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:

Direct Materials	$200
Direct Labor	$75
Variable Overhead	$125
Fixed Overhead	$75

In addition to the cost of the cake mix, the Finished Desserts Department would incur the following costs for each batch of cakes:

Direct Materials	$60
Direct Labor	$100
Variable Overhead	$150
Fixed Overhead	$65

The Finished Desserts department is able to purchase the mix for $500 from an outside supplier. The finished cakes from each batch will sell for $1,000.

Required:

a) Assume the Packaged Mixes department has excess capacity. Based on the decision that will maximize the overall benefit to Peterson & Sons, what is the contribution margin per batch that can be realized by the Finished Desserts department? (3 points)

b) Assume 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. 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? (2 points)