Pierre & Sons is a baked-goods manufacturing firm. Pierre has two main divisions: Packaged Mixes and Finished Desserts. The Finished Desserts division is considering purchasing the mix for its cakes from an outside supplier.
The Packaged Mixes department incurs the following costs for each batch of cake mix:
In addition to the cost of the cake mix, the Finished Desserts Department would incur the following costs for each batch of cakes:
Currently, the Packaged Mixes department is producing at full capacity and would need to decrease production in another area in order to provide cake mix to the Finished Desserts department. Management estimates that $125 of contribution margin would be lost by the decrease in other areas. The current market price for the quantity of mix needed by the Finished Desserts department is $500: this is the price at which Peterson can purchase the mix from an outside supplier. The finished cakes from each batch will sell for $1,000.
Based on the decision that will maximize the overall benefit to Pierre & Sons, what is the contribution margin per batch that can be realized by the Finished Desserts department?

Question

Pierre & Sons is a baked-goods manufacturing firm. Pierre has two main divisions: Packaged Mixes and Finished Desserts. The Finished Desserts division is considering purchasing the mix for its cakes from an outside supplier.
The Packaged Mixes department incurs the following costs for each batch of cake mix:
  In addition to the cost of the cake mix, the Finished Desserts Department would incur the following costs for each batch of cakes:
  Currently, the Packaged Mixes department is producing at full capacity and would need to decrease production in another area in order to provide cake mix to the Finished Desserts department. Management estimates that $125 of contribution margin would be lost by the decrease in other areas. The current market price for the quantity of mix needed by the Finished Desserts department is $500: this is the price at which Peterson can purchase the mix from an outside supplier. The finished cakes from each batch will sell for $1,000.
Based on the decision that will maximize the overall benefit to Pierre & Sons, what is the contribution margin per batch that can be realized by the Finished Desserts department?

Quizplus · Accepted Answer

The Answer of Pierre & Sons is a baked-goods manufacturing firm. Pierre has two main divisions: Packaged Mixes and Finished Desserts. The Finished Desserts division is considering purchasing the mix for its cakes from an outside supplier.
The Packaged Mixes department incurs the following costs for each batch of cake mix:
  In addition to the cost of the cake mix, the Finished Desserts Department would incur the following costs for each batch of cakes:
  Currently, the Packaged Mixes department is producing at full capacity and would need to decrease production in another area in order to provide cake mix to the Finished Desserts department. Management estimates that $125 of contribution margin would be lost by the decrease in other areas. The current market price for the quantity of mix needed by the Finished Desserts department is $500: this is the price at which Peterson can purchase the mix from an outside supplier. The finished cakes from each batch will sell for $1,000.
Based on the decision that will maximize the overall benefit to Pierre & Sons, what is the contribution margin per batch that can be realized by the Finished Desserts department?

Pierre & Sons Is a Baked-Goods Manufacturing Firm