"Aunt Connie's Cookies Contribution Margin and Breakeven Analysis"
Aunt Connie's Cookies is a brand that is synonymous with delicious Lemon Cream and real Mint Cookies throughout the East and Midwest. Aunt Connie's Cookies was founded in 1986 after a friend of Aunt Connie urged her to take her business and baking skills to the public. The Aunt Connie's brand has grown successful producing Lemon Crème and Real Mint cookies. Maria Villanueva is the current chief executive officer of this family owned company.
Maria was considering a large bulk order of a cookie production, competitor buyouts and the strain of meeting cookie demand and operating as a profitable entity. Maria has to make a decision to:
1. Make or buy
2. Sell or process further
3. Retain or replace equipment
4. Eliminate an unprofitable business segment
5. Allocate limited resources
The concept of contribution is important for the decision to be made. Real Mint provides a greater total contribution margin while Lemon Crème provides the greater Unit Contribution Margin.
To be able to take the order, one or both of the cookie productions will need to be reduced in order for that energy to go towards filling the bulk order. The main idea here is to maximize the operating profits because it is better to produce more of the product that provides the greater unit contribution margin. By keeping Lemon Crème cookies operating at the same level, no unnecessary operating profits would be lost and the increased order for Real Mint provides a greater revenue amount than would have been during a normal production month.
If the bulk order had been for the Lemon Crème cookies it may have been more difficult to reach and end result that is as desirable. The Real Mint prod ...