Question

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

Answer 1

The decision to process further is determined by profitability.

Step-by-step explanation:

The sales revenue would increase as well as the variable costs of production, including packaging and fruit costs per portion. If there are more profits to be made by further processing, then the firm should go ahead to convert the plain yogurt into individual-sized portions of fruited yogurt by processing it further. It should still maintain the supply to hospitals, nursing homes, and restaurants of the plain yogurt in bulk, one-gallon containers. By doing so, it has diversified its product offering, thus forestaling competition from new entrants who might try to dislocate it from its core business.