Dairyfood processes organic milk into plain yogurt. Dairyfood sells plain yogurt

ID: 2470117 • Letter: D

Question

Dairyfood processes organic milk into plain yogurt. Dairyfood sells plain yogurt to hospitals, nursing homes, and restaurants in bulk, one-gallon containers. Each batch, processed at a cost of $880, yields 450 gallons of plain yogurt. The company sells the one-gallon tubs for $8.00 each and spends $0.12 for each plastic tub. Dairyfood 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. Dairyfood could further process each batch of plain yogurt into 9,600 individual portions (3/4 cup each) of fruited yogurt. A recent market analysis indicates that demand for the product exists. Dairyfood would sell each individual portion for $0.50. Packaging would cost $0.05 per portion, and fruit would cost $0.11 per portion. Fixed costs would not change. Should Dairyfood 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 alternative. (Enter a "O" 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 unit Net benefit per batch Based on this analysis, it is more profitable to sell | 11. As long as

Explanation / Answer

Sell as gallon-size containers

Sell as individual portions

Sales revenue per unit

$8.00

$0.50

Less:

Additional processing per unit - Packaging

$0.12

Additional processing per unit - Adding fruit

$0.16

Net benefit per unit

$7.88

$0.34

Number of units produced per batch

450

9600

Net benefit per batch

$3,546.00

$3,264.00

Based on this analysis, it is more profitable to sell individual containers. As long as there is a demand for individual containers.