Dairyplus processes organic milk plain yogurt. Dairyplus plain yogurt to hospita

ID: 2485494 • Letter: D

Question

Dairyplus processes organic milk plain yogurt. Dairyplus plain yogurt to hospitals, nursing homes, and restaurants in bulk, one-gallon containers. Each batch, processed at a cost of $870, yields 750 gallons of plan yogurt. The company sells the one-gallon tubs for $6.00 each and spends $0.16 for each plastic tub. Dairyplus 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. Dairypuls could further process each batch of plain yogurt into 16,000 individual portions (3/4 cup each) of fruited yogurt. A recent market analysis indicates that demand for the product exists. Dairyplus would sell each individual portion for $0.46. Packaging would cost $0.05 per portion, and fruit would cost $0.09 per portion. Fixed costs would not change. Should Dairyplus 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.

Explanation / Answer

Answer:

Sell as gallon size containers(750 gallons)

Sell as individual Portions(16000 portions)

Total Sales

4500

7360

Less

Processing Cost

870

Packaging cost

120

800

Fruit cost

1440

Net beneft per unit

4.68 Per Gallon

0.2656 Per Individual portion

Net benefit Per batch

3510

4250

Net Benefit Per batch if individual Portions are sold: 4250-3510 = 740.

So Dairy Plus should go with the option of further processing and selling the fruited yogurt as the there is a net benefit of $740 from doing so.