3.9 Preliminary consideration is being given to starting up a mixed fertilizer p

Question

3.9 Preliminary consideration is being given to starting up a mixed fertilizer plant as an adjunct to manufacturing operations. It is now estimated that the annual ficed charges(amortization) for the new plant will amount to $40000 and that the other costs will be 10.5 cents per pound of mixed fertilizer product. We plan to sell direct to the consumer at an estimated minimum average sale price of 14.5 cents per pound. Market forecasts predict an annual sale at this price of 1000 pounds per square mile. Since the plant is in the midst of the potential sales area, delivery to the consumer will be by truck. A trucking contractor has agreed to deliver the fertilizer for $800 per ton for loading and unloading, plus 30 cents per ton-mile for delivery. For the time being. we can assume consumption to be uniformly distributed over the area. We need to know the maximum distance we can afford to ship the fertilizer and what will be the average profit per ton.

Explanation / Answer

This question seems to be wrongly drafted due to below reasons. The selling price per pound is 14.5 Cents. 1 Ton equals to approx 2204.6 pounds. Hence, the selling price per Ton would be 31967 cents ie., 14.5*2204.6. 100 cents equals to one dollar. Hence, selling price per ton would be $ 319.67. However the loading and unloading cost per ton is given as $ 800 per ton. Delivery cost , which is one component of other variable cots cannot be so higher than the selling price of $ 319.67. Hence, appropriate solution cannot be drafted for this question.

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