Done Limited Resource-HW.xlsx 1D 2M Limited time Limited space-edibles PROBLEM 1

Question

Done Limited Resource-HW.xlsx 1D 2M Limited time Limited space-edibles PROBLEM 1 The Red Mill Inn provides gluten-free products to its overnight guests and also sells them in the gift shop. There is a concern that the gluten-free flour it uses to bake these items will not be available for a while, so the Inn wants to make the most profitable use of its remaining supply. In the table below is information about the three gluten-free products sold in the gift shop. Use this information to calculate the most profitable of the three products with respect to the amount of gluten-free flour it requires BAG OF BAG OF SWEETSTICKY MUFFINS BREAD BUNS Selling Price Variable cost per unit Ounces of flour per item 15 6.5 6.8 5.25

Explanation / Answer

To decide which is most profitable product, we will calculate the contribution margin per ounce of flour. The product having highest contribution margin per ounce of flour will seleted as most profitable. Bag of Muffins Sweet Bread Bag of sticky Buns Selling Price $15.00 $7.00 $12.00 Less : Variable cost per unit $6.50 $2.40 $5.25 Contribution Margin per unit $8.50 $4.60 $6.75 / Ounces of flour per item 6.8 4 5 Contribution Margin per ounce of flour $1.25 $1.15 $1.35 Bag of sticky Buns is a most profitable product as it have a highest contribution margin per ounce of flour.

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