1. Tonyco sells ice cream cones and ice cream sundaes. His only constraint is th
ID: 2519595 • Letter: 1
Question
1. Tonyco sells ice cream cones and ice cream sundaes. His only constraint is that his employees can only work 100 hours per week. Roteshco would like to order 70 ice cream sundaes and pay $6.65 each for them. Ice Cream Cones S5 S3.75 5 minutes Ice Cream Sundaes S8 $4.92 15 minutes Price VC Time required to make Current sales volume A. Given the above information, should Tonyco take Roteshco's order? B. (30 words or fewer) List two qualitative considerations that Tony should think about before making a 612 cones per week 148 sundaes per week decision about the Roteshco orderExplanation / Answer
Solution:
Total minutes available in week = 100*60 = 6000 minutes
Minutes required for regular sale = (612 * 5) + ( 148*15) = 5280 minutes
Available minutes to fulfills special order = 6000 - 5280 = 720
Required minutes to fulfill special order = 70 * 15 = 1050 minutes
Short minutes for special order = 1050 - 720 = 330 minutes
Now for 330 minutes, company will loose regular sale of ice cream sundaes as its contribution per minutes is lower.
Therefore contribution from special order = ($6.65 - $4.92) * 70 = $121.10
Loss of contribution on regular sale = (330/15)* $3.08 = $67.76
Therefore net incremental benefit from special order = $121.10 - $67.76 = $53.34
Therefore Tonyco should accept Roreshco order.
Solution B:
Tony should consider below qualitative factors before accepting special order.
1. Tony should consider if special order is accpeted at discounted price, it may result reduction in price of regular order as customer may insist it.
2. Tony should also consider credibilty of client and payment terms offered by him.
Computation of contribution per costrained resources Particulars Ice cream cones Icecream sundaes Selling price $5.00 $8.00 VC $3.75 $4.92 Contribution $1.25 $3.08 Time required in minutes 5 15 Contribution per minute $0.25000 $0.20533Related Questions
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