Stellar Dairy and Foods Corporation (SDFC) started in the 1940s as a trading company for rice and sugar but now is a wholesaler and distributor of processed foods in the Philippines. Its product line includes Ultra-high temperature processing (UHT) milk, cheese, other dairies and frozen food products. SFDC is composed of two divisions. Its industrial and food service division caters to the manufacturing, food service and hospitality industries. It sells cheese, milk, skim milk and other dairy products to manufacturers of biscuits, baked goods and related products. Its consumer division distributes Star Milk", a UHT milk, and "Star Fries". frozen French fries, to supermarkets and grocery stores nationwide. The company imports its products mainly from Australia and other European countries such as Germany SDFC has received feedback from its industrial customers that they wish to purchase shredded cheese instead of blocks of cheese to manufacture their products more efficiently. However, SDFC can import only blocks of cheese. Thus, SDFC is now contemplating to buy an industrial cheese grater worth approximately PHP220,000. The estimated useful life of the cheese grater is 8 years though the company policy is to depreciate food processing equipment for 5 years. SDFC will also have to renovate its warehouse to house the equipment and shredded cheese (which takes up more space than blocks of cheese). Renovation is expected to cost Php600,000. New employees needed to operate the cheese grater and pack the products will cost the firm Php240,000 per year Sales volume is not expected to increase since it is thought that customers will simply switch from buying blocks of cheese to shredded cheese. However, the selling price will increase to reflect the value added by the shredding process. Below are the suggested selling prices: @2017 by Don Brodeth and Angelica Andrea Tiu. The case is intended for use as a basis for discussion in a classroom or training venue. It is not meant to illustrate the correct or incorrect handling of management situations. No part of this this case may be reproduced without written approval from either author