Reference no: EM132860207
Question - Blue Mountain Coffee Company sells three different coffees-to-go (flavored, lattes, and iced coffees). Additionally, they sell their private label ground coffee beans. Their store fronts are very small with no seating - providing only walk-up service generally located in outdoor walking and shopping districts.
To improve pricing strategy, the managers would like to more thoroughly understand the cost of their products and are pilot testing an operations costing system.
Below is the relevant data, from a typical week at one of their locations, gathered to support the analysis.
Product Flavored Coffees (16 oz) Lattes (20 oz) Iced Coffees (20 oz) 2lb Bag of Coffe Beans
Selling price per unit $5.00 $5.00 $5.00 $20.00
Variable materials cost per unit $2.00 $4.00 $4.00 $8.00
Sales volume 300 500 600 100
Number of minutes of labor time to produce one unit of output 2 4 5 6
Additionally, weekly labor cost and overhead combined average $2,000. Administrative costs such as marketing, rent, etc. average $1,000 per week.
It has been suggested that Blue Mountain assign conversion costs based on the amount of labor time used by each of the four products.
Carry all per unit computations to three decimal places.
Required -
1. Determine the total variable cost per unit (materials and conversion costs)?
2. Determine the contribution margin per unit based on the computations in (1) above?
3. If Blue Mountain should consider changing prices for any of the products?