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Best Dairy processes organic milk into plain yogurt. Best Dairy sells plain yogurt to hospitals, nursing homes, and restaurants in bulk, one-gallon containers. Each
Best Dairy processes organic milk into plain yogurt. Best Dairy sells plain yogurt to hospitals, nursing homes, and restaurants in bulk, one-gallon containers. Each batch, processed at a cost of $800, yields 525 gallons of plain yogurt. The company sells the one-gallon tubs for $7.00 each and spends $0.14 for each plastic tub. Best Dairy has recently begun to reconsider its strategy. Management wonders if it would be more profitable to sell individual-sized portions of fruited organic yogurt at local food stores. Best Dairy could further process each batch of plain yogurt into 11,200 individual portions (3/4 cup each) of fruited yogurt. A recent market analysis indicates that demand for the product exists. Best Dairy would sell each individual portion for $0.40. Packaging would cost $0.05 per portion, and fruit would cost $0.11 per portion. Fixed costs would not change. Should Best Dairy 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? containers portions Sales revenue per unit $ 5.00 $ 0.48 Less: Additional processing costs per unit-packaging (0.10) (0.08) Additional processing costs per unit-adding fruit 0.00 (0.12) Net benefit per unit $ 4.90 $ 0.28 525 Number of units produced per batch 11,200 $ 2,573 $ 3,136 Net benefit per batch Based on this analysis, it is more profitable to sell fruited yogurt as individual portions . As long as there is a demand for individual portions
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