Question

Each morning, Mike Prescott stocks the drink case at Mike’s Beach Hut in Virginia Beach, Virginia. Mike’s Beach Hut has 105 linear feet of refrigerated display space for cold drinks. Each linear foot can hold either six 12- ounce cans or five 20- ounce plastic or glass bottles. The beverage stand sells three types of cold drinks:
1. Diet cola in 12- oz. cans for $ 1.55 per can
2. Bottled water in 20- oz. plastic bottles for $ 1.80 per bottle
3. Grape juice in 20- oz. glass bottles for $ 2.30 per bottle
Mike’s Beach Hut pays its suppliers the following:
1. $ 0.10 per 12- oz. can of diet cola
2. $ 0.45 per 20- oz. bottle of water
3. $ 0.80 per 20- oz. bottle of grape juice

Mike’s Beach Hut’s monthly fixed expenses include the following:
Hut rental.................................................................................................................... $ 350
Refrigerator rental....................................................................................................... 85
Mike’s salary................................................................................................................ 1,650
Total fixed expenses.................................................................................................... $ 2,085

The beverage stand can sell all the drinks stocked in the display case each morning.

Requirements
1. What is the constraining factor at Mike’s Beach Hut? What should Mike 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 Mike refuses to devote more than 70 linear feet and no less than 5 linear feet to any individual product. Under this condition, how many linear feet of each drink should be stocked? 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 be generated from refrigerated drinks each day?



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  • CreatedAugust 27, 2014
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