Reference no: EM133140144

Question - Patrick operates a newspaper stand at Detroit.  As you can imagine, space is at a tremendous premium and he uses every inch of his cubic feet (think in three dimensions - length, width and height) of available space to stock a wide selection of newspapers, magazines and snack-food items.  Patrick estimates that his contribution margin ratios on newspapers, magazines, and snacks are 15%, 25% and 10%, respectively.  In addition, for equivalent sales in dollars, newspapers take up 4 times as much space as magazines and 6 times as much space as snacks.  However, since newspapers are the primary draw for Patrick's customers, he believes at least 50% of his available space, or 150 cubic feet must be devoted to newspapers.  Finally, he believes that 10% of his available space is enough to stock all the popular snack food items (ie he could devote less than 10% of his space to snack food items, but devoting more than 10% would be wasteful as it would not generate additional snack-food sales. 

Required -

a. What is Patrick's optimal allocation of space to newspapers, magazines and snack-food items?

b. Suppose he allocates space according to your recommendation in part a. How much total sales revenue mush he generate per cubic foot each month?