Question

NaturalmaidNaturalmaid

processes organic milk into plain yogurt.

NaturalmaidNaturalmaid

sells plain yogurt to​ hospitals, nursing​ homes, and restaurants in​ bulk, one-gallon containers. Each​ batch, processed at a cost of

$890​,

yields

585585

gallons of plain yogurt. The company sells the​ one-gallon tubs for

$5.00

each and spends

$0.12

for each plastic tub.

NaturalmaidNaturalmaid

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.

NaturalmaidNaturalmaid

could further process each batch of plain yogurt into

12,480

individual portions​ (3/4 cup​ each) of fruited yogurt. A recent market analysis indicates that demand for the product exists.

NaturalmaidNaturalmaid

would sell each individual portion for

$ 0.52$0.52.

Packaging would cost

$0.08

per​ portion, and fruit would cost

$0.09

per portion. Fixed costs would not change. Should

Naturalmaid

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?

		Sell as gallon size containers	Sell as indiv. portions
Less
Net benefit per unit
Net beneifit per batch

Answer 1

Particulars	sell as Fallon size containers	sell as individual portions
Sales	2927925 (585585x5)	6489.60 (12480x0.52)
Less : relevant cost
Plastic tub	70270.2	0
Packaging	0	998.40 (0.08x12480)
Fruits	0	1123.20 (0.08x12480)
Net benefit per batch	2857654.8	4368.2
Net benefit per unit	4.88 (2857654.8/585585)	0.35 (4368.2/12480)

Since, net benefit is greater if we continue to see only the gallon-sized plain yogurt, therefore instead of converting plain yogurt into individual sized portion of fruited yogurt, we should continue to sell gallon sized plain yogurt.