Question

Dairymaid processes organic milk into plain yogurt. Dairymaid sells plain yogurt to​ hospitals, nursing​ homes, and restaurants in​ bulk, one-gallon containers. Each​ batch, processed at a cost of $890​, yields 675 gallons of plain yogurt. The company sells the​ one-gallon tubs for $7.00 each and spends $0.10 for each plastic tub. Dairymaid has recently begun to reconsider its strategy. Management wonders if it would be more profitable to sell​ individual-sized portions of fruited organic yogurt at local food stores. Dairymaid could further process each batch of plain yogurt into 14,400 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 $0.48. Packaging would cost $0.06 per​ portion, and fruit would cost $0.11 per portion. Fixed costs would not change. Should Dairymaid continue to sell only the​ gallon-sized plain yogurt​ (sell as​ is) or convert the plain yogurt into​ individual-sized portions of fruited yogurt​ (process further)?​ Why?

Answer 1

sell y individual portions Sales revenue per unit Less: Additional processing costs por unit - packaging Additional processing costs per unit- adding fruit Net benefit per unit Number of units produced per batch Net benefit por batch selling as gallon size containers $7.00 ($ 0.10) ($0.00) $6.90 x 675 $ 4658 $ 0.48 ($0.06) ($0.1) $ 0.31 14,400 $4464 X the gallon dan the analysis, Based Dairy ples should continue to sell only sized plain yogurt as it is more profitable.