Re l ev ant c o s ts, c ontribution ma r gin, p r oduct emphasis .
Monteagudo-Playa SA is a take-away food store at a popular beach resort. Consuelo Herreros, owner of Monteagudo-Playa, is deciding how much refrigerator space to devote to four different drinks. Pertinent data on these four drinks are as follows:
Natura Cola Lemonade Punch orange juice
Selling price per case
€230.40 Variable costs per case
Cases sold per metre
of shelf-space per day €81.00
Consuelo has a maximum front shelf-space of 12 metres to devote to the four drinks. She wants a minimum of 1 metre and a maximum of 6 metres of front shelf-space for each drink.
1 What is the contribution margin per case of each type of drink?
2 A co-worker of Consuelo’s recommends that she maximise the shelf-space devoted to those drinks with the highest contribution margin per case. Evaluate this recommenda- tion.
3 What shelf-space allocation for the four drinks would you recommend for Monteagudo- Playa?