Manitoba Dairy, maker of specialty cheeses, produces a soft cheese from the milk of Holstein cows raised on a special corn-based diet. One kilogram of soft cheese, which has a contribution margin of $8, requires 4 litres of milk. A well-known gourmet restaurant has asked Manitoba Dairy to produce 2,000 kilograms of a hard cheese from the same milk of Holstein cows. Knowing that the dairy has sufficient unused capacity, Elise Princiotti, owner of .Manitoba Dairy, calculates the costs of making one kilogram of the desired hard cheese:
Milk (10 litres X $1.50 per litre) ................................. $15
Variable direct manufacturing labour ........................... 5
Variable manufacturing overhead ................................ 3
Fixed manufacturing cost allocated .............................. 6
Total manufacturing cost .......................................... $29
Required
1. Suppose Manitoba Dairy can acquire all the Holstein milk that it needs. What is the minimum price per kilogram it should charge for the hard cheese?
2. Now suppose that the Holstein milk is in short supply. Every kilogram of hard cheese produced by Manitoba Dairy will reduce the quantity' of soft cheese that it can make and sell. What is the minimum price per kilogram it should charge to produce the hard cheese?