Reference no: EM133561009

Question: The Echo Bakery has established a local market for its specialty pita chips. The chips are made using zaatar spice following a family recipe, a carefully guarded secret. They distribute the chips to carefully selected retailers. They are producing at full capacity to satisfy strong demand; retailers can sell all they can make. To produce more chips, Echo must make a substantial capital investment to obtain more space and equipment. Last month's marketing plan included delivery to retailers of 2,000 bags of the smaller size and 600 bags of the larger size. Echo's contribution margins are $3.00 for the smaller bag and $6.50 for the larger bag. Echo Bakery actually produced and delivered 1,200 of the smaller and 250 of the larger bags. The reduced volumes were caused by an oven that failed and was out of service for almost two weeks. The oven is old and unreliable, and parts are difficult to find. Because of the reduced production volume, total direct costs for ingredients were $800 lower than they would have been if production goals had been met. Also, because of the lower output volume, Echo reduced delivery costs by $430. There is no guarantee that the oven will not fail again. The owners are weighing the cost of the lost profit against the cost of purchasing a new oven. Compute the profit that Echo lost due to the oven failure, which caused Echo to fall short of its production goals.