Question

Required information

[The following information applies to the questions displayed below.]

JFI Foods produces processed foods. Its basic ingredient is a feedstock that is mixed with other ingredients to produce the final packaged product. JFI purchases the feedstock from two suppliers, Rex Materials and Red Oak Chemicals. The quality of the final product depends directly on the quality of the feedstock. If the feedstock is not correct, JFI has to dispose of the entire batch. All feedstock in this business is occasionally "bad," so JFI measures what it calls the "yield," which is measured as,

Yield = Good output ÷ Input

where the output and inputs are both measured in tons. As a benchmark, JFI expects to get 22 tons of good output for every 25 tons of feedstock purchased for a yield of 88 percent (= 22 tons of output ÷ 25 tons of feedstock).

Data on the two suppliers for the past year follow:

   

	Rex Materials				Red Oak Chemicals			Total
Total inputs purchased (tons)		1,490				2,390			3,880
Good output (tons)		1,267				1,688			2,955
Average price (per ton)	$	250			$	210		$	225

The sales manager of Red Oak Chemicals has proposed to the purchasing manager at JFI that Red Oak be given an exclusive contract to supply the feedstock. If it receives the contract, Red Oak will guarantee an 88 percent yield on the feedstock it supplies.

Required:

a. Assume that the average quality, measured by the yield, and prices from the two companies will continue as in the past. What is the maximum price for feedstock that JFI should be willing to pay Red Oak under the exclusive contract? (Round intermediate calculations and final answer to 2 decimal places.)

Answer 1

Sol - Rex Materials Red Oak Charsals to Total inputs Good Output Average Price 1400 1261 250 2390 1628 210 Total Output produce as por Current mixture o 1261 162 2955 Total Cost: incurned on inputs is 149x2.50 2390 x 210 .8.140 "If we give Contract exclusively to Red Oax chenkele af 88% Jurronteed Yold then total input needed will be to produce Current Output :- - Current Output x loo Current Output 2955 . → 2955 to 335+25 x 3358 Maximum price that If I Can pay to Red OAK Jux Exclusive Comtectis Total Cost without excusive. Contact and contrak Snput needed as per Neo Contract Redwar 874,400260.39 x 260 $ 3 S8

As per average Quality and yeeld basis, Maximum -price that I foods can offer to Redonx for exclusive Contract is $260. "Ak chemicals needed will 38 3358 JAK