QV/VI

(Background)

I. Barbaras Chocolate Company (BCC) Barbaras Chocolate Company is a very small scale producer of fine chocolates located in central Connecticut. Assume the following information about the company:Barbaras entire annual production takes place over a single weekend in early December, during which a maximum of 3,000 chocolates can be produced and packaged into boxes of thirty chocolates each. For purposes of this problem, assume that all chocolates have identical costs.Currently, Barbara produces 2,400 chocolates during the weekend. Variable costs consist of chocolate and boxes. The cost of other direct materials (such as peanut butter, oils, nonpareils, etc., are considered insignificant, and thus ignored). All other costs, including facilities, overhead, and labor, are considered fixed costs. Each box can be sold for $4. Ignore taxes throughout the problem. Cost to produce 2,400 chocolatesVariable Costs32 pounds of chocolate @ $5/pound$16080 boxes @ $0.50/box 40Fixed Costs 200Total Cost$400

Over the past several years, Barbara has received numerous customer requests for specialized boxes, containing only a single type of chocolate (Barbaras peanut butter cups are especially popular). Barbara is therefore considering offering specialized boxes as a new product line. While the chocolates themselves would be the same as before, they would be packaged in a smaller box, costing $0.20 each. The smaller box would hold twelve chocolates and be sold for $2 per box. Adding the new product line would have no effect on existing costs, including the fixed costs.

Currently, Barbara pays her only employee a fixed salary of $120 for the weekend. She is considering changing this to a per chocolate piece rate of $0.05/chocolate.

(Actual Question Here)

Assume that BCC only sells regular boxes. For purposes of questions 5 and 6, consider only the cost of the chocolate. Assume that Barbara is interested in determining the cost per box of chocolates in order to optimize her pricing decisions for next year. As discussed above, in order to produce 80 regular boxes, BCC uses 32 pounds of chocolate at a cost of $5 per pound. Based on a careful weighing of the completed chocolates, each box (which contains 30 chocolates) contains only 0.39 pounds of chocolate. The remaining chocolate is wastage during the production process. Barbara believes that this is a minimum level of wastage this represents chocolate remaining on spoons, bowls, etc., and cannot be reduced further. 5. Based on this information, what is the cost of chocolate per box (10 points)? __________ Briefly (two or three sentences) explain your answer. Be sure to account for all $160. That is, if the entire $160 is not incorporated into the boxes, explain what you would do with any additional costs. Several years ago, Barbaras chocolate supplier was disrupted by bad weather. As a result, Barbara had to find a new supplier for her chocolate, and was forced to purchase fifty pounds of chocolate at $5 per pound. As she know that extra chocolate would be discarded (as she only produces once per year), she ended up using 33.6 pounds of chocolate to produce the 80 boxes. Each finished box still contained 0.39 pounds of chocolate, but there was more wastage than usual, because Barbara knew she had far more chocolate than she needed and so was less careful about wastage. The remaining 16.4 pounds of chocolate were discarded.

Based on this information, what was the cost of chocolate per box (10 points)? __________ Briefly (two-three sentences) explain your answer. Be sure to account for all $250. That is, if the entire $250 is not incorporated into the boxes, explain what you would do with any additional costs.