This 8 page paper answers 4 questions sent by the student. The first question looks at a cookie factory where there is the chance to accept an order for a large number of cookies at a lower than usual price. The paper conducts of break even analysis to assess whether the order should be accepted. The second question looks how the cookie factory should decide on what levels of which cookies to produce. The third question considers three learning points from looking at contributions, fixed and variable costs and break even analysis. The last uses these learning points and explores the way they may be used in an operating decision at the factory the following year.
Name of Research Paper File: TS14_TEbreakcase3.rtf
Unformatted Sample Text from the Research Paper:
problem is that increasing production will mean cutting back on the level of supply that can be made for the usual full price cookies. We are given the price that
the new order is offering and the price the company are currently getting for the cookies. On further questioning we have been given a variable cost, but as this is
above the level of the price being offered by the potential new order then there would need to be an immediate refusal. If the variable costs are above 1.20 a
packet, and the price offered is only 1.20 a packet then there is no need for a break even analysis as there is no contribution to consider. Therefore it is
unlikely that there would be a variable cost of above 1.50 for the real mint, which the student has given as 1.643, meaning that the company would already be in
a loss making position. If we assume that these figures are wrong we can look at this in a more general approach we can look at the income that
is lost and the income that is gained. WE may loose the income from the lost sales, but this will also, in part, be made up with the sales that
replace the lost sales. Lemon cr?me Real Mint Price 2.00 1.50 Packs lost 1,000 2,000 Revenue lost 2,000.00 3,000.00 Net price difference 0.80 0.30 Net Revenue lost
800.00 600.00 This shows us that there is a loss of the packets that are sold of 5,000, but that the revenue for the replacement packets will result in
a net loss, on this level of production only of 1,400. This shows us the level of contribution, assuming that this is all contribution that the remaining packets need