Jacques empire (see Chapters 5 and 8) is expanding and he has acquired a small grocery store with a Liquor Control Board of Ontario (LCBO) license. The store has a shelf space of 100,000 units.
As an astute businessman, Jacques realizes that shelf space in the grocery store is a constraining factor of production in his new grocery business and has decided he needs to maximize the contribution provided by each metre of shelf space in his store.
Jacques wants to expand the LCBO licensee area, but faces restrictions. The LCBO restricts the space devoted to the sale of liquor to be 10% or less of the stores shelf space.
Jacques has divided the store operations into five groups: produce, meat, groceries, diary and liquor. Like the LCBO, there are guidelines set down by the chain, of which Jacques is a franchisee, relating to the shelf space that can be devoted to each area. The following is a segment income statement reflecting current operations and the minimum shelf space occupancy required by the chain and the maximum shelf space dictated by the LCBO for liquor operations:
.transtutors.com/qimage/image04062015005.png” alt=””>
Jacques has determined the cost of merchandise sold is variable and all selling and administrative expenses are fixed and allocated to each area based on floor space occupied.
Required:
Jacques wants to develop a shelf plan that maximizes his profit potential. Since his choices are apparently and, therefore, easily audited by the LCBO and the grocery chain management, Jacques has decided for once to stick to the rules when running a business. Assume sales and variable costs will change in proportion to the shelf space occupied and fixed cost will not change.
