A candy shop sells three types of candy: chocolate-filled, cream-filled, and caramel filled. The candy shop manager is analyzing its product mix through the following product prices and costs:

The fixed costs are not avoidable and allocated to products based on number of kilograms of candy produced. The candy shop has excess capacity.

a. Which product should the shop promote, if the promotion will be successful and result in the sale of 100 more kilograms of the promoted candy?

b. Should the caramel-filled candy be dropped from the product mix? Explain.

c. How does the product-mix problem change, if the candy shop is operating at capacity?

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Sales price/kilogram Direct costs/kilogram Variable overhead/kilogram Fixed overhead/kilogram Profit/kilogram Chocolate-Filled $3.00 Cream-Filled $2.00 Caramel-Filled $ 2.50 (1.50) (0.50) (1.00) (0.60) (0.50) (1.00) (0.25) (0.50) (1.00) $0.65 $0.50 $(0.50)