Sarah's Confectionery Company is a small manufacturer and wholesaler of lollipops, jellybabies and other sugary snacks.Sarah's Confectionery produces around 70% of the confectionary they sell, with the remaining 30% purchased from local manufacturers.All confectionary is produced in batches of 100 units.The current workforce has the capacity to work 1,600 direct labour hours per month.

The selling price and associated costs for lollipops and jellybabies are as follows:

Lollipops

Jellybabies

Selling price per batch

$54.00

$28.50

Costs per batch:

Sugar

$4.00

$1.80

Setting Agents

$0.60

$0.40

Flavour

$0.40

$0.30

Plastic Stick

$0.25

None

Direct Labour ($15/hour)

$18.75

$7.50

Fixed manufacturing OH

$3.125

$ 1.25

Variable manufacturing OH

$9.375

$ 3.75

Selling and Admin Cost

$13.50

$8.50

Total Costs per batch

$50.00

$23.50

Profit per batch

$4.00

$5.00

Sarah's Confectionary uses direct labour hours as the application base for manufacturing overhead. Direct labour is a variable cost. Included in the selling and administration costs figure is $4.00 of fixed overhead cost per batch for distribution (regardless of whether the confectionery items are made by Sarah's Confectionery Company or purchased in). The remaining selling and administration costs are variable costs.

Sarah has demand for a total 1,000 batches of lollipops and 1,200 batches of jellybabies (made up of many separate orders from different customers) per month.

1. Make an analysis that shows the most profitable mix in which to manufacture lollipops and jellybabies.How many orders of each confectionery item will be fulfilled?

Phil's Candy Pty. Ltd., a wholesale supplier, is able to supply Sarah's Confectionery with lollipops or jellybabies in whatever quantities that Sarah might require in the upcoming month.

1. What is the highest price that Sarah should be willing to pay Phil's for lollipops for the upcoming month, assuming that purchases from Phil's will incur selling and administrative costs of $4 per batch?

1. What is the highest price that Sarah should be willing to pay Phil's for jellybabies for the upcoming month, assuming that purchases from Phil's will incur selling and administrative costs of $4 per batch?

1. Name at least three qualitative factors that Sarah should consider when deciding whether to purchase lollipops and jellybabies from Phil's.

5.Sarah is considering hiring additional staff to expand the capacity of its manufacturing department. What information from the analysis performed in Part 1 could possibly be used to help her make this decision. What are the underlying assumptions that Sarah needs to make in order to use this information for decision making.

Answer rating: 100% (QA)

To determine the most profitable mix of lollipops and jellybabies we need to analyze the contributio... View the full answer