Each morning, Nick Ivery stocks the drink case at Nick's Beach Hut in Newark, New Jersey. Nick's

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Each morning, Nick Ivery stocks the drink case at Nick's Beach Hut in Newark, New Jersey. Nick's Beach Hut has 115 linear feet of refrigerated display space for cold drinks. Each linear foot can hold either five 12-ounce cans or four 20-ounce plastic or glass bottles. Nick's Beach Hut sells three types of cold drinks:
1. Cola in 12-oz. cans for $1.55 per can
2. Energy drinks in 20-oz. plastic bottles for $1.80 per bottle
3. Orange soda in 20-oz. glass bottles for $2.15 per bottle
Nick's Beach Hut pays its suppliers the following:
1. $0.25 per 12-oz. can of cola
2. $0.40 per 20-oz. bottle of energy drink
3. $0.65 per 20-oz. bottle of orange soda
Nick's Beach Hut's monthly fixed expenses include the following:
Hut rental . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .$ 375
Refrigerator rental . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .75
Nick's salary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1,550
Total fixed expenses. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $2,000
Nick's Beach Hut can sell all drinks stocked in the display case each morning.
Requirements
1. What is Nick's Beach Hut's constraining factor? What should Nick 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 Nick refuses to devote more than 70 linear feet and no less than 15 linear feet to any individual product. Under this condition, how many linear feet of each drink should Nick 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 Nick generate from refrigerated drinks each day?
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Managerial Accounting

ISBN: 978-0132890540

3rd edition

Authors: Karen W. Braun, Wendy M. Tietz

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