A doughnut shop makes three basic types of doughnuts: cream filled, chocolate filled, and jam filled. The doughnut shop manager is analyzing the product mix and has collected the following information:

The fixed costs are unavoidable and are allocated to each doughnut type based on the quantity produced. The doughnut shop has excess capacity.
Required:
1. Which product should the doughnut shop promote if the promotion will result in an increase in sales of 50 dozen of the promoted product?
2. Should the jam-filled doughnuts be dropped from the product line? Why or why not?
3. How does the decision to drop the jam-filled doughnuts change if the shop is currently producing at capacity?

Transcribed Image Text:

Chocolate Cream Filled Jam Filled Filled Sales price per dozen.. Direct cost per dozen.. Fixed overhead per dozen.. Profit per dozen $ 400 (210) (0.40) $ 150 $ 3.00 (0.90) (050) $ 160 $ 2.50 (200) (100) (0.50)