Margin And Break Even Analysis Simulation Paper

Contribution Margin and Breakeven Analysis Simulation

When Maria was considering a large bulk order, how should she use the concept of contribution margin to decide which cookie's production to reduce in order to free up enough capacity to accept the bulk order? Under what circumstances should she not have accepted the bulk order? In the simulation Maria should use the contribution margin method when sales revenue less variable costs. It is the amount available to pay for fixed costs and provide any profit after variable cost has paid. Maria suggested that the total contribution Margin as well as the operating profits from lemon crème cookies is less than that for real mint cookies. Therefore reduce the current production volume for lemon crème cookies and produce more real mint cookies to accommodate this bulk order.However, Maria decision what not so conducive. When a company maximizes operating profits it is better to produce more of the product that has a greater contribution margin per-unit like the lemon cookie. In the beginning of the simulation Maria felt that price reduction alone was not sufficient. Aunt Connie's Cookies had to establish that they were one of the favorites in the convenience food category. It was best that Aunt Connie's Cookies increase their ad expenses by half for both peanut butter and lemon cookies. The company would then reach out to more retailers in the metros. To achieve this, they must pay more to their distributors $0.10 per pack instead of $0.06 per pack. Retaining the unit prices and increasing Aunt Connies Cookie's marketing expenditure resulted in good profits for the company. However, reducing unit prices could have boosted sales and resulted in even better profits. The bulk order shou...

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...for automobile drivers, the prices of inputs continue to make the price of coffee unstable for coffee drinkers. Seasonal inputs like the coffee bean are volatile because of unavoidable aspects like the weather, which also affects the price of coffee directly, since less tends to be consumed in the summer than in the winter. A bad growing season can decrease the supply of coffee beans, thus increasing the price. Furthermore, other compliment prices affect coffee sales, like sugar and dairy products. When the price of these compliments increases, so does the price of a regular cup of coffee sold at Starbucks.

References

Mergent Online Source; University of Phoenix Student Library Resource Article Business Wire Starbucks Company (2005)www.mycampus.phoenix.edu