Question

1 RED BRAND CANNERS 2 MIX DECISION Whole JuicePasteTotal Required Available 4 Grade A 5 Grade B 6 Total Production 7 75 225 300 4,400 1,0002,000 525 175 700 2,000 2,000 600 2,400 600 2,400 3,000 Demand QUALITY Quality Whole Juice 4,725 875 Paste 10 Grade A 11 Grade B 12 Total Quality 13 Required Total Quality 14 Average Quality 5 Required Average Quality8.0 16 17 18 Contribution Margin 19 675 1,12510,000 5 5,6001,80010,000 5,6001,800 10,000 6.0 6.0 5.0 5.0 8.0 PROFIT WholeJuice Paste Total Contribution $247 $198 $222 $676,300

In April the year after, Red Brand Canners is preparing for the annual negotiations with the tomato farmers. Although the quality of the crop varies from year to year, the price and quantity are negotiated in advance. At a meeting, Dan Tucker, William Cooper, Charles Myers and Mitchell Gordon agree that this year, an acceptable price would be 20 cents per pound, and they are debating how many pounds of tomatoes to contract for. Dan Tucker says that initial discussions revealed that they could order up to 13 million pounds of tomatoes. Charles Myers says that demand is pretty much the same as last year, i.e. they would be able to sell as many whole canned tomatoes as they can make, and demand for juice and paste is again limited to 50,000 and 80,000 cases, respectively. Also prices and production costs are stable and would be the same as last year. The only uncertainty is the quality of the crop. Looking at historical data, Tucker observes that in the past there were basically three types of years. In “wet” years, like last year, the crop was quite poor, and contained only about 20% grade A. In “sunny” years, the percentage of A tomatoes was around 60%, and in “normal” years, the crop contained approximately 50% grade A tomatoes. Tucker also observed that about 25% of the years were “sunny”, 50% “normal” years and 25% “poor”.  Assume you know that next year is going to be a sunny year, how many pounds of tomatoes would you advise RBC to buy? Call this S. How about for a normal (N) and poor (P) year?  Suppose you order S pounds of tomatoes. What would be the possible outcomes, given that the year could be sunny, normal or poor? What could happen if we ordered N or P tomatoes?  How many pounds of tomatoes would you advise RBC to buy?

Answer 1

っ NX