1 Quentin Cakes make about 20,000 cakes per year in two sizes, both based on the same recipe. Sales peak at Christmas time when demand is about 50 per cent higher than in the more quiet summer period. Their customers (the stores who stock their products) order their cakes in advance through a simple internet-based ordering system. Knowing that they have some surplus capacity, one of their customers has approached them with two potential new orders.

(a) The Custom Cake Option – this would involve making cakes in different sizes where consumers could specify a message or greeting to be ‘iced’ on top of the cake. The consumer would give the inscription to the store who would email it through to the factory. The customer thought that demand would be around 1,000 cakes per year, mostly at celebration times such as Valentine’s Day and Christmas.

(b) The Individual Cake Option – this option involves Quentin Cakes introducing a new line of very small cakes intended for individual consumption. Demand for this individual sized cake was forecast to be around 4,000 per year, with demand likely to be more evenly distributed throughout the year than their existing products.

The total revenue from both options is likely to be roughly the same and the company has only capacity to adopt one of the ideas. But which one should it be?