costacctg13_sm_ch11

No more shelf space can be devoted to lemonade since

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Unformatted text preview: la $18.80 14.20 $ 4.60 Lemonade $20.00 16.10 $ 3.90 Punch $27.10 20.70 $ 6.40 Natural Orange Juice $39.20 30.20 $ 9.00 Selling price Deduct variable cost per case Contribut ion margin per case 2. The argument fails to recognize that shelf space is the constraining factor. There are only 12 feet of front shelf space to be devoted to drinks. Sexton should aim to get the highest daily contribution margin per foot of front shelf space: Natural Orange Juice $ 9.00 ´ 5 Contribut ion margin per case Sales (number of cases) per foot of shelf space per day Daily contribut ion per foot of front shelf space 3. Cola $ 4.60 ´ 25 Lemonade $ 3.90 ´ 24 Punch $ 6.40 ´ 4 $115.00 $93.60 $25.60 $45.00 The allocation that maximizes the daily contribut ion fro m soft drink sales is: Daily Contribution per Foot of Total Contribution Front Shelf Space Margin per Day $115.00 $ 690.00 93.60 374.40 45.00 45.00 25.60 25.60 $1,135.00 Cola Lemo nade Natural Orange Juice Punch Feet of Shelf Space 6 4 1 1 The maximum of six feet of front shelf space will be devoted to Cola because it has the highest contribution margin per unit o f the constraining factor. Four feet of front shelf space will be devoted to Lemonade, which has the second highest contribut ion margin per unit of the constraining factor. No more shelf space can be devoted to Lemonade since each o f the remaining two products, Natural Orange Juice and Punch (that have the second lowest and lowest contribut ion margins per unit o f the constraining factor) must each be given at least one foot of front shelf space. 11­10 11­23 (10 min.) Selection of most profitable product. Only Model 14 should be produced. The key to this problem is the relat ionship of manufacturing overhead to each product. Note that it takes twice as long to produce Model 9; machine­hours for Model 9 are twice that for Model 14. Management should choose the product mix t hat maximizes operating inco me for a given production capacit y (the scarce resource in this situation). In this case, Model 14 will yield a $9....
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