A bakery is making and selling three products: 1) Bagels, 2) Donuts, 3) Muffins, and 4) Pretzels. The unit cost and selling price of each product is provided below:
Product Unit Cost Unit Price
Bagel $0.50 $2.00
Donut $0.75 $2.75
Muffin $1.00 $3.50
Pretzel $0.50 $3.50
a) Calculate the gross margin in $ for each product
b) Calculate the gross margin in % for each product
c) The bakery has the option of undertaking only one of the following three catering orders. Which order is the most profitable?
Catering order A: 100 of each product (400 total products)
Catering order B: 50 Bagels, 100 Donuts, 50 Muffins, 100 Pretzels (300 total products)
Catering order C: 200 Bagels, 0 Donuts, 0 Muffins, 200 Pretzels
d) What is the total profit or loss if the bakery sells 1,000 of each product in that month and the total fixed costs of the bakery for that month is $2,000?
Gross Margin in % and $
| Product | Unit Cost A | Unit Price B | Gross margin in $ (B-A) C | Gross Margin in % (C/A)*100 |
| Bagels | 0.5 | 2 | 1.5 | 300% |
| Donuts | 0.75 | 2.75 | 2 | 267% |
| Muffins | 1 | 3.5 | 2.5 | 250% |
| Pretzels | 0.5 | 3.5 | 3 | 600% |
ORDER A
| Product | Unit Cost A | Unit Price B | Gross margin in $ (B-A) C | Quantity | Gross Profit |
| Bagels | 0.5 | 2 | 1.5 | 100.00 | 150 |
| Donuts | 0.75 | 2.75 | 2 | 100.00 | 200 |
| Muffins | 1 | 3.5 | 2.5 | 100.00 | 250 |
| Pretzels | 0.5 | 3.5 | 3 | 100.00 | 300 |
| 900 |
ORDER B
| Product | Unit Cost A | Unit Price B | Gross margin in $ (B-A) C | Quantity | Gross Profit |
| Bagels | 0.5 | 2 | 1.5 | 50.00 | 75 |
| Donuts | 0.75 | 2.75 | 2 | 100.00 | 200 |
| Muffins | 1 | 3.5 | 2.5 | 50.00 | 125 |
| Pretzels | 0.5 | 3.5 | 3 | 100.00 | 300 |
| 700 |
ORDER C
| Product | Unit Cost A | Unit Price B | Gross margin in $ (B-A) C | Quantity | Gross Profit |
| Bagels | 0.5 | 2 | 1.5 | 200.00 | 300 |
| Donuts | 0.75 | 2.75 | 2 | 0.00 | 0 |
| Muffins | 1 | 3.5 | 2.5 | 0.00 | 0 |
| Pretzels | 0.5 | 3.5 | 3 | 200.00 | 600 |
| 900 |
ORDER A & C are the best and bakery should be indifferent towards both
d)
| Product | Unit Cost A | Unit Price B | Gross margin in $ (B-A) C | Quantity | Gross Profit |
| Bagels | 0.5 | 2 | 1.5 | 1,000.00 | 1500 |
| Donuts | 0.75 | 2.75 | 2 | 1,000.00 | 2000 |
| Muffins | 1 | 3.5 | 2.5 | 1,000.00 | 2500 |
| Pretzels | 0.5 | 3.5 | 3 | 1,000.00 | 3000 |
| 9000 |
Net Profit = Gross Profit - Fixed Cost
Net Profit = 9000 - 2000 = 7000
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