speciality cake first, Chocolate cake second and Birthday cake third

Calculations Particulars Chocolate cake Birthday cake Speciality cake A Sales price 20 45 60 B Variable cost per cake 5 12 20 C = A - B Contribution per cake 15 33 40 D Hours required 1 2.5 2 E = C / D Contribution per hour 15 13.2 20 F = E Higher to lower Ranking 2 3 1

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