A doughnut shop makes three basic types of doughnuts: cream filled, chocolate fi

Question

A doughnut shop makes three basic types of doughnuts: cream filled, chocolate filled, and jam filled. The doughnut shop manager is analyzing the product mix and has collected the following information: Chocolate Cream Jam Filled Filled Filled Sales price $ 4.00 $ 3.00 $ 2.50 per dozen Direct cost (2.10) 0.90) (2.00) per dozen (0.40) (0.50) (1.00) Fixed overhead per dozen Profit per 1.50 1.60 (0.50) dozen The fixed costs are unavoidable and are allocated to each doughnut type based on the quantity produced. The doughnut shop has excess capacity Requirea: 1-a.Calculate the contribution margin per dozen for each doughnut. (Round your answers to 2 decimal places.) Chocolate Cream Jam Filled Filled Filled Contribution margin er dozern 1-b.Which product should the doughnut shop promote if the promotion will result in an increase in sales of 50 dozen of the promoted product? Cream filled Chocolate filled Jam filled 2-a.Should the jam-filled doughnuts be dropped from the product line? O Yes No

Explanation / Answer

1a) Calculate contribution margin per dozen :

1b) Cream filled

2a) No

Chocolate filled Cream filled Jam filled Sales per dozen 4 3 2.5 Variable cost per dozen 2.10 0.90 2.00 Contribution margin per dozen 1.90 2.10 0.50

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