Cost and Pricing: The Case of SweetTooth Candies Business/Analytical Learning Ob
ID: 428902 • Letter: C
Question
Cost and Pricing: The Case of SweetTooth Candies Business/Analytical Learning Objectives:
Determine variable(s) of interest, identify and organize relevant information for a problem with multiple components
Recognize and calculate fixed costs and variable costs
Use Excel to perform calculations
Compute costs per unit and weight per unit from bulk costs and bulk weights
Suggest a price/lb factoring in costs, market structure, and competitors’ pricing
Introduction
Rashed just bought a self-serve candy business. This shop, SweetTooth Candies, serves a large variety of candies, including chocolates, hard candies, jelly beans and gummies. The customer fills an empty bag with their choice of candies and then it is weighed at the checkout. All candies are sold for the same price per pound to customers.
Rashed needs to decide how much to charge for each pound of product. However, he has discovered that determining this answer is not so easy because many of the candies have different costs. Based on his initial orders and invoices, Rashed has gathered data on the costs and weights of the products he stocks. Several of the candies have the same costs, so he has grouped them together into types. Refer to the “candycost” worksheet of the data file for this information.
Next, Rashed knows that he cannot just take an average price of the candies. Instead, he invites 25 family and friends to the shop just prior to its opening and tells them to get themselves whatever they would like. Rashed weighs each ingredient they put into their bag, so he knows exactly how much of each type of candy each person chooses. The details of these measurements are shown in the “candydata” worksheet of the data file provided.
Deliverables:
Perform the necessary analysis and research to answer the following set of questions. The output must be a professional looking report and an Excel spreadsheet. Remember to format all values to the appropriate number of decimal places. Add column labels to organize and present you calculations. Use formulas to do all your calculations, and do not change them into values (I should be able to check your formulas and calculations).
Adapted from DePaolo et al (2018), “Weight-based cost estimation using Excel: candy, yogurt, and salad applications”. Journal of Business Cases and Applications.
Preliminary questions
1) Explain why Rashed cannot just average the costs of the different types of candies in order to determine his average cost per pound.
2) If two bags filled by customers both weighed 1 pound exactly, would they both have the same cost to Rashed? Why or why not?
Initial Calculations
3) Refer to the “candycost” worksheet that shows all of the cost and weight data. Calculate how much each of the items costs per pound. Present results in new column labeled “Cost Per Pound.”
Table 1: "candycost" dataset
Component
Bulk Cost
Cost per Ibs
Cost per Unit
Cholocate covered nuts
$12.96 / 2 U.S. lbs
$6.48
n/a
Gourmet jelly beans
$24.50 / 5 U.S. pounds
$4.90
n/a
Gummy candies
$13.50 / 5 U.S. pounds
$2.70
n/a
Sour hard candies
$16.50 / 5 U.S. pounds
$3.30
n/a
Individually wrapped candies
$14.99 / 5 U.S. pounds
$3.00
n/a
M&Ms, Skittles, Reese’s pieces, etc.
$156.50 / 25 U.S. pounds
$6.26
n/a
Plastic bags to hold candy
$35 / 1000 bags
n/a
$0.04
Twist ties to secure bags closed
$ 10 / 2000
n/a
$0.01
Average Cost per unit lbs
$4.44
4) Determine how much each plastic bag and twist tie cost Rashed. While he will assume the weight of the bag and tie are negligible, Rashed wants their purchase cost factored into the cost of each order. Do these calculations in Excel, labeled as “Cost Per Unit”.
5) The sample data for the 25 observations are shown in the worksheet “candydata.” For each of these observations, determine the total weight of the observation. Do these calculations in Excel in a column labeled “Total Weight”.
6) Also in Excel, calculate the total cost of each of the 25 sample orders. Remember to add in the cost of the plastic bag and twist tie in addition to the cost of the candies. Do these calculations in Excel in a column labeled “Total Cost”. You may add other columns as required; please provide appropriate column labels.
Cost Analysis
7) Calculate the cost per pound for each customer order. Also calculate the average cost per unit of weight for the entire sample.
8) Interpret the results in terms of what Rashed should do. What should he consider as an average cost per pound of the bag and its ingredients, based on the sample data?
Conclusions & Recommendations
9) Should Rashed charge customers his average cost per pound? Why or why not?
10) Do some informal, online research for bulk candy stores of this type (e.g. Sweet Factory, Fuzziwig’s, etc.). What do similar franchises charge per pound?
11) Which market structure do bulk candy stores most closely resemble? Explain your answer.
12) Compare Rashed’s cost per pound to the price per pound that is charged at similar candy shops. Make an inference about profit margin based on this cost and price information.
Table 1: "candycost" dataset
Component
Bulk Cost
Cost per Ibs
Cost per Unit
Cholocate covered nuts
$12.96 / 2 U.S. lbs
$6.48
n/a
Gourmet jelly beans
$24.50 / 5 U.S. pounds
$4.90
n/a
Gummy candies
$13.50 / 5 U.S. pounds
$2.70
n/a
Sour hard candies
$16.50 / 5 U.S. pounds
$3.30
n/a
Individually wrapped candies
$14.99 / 5 U.S. pounds
$3.00
n/a
M&Ms, Skittles, Reese’s pieces, etc.
$156.50 / 25 U.S. pounds
$6.26
n/a
Plastic bags to hold candy
$35 / 1000 bags
n/a
$0.04
Twist ties to secure bags closed
$ 10 / 2000
n/a
$0.01
Average Cost per unit lbs
$4.44
Explanation / Answer
1) As stated in question different candies have different cost but he was selling all the candies at same cost irrespective of actual cost what he has paid while buying those candies and when he checked the invoices candies has different rates though weight was same like 1pound each . If he takes average of all the candies and set the average cost for all the candies let say A candy cost 4$ , B candy Cost 6$ and C candy cost 8$ so if we took the average its 6$ for each candy i.e 6 $ same rate for each candy but as people are free to take any candy and 10 buyers come and took 20 candies of C Type candy which costs them 120$ so our cost was 8 but now has been sold at 6 $ so average concept will not work i.e may be demand will be more for C and B candy and 50% of A remains unsold then this will be cost for him and loss to his shop so average will not work candies should be divided and costs accordingly to their buying cost.
2)So as i said earlier customer bought two bags and weight was same for both the bags and rashed charge his same cost but may be the costly candy is more in two bags and the candy whihc is lower in cost its quantity is very less in the bag so the cost will be different for him , though he has same Price for customers , bags will have different cost to him as he is not aware about the input in the bags. So yes there will be diference he should make standard rates for his candies according to the actual cost of product.