Question:
Dairyfood processes organic milk into plain yogurt. Dairyfood sells plain yogurt to hospitals, nursing homes, and restaurants in bulk, one-gallon containers. Each batch, processed at a cost of $800, yields 570 gallons of plain yogurt. Dairyfood sells the one-gallon tubs for $6.00 each, and spends $0.10 for each plastic tub. Management has recently begun to reconsider its strategy. Dairyfood wonders if it would be more profitable to sell individualsized portions of fruited organic yogurt at local food stores. Dairyfood could further process each batch of plain yogurt into 12,160 individual portions (3/4 cup each) of fruited yogurt. A recent market analysis indicates that demand for the product exists. Dairyfood would sell each individual portion for $0.50. Packaging would cost $0.08 per portion, and fruit would cost $0.12 per portion. Fixed costs would not change. Should Dairyfood continue to sell only the gallon-sized plain yogurt (sell as is) or convert the plain yogurt into individual-sized portions of fruited yogurt (process further)? Why?