Sanchez & Sons Is a Mexican Baked-Goods Manufacturing Firm

Essay

Sanchez & Sons is a Mexican baked-goods manufacturing firm. Sanchez has two main divisions: Packaged Mixes and Finished Products. The Finished Products division is considering purchasing the mix for its churros from an outside supplier.
The Packaged Mixes department incurs the following costs for each batch of churros mix:
Direct Materials: $300
Direct Labor: $200
Variable Overhead: $200
Fixed Overhead: $150
In addition to the cost of the churros mix, the Finished churros Products Department would incur the following costs for each batch of churros:
Direct Materials: $150
Direct Labor: $140
Variable Overhead: $300
Fixed Overhead: $100
Currently, the Packaged Mixes department is producing at full capacity and would need to decrease production in another area in order to provide churro mix to the Finished Products department. Management estimates that $180 of contribution margin would be lost by the decrease in other areas. The current market price for the quantity of mix needed by the Finished Products department is $800: this is the price at which Sanchez can purchase the mix from an outside supplier. The finished churros from each batch will sell for $1,500.
Based on the decision that will maximize the overall benefit to Sanchez & Sons, what is the contribution margin per batch that can be realized by the Finished Products department?