Relevant costs contribution margin product emphasis

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Chapter 13 / Exercise 6
Business Analytics
Camm/Cochran
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11-27Relevant costs, contribution margin, product emphasis. The Beach Comber is a take-out food store at a popular beach resort. Sara Miller, owner of the Beach Comber, is decidinghow much refrigerator space to devote to four different drinks. Pertinent data on these fourdrinks are as follows:Miller has a maximum front shelf space of 12 feet to devote to the four drinks. She wants aminimum of 1 foot and a maximum of 6 feet of front shelf space for each drink.Required:1.Calculate the contribution margin per case of each type of drink.2.A coworker of Miller’s recommends that she maximize the shelf space devoted to thosedrinks with the highest contribution margin per case. Do you agree with thisrecommendation? Explain briefly.3.What shelf-space allocation for the four drinks would you recommend for the BeachComber? Show your calculations.SOLUTION(20–25 min.)Relevant costs, contribution margin, product emphasis.1.ColaLemonadePunchNaturalOrangeJuiceSelling price$19.10$20.25$27.10$39.50Deduct variable cost per case14.4015.9021.5029.80Contribution margin per case$ 4.70$ 4.35$ 5.60$ 9.702.The argument fails to recognize that shelf space is the constraining factor. There are only12 feet of front shelf space to be devoted to drinks. Sexton should aim to get the highest dailycontribution margin per foot of front shelf space:11-16
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Chapter 13 / Exercise 6
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ColaLemonadePunchNaturalOrangeJuiceContribution margin per case$ 4.70$ 4.35$ 5.60$ 9.70Sales (number of cases) per foot of shelf space per day10242522Daily contribution per footof front shelf space$47.00$104.40$140.00$213.403.The allocation that maximizes the daily contribution from soft drink sales is:Daily ContributionFeet ofper Foot of Total ContributionShelf SpaceFront Shelf SpaceMargin per DayNatural Orange Juice6$213.40$1,280.40Punch4140.00560.00Lemonade1104.40104.40Cola147.0047.00$1,991.80

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