The

Snack Shack

is a take-out food store at a popular beach resort.

Sharon Connor,

owner of the

Snack Shack,

is deciding how much refrigerator space to devote to four different drinks. Pertinent data on these four drinks are as follows:

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Connor

has a maximum front shelf space of 12 feet to devote to the four drinks. She wants a minimum of 1 foot and a maximum of 6 feet of front shelf space for each drink.

Read the

requirements

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Question content area bottom

Part 1

Requirement 1. Calculate the contribution margin per case of each type of drink.

				Natural
	Cola	Lemonade	Punch	Orange Juice
Selling price per case	$18.70	$20.25	$27.30	$39.30
Variable cost per case	14.50	16.25	20.50	29.70
Contribution margin per case

Part 2

Requirement 2. A coworker of

Connor's

recommends that she maximize the shelf space devoted to those drinks with the highest contribution margin per case. Do you agree with this recommendation? Explain briefly.

A.

This recommendation makes sense. It will allow the company to maximize their contribution margin.

B.

This recommendation does not make sense. The company should allocate equal shelf space to each product so the customer has plenty of options.

C.

This recommendation does not make sense. It fails to recognize that the company has limited shelf space and therefore wants to maximize the contribution margin per foot of shelf space.

Part 3

Requirement 3. What shelf-space allocation for the four drinks would you recommend for the

Snack Shack?

Show your calculations.

Begin by calculating the amount that should be used to determine the allocation. (Round your answers to the nearest cent.)

				Natural
	Cola	Lemonade	Punch	Orange Juice

Part 4

Allocate the shelf space to each product and show the effect it will have on the

Snack Shack's

operations. (Round your answers to the nearest cent.)

			Total
	Feet of	per Foot of
	Shelf Space	Shelf Space	per Day
Cola
Lemonade
Punch
Natural Orange Juice
Total

1.

Calculate the contribution margin per case of each type of drink.

2.

A coworker of

Connor's

recommends that she maximize the shelf space devoted to those drinks with the highest contribution margin per case. Do you agree with this recommendation? Explain briefly.

3.

What shelf-space allocation for the four drinks would you recommend for the

Snack Shack?

Show your calculations.