8.15 (LO 4) Allocating constrained resources In response to a growing awareness of gluten allergies, Outland Bakery tried using gluten-free flour in its three most popular cookies. After several attempts and a lot of inedible cookies, the company perfected new recipes that yield delicious gluten-free cookies.

The costs of producing a batch of 100 cookies are as follows:

Chocolate Chip Sugar Oatmeal Raisin

Sales price $130 $125 $120

Variable cost $81 $86 $78

Fixed cost 18 15 20

Total cost 99 101 98

Gross profit $31 $24 $22

Pounds of flour 2.5 2.5 2

a. Assuming no raw material constraints and unlimited demand for cookies, what type of cookie would maximize the companys contribution margin? Why?

b. Assume that, based on typical customer demand, Outland will sell 12,000 batches of chocolate chip cookies, 8,000 batches of sugar cookies, and 10,000 batches of oatmeal raisin cookies. What will the companys contribution margin be?

c. Outlands flour supplier has announced a shortage of gluten-free flour. As a result, Outland will only be able to purchase 50,000 pounds of flour. How many batches of each type of cookie should the company bake? What will the companys contribution margin be?

d. If Outland uses gluten-free flour in other products, will the allocation you recommend in part (c) change? Why or why not?