Question

Forster's Market Low demand Medium demand High demand 18,000 pounds per year 25,000 pounds per year 35,000 pounds per year Introduction Forster's Market is a retailer of specialty food items, including premium coffees, imported crackers and cheeses, and the like Last year, Forster's sold 14,400 pounds of coffee. Forster's pays a local supplier $3 per pound and then sells the coffees for $7 a pound. These numbers include the 14,400 pounds sold at For- ster's Market. In addition, Robbie thinks all three scenarios are equally likely The Roaster Decision While Forster's makes a handsome profit on the coffee business, owner Robbie Forster thinks he can do better Specifically, Robbie is considering investing in a large indus- trial-sized coffee roaster that can roast up to 40,000 pounds per year. By roasting the coffee himself, Robbie will be able to cut his coffee costs to $1.60 a pound. The drawback is that the roaster will be quite expensive; fixed costs (including the lease, power, training, and additional labor) will run about $35,000 a year Questions 1. What are the two capacity options that Robbie needs to consider? What are their fixed and variable costs?

Answer 1

Robbie needs to consider continuing to buy coffee with a variable cost of $3 per pound or investing in a roaster with a variable cost of $1.60 per pound and fixed costs of $35,000 per year.

Step-by-step explanation:

Robbie of Forster's Market is considering two capacity options: continuing to buy coffee from a local supplier or investing in an industrial-sized coffee roaster. The current approach has variable costs of $3 per pound with coffee sold at $7 per pound. If Robbie invests in a coffee roaster, the variable costs would decrease to $1.60 per pound, but he would incur fixed costs of approximately $35,000 per year. This includes lease, power, training, and additional labor for the roaster that can process up to 40,000 pounds of coffee annually.