Question

Best Dairy processes organic milk into plain yogurt. Best Dairy sells plain yogurt to​ hospitals, nursing​ homes, and restaurants in​ bulk, one-gallon containers. Each​ batch, processed at a cost of $ 870​, yields 615 gallons of plain yogurt. The company sells the​ one-gallon tubs for $ 7.00 each and spends $ 0.14 for each plastic tub. Best Dairy 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. Best Dairy could further process each batch of plain yogurt into 13 comma 120 individual portions​ (3/4 cup​ each) of fruited yogurt. A recent market analysis indicates that demand for the product exists. Best Dairy would sell each individual portion for $ 0.40. Packaging would cost $ 0.05 per​ portion, and fruit would cost $ 0.11 per portion. Fixed costs would not change. Should Best Dairy 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

Answer:

Best diary should continue to sell in gallons.

Explanation:

For sales in gallons per batch

Gross revenue per batch = 7 * 615 = 4305

Cost of gallons per batch = 0.14 * 615 = 86.1

Fixed cost of processing yogurt/batch = 870

Net profit /batch = 4305 - 86.1 - 870 = $3348.9

-Proposed sales of individual sized potions per batch

Portions /batch = 13120

Gross revenue of portions /batch =13120 * 0.4 = 5248

Cost of fruits in portions /batch = 13120 * 0.11 = 1443.2

Cost of packaging/batch = 13120 * 0.05 = 656

Fixed cost of yogurt processing/batch = 870

Net profit of portions /batch = 5248 - 1443.2 - 656 -870 = $2278.8

So therefore :

Profit difference between the two types of market sales.

= $1070.1

Gallon sales make more profit than portion sales so it is not advisable to convert to portion sale market because it would reduce net profit by $1070.1