Wholesome Dairy processes milk. The cost of the milk processing is $1,330,000. Wholesome is looking to increase its net income and is exploring the possibility of expanding its products to include cream and/or ice cream. It takes 2 gallons of milk to make a half gallon of ice cream.

Product

Units Produced

Selling Price

Additional Processing costs

Milk

798,000

gallons

$

3.05

per gallon

Ice Cream

?

6.13

per half gallon

$

0.28

per half gallon

Required:

1. How many half gallons of ice cream can Wholesome make?

2. What are the additional processing costs to convert the milk to ice cream?

3. Should Wholesome sell the milk or process it further and sell ice cream?