Question

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JFI Foods produces processed foods. Its basic ingredient is a feedstock that is mixed with other ingredients to produce the final packaged product. JFI purchases the feedstock from two suppliers, Rex Materials and Red Oak Chemicals. The quality of the final product depends directly on the quality of the feedstock. If the feedstock is not correct, JFI has to dispose of the entire batch. All feedstock in this business is occasionally "bad," so JFI measures what it calls the "yield," which is measured as,

Yield = Good output ÷ Input

where the output and inputs are both measured in tons. As a benchmark, JFI expects to get 15 tons of good output for every 20 tons of feedstock purchased for a yield of 75 percent (= 15 tons of output ÷ 20 tons of feedstock).

Data on the two suppliers for the past year follow:

   

	Rex Materials				Red Oak Chemicals			Total
Total inputs purchased (tons)		1,420				2,320			3,740
Good output (tons)		1,406				1,618			3,024
Average price (per ton)	$	215			$	175		$	190

5.

value:
4.00 points

Required information

Required:

Assume that the average quality, measured by the yield, and prices from the two companies will continue as in the past. What is the effective price for feedstock from the two companies when quality is considered? (Round intermediate calculations and final answers to 2 decimal places.)

Effective price per ton for Rex Materials is? and for Red oak Chemicals?

b.

The sales manager of Red Oak Chemicals has proposed to the purchasing manager at JFI that Red Oak be given an exclusive contract to supply the feedstock. If it receives the contract, Red Oak will guarantee an 75 percent yield on the feedstock it supplies.

Required:

b. Assume that the average quality, measured by the yield, and prices from the two companies will continue as in the past. What is the maximum price for feedstock that JFI should be willing to pay Red Oak under the exclusive contract? (Round intermediate calculations and final answer to 2 decimal places.)

Maximum price per ton is?

Answer 1

a.		Rex Materials	Red Oak Chemicals
	a) Total inputs purchased (tons)	1,420	2,320
	b) Good output (tons)	1,406	1,618
	c) Yield        (b)/(a)	99.01%	69.74%
	d) Average price (per ton)	215	175
	e) Effective cost per ton (d)/©	217.14	250.93
b.	Maximum price willing to pay is not more than effective price per ton of rex materials at a yield of 75%
	Assume Maximum price per ton=p
	p/yield=Effective cost per ton
	p/75%=217.14
	p=217.14*75%=$ 162.86
	Hence, maximum price per ton=$ 162.86