Each morning, Mark Johnston stocks the drink case at Mark's Beach Hut in Myrtle Beach, South Carolina.
Question:
Mark's Beach Hut sells three types of cold drinks:
1. Cola in 12-oz. cans, for $1.50 per can
2. Juice in 20-oz. plastic bottles, for $1.65 per bottle
3. Diet cola in 20-oz. glass bottles, for $2.15 per bottle
Mark's Beach Hut pays its suppliers the following:
1. $0.10 per 12-oz. can of cola
2. $0.45 per 20-oz. bottle of juice
3. $0.65 per 20-oz. bottle of diet cola
Mark's Beach Hut's monthly fixed expenses include the following:
Hut rental . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 370
Refrigerator rental . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 85
Mark's salary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,400
Total fixed expenses. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $1,855
Mark's Beach Hut can sell all the drinks stocked in the display case each morning.
Requirements
1. What is Mark's Beach Hut's constraining factor? What should Mark stock to maximize profits? What is the maximum contribution margin he could generate from refrigerated drinks each day?
2. To provide variety to customers, suppose Mark refuses to devote more than 70 linear feet and no less than 20 linear feet to any individual product. Under this condition, how many linear feet of each drink should Mark stock? How many units of each product will be available for sale each day?
3. Assuming the product mix calculated in Requirement 2, what contribution margin will Mark generate from refrigerated drinks each day?
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