Re l ev ant c o s ts, c ontribution ma r gin, p r oduct emphasis . Monteagudo-Playa SA is a 1 answer below »

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

€108.00

€115.20

€158.40

€230.40 Variable costs per case

Cases sold per metre

of shelf-space per day €81.00

25 €91.20

24 €120.60

4 €181.20

5

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.

Required

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?

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