Question

. A tomato farmer has used direct distribution to sell to local consumers through an area farmers' market. Last year, she sold 400 bushels of tomatoes at $2.49 a pound. (There are 53 pounds in a bushel of tomatoes.) This year she is considering using an indirect channel by selling to two area supermarkets. She estimates that she can sell 650 bushels at $1.63 a pound. What will be the difference in revenue if she makes the change? What other factors should the farmer consider before changing to indirect distribution?

Answer 1

Answer:

the farmer's total revenue when she uses the direct channel = 400 x $2.49 = $996

if she uses the indirect channel, her total revenue = 650 x $1.63 = $1,059.50

her total revenue will increase when selling to he supermarkets, but also her variable production costs will increase. This means that it is probable that her total contribution margin decreases even if total revenue decreases.