Luxus Baking Company has developed a reputation for producing superb, one-of-a-kind wedding cakes in addition to its normal fare of breads and pastries. While the wedding cake business is a major moneymaker, it creates some problems for the bakery’s owner, Kari Therau, particularly in June. The company’s reputation for wedding cakes is largely based on the skills of Regina Yesterman, who decorates all of the cakes. Unfortunately, last year the company accepted too many cake orders for some June weekends, with the result that Regina was worked to a frazzle and almost quit. To prevent a recurrence, Kari has promised Regina that she will not have to work more than 27 hours in any week to prepare the wedding cakes for the upcoming weekend. (Regina also has other duties at the bakery, so even with the 27-hour limitation; she would be working more than full-time in June.)

A number of reservations for wedding cakes for the first weekend in June had already been received from customers by early May. When a customer makes a reservation, Ms. Therau gets enough information concerning the size of the wedding party and the desires of the customer to determine the cake’s price, the cost to make it, and the amount of time that Regina will need to spend decorating it. The reservations for the first weekend in June are listed below:

For example, the Afonso cake would require 5 hours of Regina’s time and would generate a profit of $195 for the bakery. Following industry practice, pricing for the cakes is based on their size and standard formulas and does not reflect how much decorating would be required.

Required:

1.         Ms. Therau feels that she must cancel enough cake reservations to reduce Regina’s workload to the promised level. She knows that customers whose reservations have been cancelled will be disappointed, but she intends to refer all of those customers to an excellent bakery across town. If the sole objective is to maximize the company’s total profit, which reservations should be cancelled?

2.         What would be the total profit if your recommendation in part (1) above is followed?

3.         Assume that for competitive reasons it would not be practical for Luxus Bakery to change the pricing of its wedding cakes. What recommendations would you make to Ms. Therau concerning taking reservations in the future?

4.         Assume that Luxus Bakery could change the way it prices its wedding cakes. What recommendations would you make to Ms. Therau concerning how she should set the prices of wedding cakes in the future?

5.         What might Ms. Therau be able to do to keep both Regina and her customers happy while increasing her profits? Be creative.

Transcribed Image Text:

Regina's Time Incremental Customer Required Profit (hours) S 195 Afonso 259 Carloni Cullins 105 Frese 170 5 117 Gerst 3 Jelovich 124 Klar 192 6. Melby 144 4 Rideau 150 Towner 256 Total $1,712 50 3. 4.