In response to a growing awareness of gluten allergies, Singletary Cookie Compan
ID: 2467244 • Letter: I
Question
In response to a growing awareness of gluten allergies, Singletary Cookie Company 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: Assuming no raw material constraints and unlimited demand for cookies. Calculate contribution margin for Chocolate Chip, Sugar, Oatmeal Raisin cookies. (Round answers to 2 decimal places, e.g. 52.75.) What type of cookie would maximize the company's contribution margin?Explanation / Answer
Solution:
(a)
Cookies
Contribution Margin
Chocolate Chip
$49.60
Sugar
$48.60
Oatmeal Raisin
$42.60
Note: Calculation of Contribution Margin
Chocolate Chip
Sugar
Oatmeal Raisin
Sale Price
$131.60
$110.60
$130.60
Less: Variable Cost
($82)
($62)
($88)
Contribution Margin
$49.60
$48.60
$42.60
Since there is no raw material constraints and unlimited demand for cookies, the contribution Margin per batch is calculated as above
Chocolate Chip cookies would maximize the company’s contribution margin since contribution margin under this cookie is maximum.
(Remarks – by giving Pounds of Flour for each cookies, the question has confused the students and they may calculate wrong contribution per pound of flour. Per Pound of Flour Contribution will be calculated if there is a constraints in the raw material availability. Since in the question, it is clearly mentioned no raw material constraints and unlimited demand for cookies. We will calculation Contribution Margin per batch instead of Per Pounds of Flour to maximize the contribution margin of company)
Cookies
Contribution Margin
Chocolate Chip
$49.60
Sugar
$48.60
Oatmeal Raisin
$42.60
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