Question

Jennifer's Cakes sells cakes. Last year, it sold on average 1,000 cakes per month and had the following average  monthly total costs:

Rent	$ 1,000
Materials	10,000
Hourly labor for Production of Cakes	8,000
Manager's salary	3,000

The normal selling price is $25.00 per cake, and Jennifer usually sells 1,000 cakes per month.

Costco has offered to pay Jennifer's $20.00 per cake to supply them with 500 cakes during the next month. (Assume that this is a one-time sale and future sales to Costco are not likley.)

In addition, Jennifer's Cakes will incur a one-time transportation cost of $500 to deliver the cakes to Costco.

Assuming that Jennifer's has the capacity to fill this order along with all of its other production, and that accepting this order will not cause problems with any of their other customers, should Jennifer's Cakes sell the 500 cakes to Costco? Justify your answer

Answer 1

Jenifers normal costs during every month is $22,000 with (Rent = 1000, Materials = 10000, Labour = 8000, Salary = 3000) and the she earn a profit of $3000 per month by 1000 cakes with an amount of $25

For 1 month she got an order from Costco for 500 cakes at $20 per cakes ie she will got $10,000 in that order + shipping charge of $500, and she has 500 more orders left with $25 per cake.

In my opinion she has got an extra order in this month and may be she can sold more cakes in this month to her old customers ona satisfy their needs. If she did'nt get any orders and just stopped thaking orders after 1000 cakes she will oly get $500 as profit in that month (500*20 = 10000 , 500*25= 12500). So she has a great chance to earn more profit in this month