Question 6:

Dairymaid processes organic milk into plain yogurt. (Click the icon to view additional information.) Should Dairymaid 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? More info Dairymaid sells plain yogurt to hospitals, nursing homes, and restaurants in bulk, one-gallon containers. Each batch, processed at a cost of $800, yields 900 gallons of plain yogurt. Dairymaid sells the one-gallon tubs for $10 each, and spends $0.14 for each plastic tub. Dairymaid has recently begun to reconsider its strategy. Dairymaid wonders if it would be more profitable to sell individual-size portions of fruited organic yogurt at local food stores. Dairymaid could further process each batch of plain yogurt into 19,200 individual portions (3/4 cup each) of fruited yogurt. A recent market analysis indicates that demand for the product exists. Dairymaid would sell each individual portion for $0.52. Packaging would cost $0.07 per portion, and fruit would cost $0.09 per portion. Fixed costs would not change. Decision: Based on this analysis, it is more profitable to sell plain yogurt in bulk containers