Sensational Soft Drinks makes three products: iced tea, soda, and lemonade. The following data are available: Iced Tea Soda Lemonade Sales Price Per Unit $.90 $.60 $.50 Variable Cost Per Unit .30 .15 .10 Contribution Margin Per Unit $.60 $.45 $.40
Sensational is experiencing a bottleneck in one of it’s processes that affects each product as follows:
Bottleneck process hours per unit:
Iced Tea – 3
Soda – 3
Lemonade – 4
(a) Using a theory of constraints (TOC) approach, rank the products in terms of profitability?
(b) What price for lemonade would equate its profitability (contribution margin per bottleneck hour) to that of soda?