Questions: Naturalmaid processes organic milk into plain yogurt. Naturalmaid sells plain yogurt to hospitals, nursing homes, and restaurants in bulk, one-gallon containers. Each batch, processed at a cost of 870, yields 675 gallons of plain yogurt. The company sells the one-gallon tubs for 5.00 each and spends 0.10 for each plastic tub. Naturalmaid 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. Naturalmaid could further process each batch of plain yogurt into 14,400 individual portions (3 / 4 cup each) of fruited yogurt. A recent market analysis indicates that demand for the product exists. Naturalmaid would sell each individual portion for 0.46. Packaging would cost 0.06 per portion, and fruit would cost 0.12 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? Calculate the net benefit per batch under each alternative. (Enter a "0" for any zero amounts. Round the net benefit per batch to the nearest whole dollar.)

Solution Steps

To determine whether Naturalmaid should continue selling gallon-sized plain yogurt or convert it into individual-sized portions of fruited yogurt, we need to calculate the net benefit per batch for each alternative. We will compare the revenue and costs associated with each option.

1. Sell as gallon-size containers:

   • Revenue: Number of gallons * Price per gallon
   • Costs: Processing cost + Cost of plastic tubs

2. Sell as individual portions:

   • Revenue: Number of portions * Price per portion
   • Costs: Processing cost + Packaging cost + Fruit cost

Finally, we will compare the net benefits of both alternatives to determine the more profitable option.

The revenue from selling gallon-size containers can be calculated as follows: \[ \text{Revenue}_{\text{gallon}} = \text{gallons\_yield} \times \text{price\_per\_gallon} = 675 \times 5.00 = 3375.00 \]

The total costs for selling gallon-size containers include the processing cost and the cost of plastic tubs: \[ \text{Cost}_{\text{gallon}} = \text{processing\_cost} + (\text{gallons\_yield} \times \text{cost\_per\_tub}) = 870 + (675 \times 0.10) = 870 + 67.50 = 937.50 \]

The net benefit for selling gallon-size containers is given by: \[ \text{Net Benefit}_{\text{gallon}} = \text{Revenue}_{\text{gallon}} - \text{Cost}_{\text{gallon}} = 3375.00 - 937.50 = 2437.50 \]

The revenue from selling individual portions can be calculated as follows: \[ \text{Revenue}_{\text{portion}} = \text{portions\_yield} \times \text{price\_per\_portion} = 14400 \times 0.46 = 6624.00 \]

The total costs for selling individual portions include the processing cost, packaging cost, and fruit cost: \[ \text{Cost}_{\text{portion}} = \text{processing\_cost} + (\text{portions\_yield} \times (\text{packaging\_cost\_per\_portion} + \text{fruit\_cost\_per\_portion})) \] \[ = 870 + (14400 \times (0.06 + 0.12)) = 870 + (14400 \times 0.18) = 870 + 2592.00 = 3462.00 \]

The net benefit for selling individual portions is given by: \[ \text{Net Benefit}_{\text{portion}} = \text{Revenue}_{\text{portion}} - \text{Cost}_{\text{portion}} = 6624.00 - 3462.00 = 3162.00 \]

Final Answer