Jay$-$Me Radish has the following annual activity and costs:

Sales $[$unit is box of $121-$lb cello bags. of radishes$]4,200,000$ units

Average selling price per box $$3\mathrm{.}00$

Yield per planted acre $375$ net units

Variable Costs:

Farming costs:

Seed $$91\mathrm{.}00$ per acre

Fertilizer & Chemical $$70\mathrm{.}00$ per acre

Fixed Costs $$2,400,000$

Packaging Costs:

Grading labor $$0\mathrm{.}23$ per box

Box & cellophane cost $$0\mathrm{.}22$ per box

Waste $[$cull removal$]$ $$0\mathrm{.}03$ per box

Fixed Costs $$2,200,000$

Selling & Administrative:

Commission $$0\mathrm{.}05$ per box

Delivery $$0\mathrm{.}30$ per box

Fixed Costs $$1,500,000\mathrm{.}00$

Decisions to make:

$1.$ The company does not assess any costs to its farmland, which it has owned for

over $20$ years. It has the opportunity to sell its $2,400$ acres of black muck farmland

for $$5,700\mathrm{.}00$ per acre. This would allow the company to pay off nearly all of its

$$14,000,000\mathrm{.}00$ bank debt, which has an interest rate of $6\%.$ Bolthome Farms is a

large carrot grower; it has offered the to farm radishes on its land by rotating with

Bolthome$$s carrots. Jay$-$Me will pay $$200\mathrm{.}00$ to Bolthome for each planted acre of

radishes. This rotation would permit a $10\%$ increase in net yield as well as a $50\%$

decrease in fertilizer and chemical cost $($see other factors below$).$

$2.$ A Silicon Valley company, Shyster Imaging, has offered to sell the company two

laser grading machines which Shyster estimates will reduce the company$$s

grading labor by $80\%.$ The machines cost $$1,750,000\mathrm{.}00$ each and are projected to

have a five$-$year life. Similar machines have been on the market for nearly a

decade grading and sorting potato chips.

$3.$ The company is considering the purchase of $60$ hydrocooler trailers. These trailers

would sell for $$35,000$ each. Each trailer would cost approximately $$350\mathrm{.}00$ per

month to operate $($primarily utility costs$).$ This hydrocooling storage increases the

life of the radishes by $28$ days. The anticipated useful life of the trailers is ten

years. The trailers would permit the company to have radishes during the

estimated two extreme weather disasters $[$freeze or tropical storm$]$ per year that

substantially damages the crop. Each disaster causes a three$-$week period during

which time the company basically has no radishes to sell. The radish price soars

to an average price of $$6\mathrm{.}50$ per box for three weeks following each such disaster.

These six weeks of $$new$$ sales, estimated at $65,000$ per week, would all constitute

increased sales. However, to make this work, the company would need to increase

planted acres by $30\%.$ Additionally, the company would incur additional waste

removal costs of $$0\mathrm{.}05$ per box.

Other factors $/$ information:

The Company$$s position with the bank is precarious at best. It is in the second

year of a three$-$year restructured agreement. The bank is secured by all of the Company$$s

assets, and the bank$$s president, with whom Jay$-$Me has a very good relationship, has just

resigned.

The Company$$s farm equipment is old, with an average age of its tractors being

over thirteen years.

The Company is having problems with rhizoctonia due to less than perfect

rotation. Yields are consistently going down; but it cannot reduce plantings and meet its

budget.

Radishes are a $27-$to$-32$ day crop. As such, normal farming procedures would

allow six to seven crop rotations on each acre. Therefore, Jay$-$Me is farming over $11,000$

acres of radishes on its $2,400$ acres due to multiple crops per year. Also, understand that

a weather disaster creates a $21-$day void in harvesting because of the technical damage to

plant$-$cycle radish growth.

Instructions:

Prepare comparative forecasted Contribution Margin income statements, independently,

for each of the three opportunities $($See attached answer sheet$).$

Explain how your amounts in the Change columns were derived.

Explain your decision on each of the three options. Discuss the risks, if applicable, as

well as the quantitative analysis.