Question
dairyfood processes organic milk into plain yogurt. sells plain yogurt to hospitals, nursing homes, and restaurants in bulk, one-gallon containers. Each batch, processed at a
dairyfood processes organic milk into plain yogurt.
sells plain yogurt to hospitals, nursing homes, and restaurants in bulk, one-gallon containers. Each batch, processed at a cost of
$860,
yields
1,050
gallons of plain yogurt.
Dairyfood
sells the one-gallon tubs for
$10
each, and spends
$0.14
for each plastic tub.
Dairyfood
has recently begun to reconsider its strategy.
Dairyfood
wonders if it would be more profitable to sell individual-size portions of fruited organic yogurt at local food stores.
Dairyfood
could further process each batch of plain yogurt into
22,400
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
$0.58.
Packaging would cost
$0.06
per portion, and fruit would cost
$0.15
per portion. Fixed costs would not change.
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(Click the icon to view additional information.)Should
Dairyfood
continue to sell only the gallon-size plain yogurt (sell as is) or convert the plain yogurt into individual-size portions of fruited yogurt (process further)? Why? (Use a minus sign or parentheses for amounts that are typically shown enclosed in parentheses in a sell or process further decision.)
Costs | Sell As Is | Process Further | Difference |
---|---|---|---|
Expected revenue from selling by the gallon |
|
| |
Expected revenue from selling individual portions |
|
|
|
Additional costs of selling as is by the gallon |
|
| |
Additional costs of processing individual portions |
|
|
|
Total net revenue |
|
|
|
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