8-15 Allocating constrained resources (LO 4)

In response to a growing awareness of gluten allergies, Outland Bakery tried using gluten-free flour in its three most popular cookies. After several attempts and lot of inedible cookies, the company perfected new recipes that yield delicious gluten-free cookies. The costs of producing a batch of 100 cookies are as follows:

	Chocolate Chip		Sugar		Oatmeal Raisin
Sales price	$130		$125		$120
Variable cost	$81		$86		$78
Fixed cost	18		15		20
Total cost	99		101		98
Gross profit	$31		$24		$22
Pounds of flour	2.5		2.5		2

a. Outlands flour supplier has announced a shortage of gluten-free flour. As a result, Outland will only be able to purchase 50,000 pounds of flour. How many batches of each type of cookie should the company bake? What will the companys contribution margin be?

b. If Outland uses gluten-free flour in other products, will the allocation you recommend in part (c) change? Why or why not?