Aunt Connie's Cookies Contribution Margin and Breakeven Analysis
Aunt Connie's Cookies is a brand that is synonymous with delicious Lemon Cream and real Mint Cookies throughout the East and Midwest. Aunt Connie's Cookies was founded in 1986 after a friend of Aunt Connie urged her to take her business and baking skills to the public. The Aunt Connie's brand has grown successful producing Lemon Crème and Real Mint cookies. Maria Villanueva is the current chief executive officer of this family owned company.
Maria was considering a large bulk order of a cookie production, competitor buyouts and the strain of meeting cookie demand and operating as a profitable entity. Maria has to make a decision to:
1. Make or buy
2. Sell or process further
3. Retain or replace equipment
4. Eliminate an unprofitable business segment
5. Allocate limited resources
The concept of contribution is important for the decision to be made. Real Mint provides a greater total contribution margin while Lemon Crème provides the greater Unit Contribution Margin.
To be able to take the order, one or both of the cookie productions will need to be reduced in order for that energy to go towards filling the bulk order. The main idea here is to maximize the operating profits because it is better to produce more of the product that provides the greater unit contribution margin. By keeping Lemon Crème cookies operating at the same level, no unnecessary operating profits would be lost and the increased order for Real Mint provides a greater revenue amount than would have been during a normal production month.
If the bulk order had been for the Lemon Crème cookies it may have been more difficult to reach and end result that is as desirable. The Real Mint...
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...The three key learning points that are identified are breakeven, variable cost, and fixed cost will be of importance in the decision making because Mr. Shultz needs to know how many items he must sell before he can see the profits of each store. Variable cost is important because cost affect profitability and details the management strategies to enhance profits. Finally fixed costs are important because it must be paid irrespective of sales volumes. Fixed costs include, but are not limited to, overheads (rent, insurance, and such) but can include direct costs such as payroll. The overall importance of breakeven, variable cost and fixed cost are equally important to any business decision making.
Reference
Datamonitor. (January 2005). Starbucks Corporation. Retrieved September 22, 2006 from, http://www.investor.reuters.com from University of Phoenix Library.
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Koehn, N.F., Besharov, M.A., & Miller, K. (2008). Starbucks Coffee Company in the 21st Century. [Case study]. Boston, MA: Harvard Business School Publishing.
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Nithin Geereddy. 2013. Strategic Analysis of Starbucks Corporation. [ONLINE] Available at:http://scholar.harvard.edu/files/nithingeereddy/files/starbucks_case_analysis.pdf. [Accessed 18 April 14]
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