Question

Each morning, Max Imery stocks the drink case at Max’s Beach Hut in the Muskokas. Max’s Beach Hut has 33 linear metres of refrigerated display space for cold drinks. Each linear metre can hold either 18 341-mL cans or 12 551-mL plastic or glass bottles. Max’s Beach Hut sells three types of cold drinks:
1. Coca-Cola in 341-mL cans for $1.50 per can
2. A&W Root Beer in 551-mL plastic bottles for $1.75 per bottle
3. Mountain Dew in 551-mL glass bottles for $2.20 per bottle
Max’s Beach Hut pays its suppliers the following:
1. $0.25 per 341-mL can of Coca-Cola
2. $0.40 per 551-mL bottle of A&W Root Beer
3. $0.75 per 551-mL bottle of Mountain Dew
Max’s Beach Hut’s monthly fixed expenses include the following:
Hut rental ................................................................................................. $ 375
Refrigerator rental..................................................................................... 75
Max’s salary.............................................................................................. 1,550
Total fixed expenses .................................................................................. $2,000
Each day, Max’s Beach Hut can sell all the drinks in the display case.
Requirements
1. What is Max’s Beach Hut’s constraining factor? What should Max stock to maximize profits? What is the maximum contribution margin he could generate from refrigerated drinks each day?
2. To provide variety to customers, suppose Max refuses to devote more than 20 linear metres and no fewer than 3 linear metres to any individual product. Under this condition, how many linear metres of each drink should Max stock? How many units of each product will be available for sale each day?
3. Assuming the product mix calculated in Requirement 2, what contribution margin will Max generate each day?


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  • CreatedApril 30, 2015
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