Because of your love of condiments (especially on a hot dog!), you have been following the happenings at the local bottling plant. Last week, a newspaper article mentioned slowdowns there due to operational issues, which was intriguing since it’s a topic you’re studying at school right now. Lucky for you, one of the plant managers was already planning a visit to your classroom. As he spoke, he began with a puzzle for your class to solve:

“We bottle three primary products in our plant: ketchup, mustard, and relish. Our operations manager has always put priority on our highest contribution margin product. That makes sense, right? But a few months ago, we went ‘old school’ for our ketchup and started bottling it in classic tall, slender glass bottles. Our customers actually enjoy having to give the bottle a whack to get the product flowing. Since that switch, though, our production department can’t seem to meet the budget.”

The plant manager then showed the class the following information.

		Ketchup		Mustard		Relish
Current priority based on CM per unit		#1		#3		#2
Bottling time (hours per unit)		0.01		0.005		0.02
Variable cost per unit		$1.05		$0.75		$0.90
Monthly demand (units)		38,000		24,000		11,000

Assume that after the switch to glass bottles, the following cost relationship exists for all three products: variable costs are 20% of selling price. Given this information, what must be the current contribution margin per unit for each of the three products? Further, in what order should the company now rank its products in terms of profitability if the bottling activity is its primary constraint? (Round answers to 2 decimal places, e.g. 15.25.)

		Ketchup		Mustard		Relish
Contribution margin/bottling hour		$420		$600		$180

(c1) Given your new rankings in part (b), calculate how many bottles (units) of each product the company would need to make to maximize profitability, considering the constraint, while not exceeding demand. The bottling activity operates 18hours a day, 28 days a month. (If no unit of an item is to be produced enter 0. Do not leave any field blank.)

		Ketchup		Mustard		Relish
Units produced within this time		?		?		?

(c2) Then, calculate the company’s monthly contribution margin under this scenario.

Monthly contribution margin

$?

(c3) Calculate the monthly contribution margin it would have been under the previous production priority.

Monthly contribution margin

$?

(c4) Explain the difference in profit between these two scenarios, if there is any.

Profit is $ ??

Answer rating: 100% (QA)

Ketchup Mustard Relish Contribution margin D... View the full answer