Wondrous Aromas Company has three lines of perfume: Red, Green, and Blue. After mega-celebrity Caitlyn Spencer tweeted that this was her favourite line of perfume, demand for all three products has been off the charts. The company has a problem, it has a limited supply of orchid nectar, a common ingredient in all three products. Orchid nectar costs $5 per gram and is the major selling feature of all three perfumes. Cost data follow: Red Green Blue Price $200 $160 $80 Variable expenses Orchid nectar 50 30 20 Other direct materials 15 25 15 Direct labour 20 25 10 Variable manufacturing overhead 15 10 10 Total variable cost 100 90 55 Contribution margin $100 $70 $25 Required: Which product would you recommend the company focus on producing first? Second? Third? A supplier emerges willing to provide the company with more orchid nectar, but for a major premium. What is the maximum the company should be willing to pay per gram of orchid nectar as long as there is unfilled demand for all three perfumes?

From the given table, we can calculate contribution margin ratio for each product to decide the…

Answered: Wondrous Aromas Company has three lines…

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Wondrous Aromas Company has three lines of perfume: Red, Green, and Blue. After mega-celebrity Caitlyn Spencer tweeted that this was her favourite line of perfume, demand for all three products has been off the charts. The company has a problem, it has a limited supply of orchid nectar, a common ingredient in all three products. Orchid nectar costs $5 per gram and is the major selling feature of all three perfumes. Cost data follow:

	Red	Green	Blue
Price	$200	$160	$80
Variable expenses
Orchid nectar	50	30	20
Other direct materials	15	25	15
Direct labour	20	25	10
Variable manufacturing overhead	15	10	10
Total variable cost	100	90	55
Contribution margin	$100	$70	$25

Required:

Which product would you recommend the company focus on producing first? Second? Third?

A supplier emerges willing to provide the company with more orchid nectar, but for a major premium. What is the maximum the company should be willing to pay per gram of orchid nectar as long as there is unfilled demand for all three perfumes?

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