Problems 10-56 and 10-57 (LO 10-3, 4)

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JFI Foods produces processed foods. Its basic ingredient is a feedstock that is mixed with other ingredients to produce the final packaged product. JFI purchases the feedstock from two suppliers, Rex Materials and Red Oak Chemicals. The quality of the final product depends directly on the quality of the feedstock. If the feedstock is not correct, JFI has to dispose of the entire batch. All feedstock in this business is occasionally "bad," so JFI measures what it calls the "yield," which is measured as,

Yield = Good output Input

where the output and inputs are both measured in tons. As a benchmark, JFI expects to get 16 tons of good output for every 40 tons of feedstock purchased for a yield of 40 percent (= 16 tons of output 40 tons of feedstock).

Data on the two suppliers for the past year follow:

	Rex Materials				Red Oak Chemicals			Total
Total inputs purchased (tons)		1,430				2,330			3,760
Good output (tons)		1,301				1,628			2,929
Average price (per ton)	$	220			$	180		$	195
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Required A:

Assume that the average quality, measured by the yield, and prices from the two companies will continue as in the past. What is the effective price for feedstock from the two companies when quality is considered? (Round intermediate calculations and final answers to 2 decimal places.)

	rex materials	Red Oak Chemicals
Effective price per ton

Required B:

The sales manager of Red Oak Chemicals has proposed to the purchasing manager at JFI that Red Oak be given an exclusive contract to supply the feedstock. If it receives the contract, Red Oak will guarantee an 40 percent yield on the feedstock it supplies.

a. Assume that the average quality, measured by the yield, and prices from the two companies will continue as in the past. What is the maximum price for feedstock that JFI should be willing to pay Red Oak under the exclusive contract? (Round intermediate calculations and final answer to 2 decimal places.)

Maximum price per ton