E8-31A (similar to) Question Help All Natural processes organic milk into plain

ID: 2411237 • Letter: E

Question

E8-31A (similar to) Question Help All Natural processes organic milk into plain yogurt. All Natural sells plain yogurt to hospitals, nursing homes, and restaurants in bulk, one-gallon containers. Each batch, processed at a cost of 800, yields 450 gallons of plain yogurt. The company sells the one gallon tubs for $7.00 each and spends S0.10 for each plastic tub. All Natural 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. All Natural could further process each batch of plain yogurt into 9,800 individual portions (3/4 cup each) of fruited yogurt. A recent market analysis indicates that demand for the product exists. All Natural would sell each individual portion for $0.40. Packaging would cost $0.05 per portion, and fruit would cost $0.09 per portion. Fixed costs would not change. Should All Natural 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? Calculate the net benefit per batch under each altenative. (Enter a "0" for any zero amounts. Round the net benefit per batch to the nearest whole dollar.) Sell as gallon-size Sell as individual containers portions Less: Net benefit per batch

Explanation / Answer

Sell as gallon size containers

Sell as Individual Portions

Sales value

0.40

Less:-Variable cost

0.10

(0.05 + 0.09)

=0.14

Less:-Fixed cost

(800/450)

=1.78

(800/9600)

=0.083

Net Benefit per unit (A)

5.12

0.177

Units per batch (B)

450

9600

Net Benefit per batch (A*B)

2304

1699.2

There is no need to convert Plain Yogurt in to individual portion