Profit Contribution Analysis

question 25

Essay

Profit Contribution Analysis. Kathy's Bakery is a local full-service bakery in Omaha, Nebraska. Kathy sells loaves of wheat bread for $3 a loaf. Of this amount, $1.50 is profit contribution. She is considering an attempt to differentiate her shop from several other competitors by only producing a special rice bread for customers allergic to wheat. Doing so would increase her unit cost by 50¢ per rice loaf. Current monthly profits are $400 on 800 unit sales.
A. Assuming average variable costs are constant at all output levels, what is Kathy's total cost function before the proposed change?
B. What will the total cost function be if rice loafs are produced?
C. Assume rice loaf prices remain stable at $3. What percentage increase in sales would be necessary to maintain current profit levels?

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Definitions:

Mature

The state of being fully developed in physical, emotional, or mental capacities, often characterized by a responsible and thoughtful approach to life.

Moral Reasoning

The process of determining right from wrong in a given situation by applying ethical principles and moral values.

Kohlberg

Refers to Lawrence Kohlberg, an American psychologist best known for his theory of stages of moral development.

Sense of Identity

The perception of oneself as a distinct, continuous entity with a set of beliefs, attributes, and values.