Reference no: EM132500698

Great Canadian Muffin Company, Inc., prepares frozen gourmet muffins for shipment to upscale grocery stores as well as mailing to web and catalog customers. The company has two workstations, cooking and distribution. The cooking station is limited by the cooking time of the food. Distribution is limited by the speed of the workers. Distribution normally waits on food from cooking. Because the demand has increased in recent months to 4,000 dozen muffins, management is considered adding another oven in the cooking station or else having the cooks start to work earlier. The monthly costs of operating the cooking station one more hour each day is $1,500. The cost of adding another cooking station would add an average of $8 per hour. The current operating hours total eight hours a day, 24 days a month. The contribution margin of the finished products is currently $2 per dozen. Inventory carrying costs average by 50 dozen a day, with a long-run increase of 100 dozen units in finished goods inventory to 500 dozen.

Calculate

Question a) What is the total production per month if the change is made ?

Question b) What is the increase in the expected monthly product contribution for each of the possible changes? Assume long-run production equals sales.

Question c) What course of action would you recommend.