Answered: Dairyplus processes organic milk into…

Cornerstones of Cost Management (Cornerstones Series)

4th Edition

ISBN:9781305970663

Author:Don R. Hansen, Maryanne M. Mowen

Publisher:Don R. Hansen, Maryanne M. Mowen

Chapter12: Activity-based Management

Section: Chapter Questions

Problem 28P: Bienestar, Inc., has two plants that manufacture a line of wheelchairs. One is located in Kansas...

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Dairyplus processes organic milk into plain yogurt. Dairyplus sells plain yogurt to hospitals, nursing homes, and restaurants in bulk, one-gallon containers. Each batch, processed at a cost of $890, yields 540 gallons of plain yogurt. The company sells the one-gallon tubs for $7.00 each and spends $0.16 for each plastic tub. Dairyplus 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. Dairyplus could further process each batch of plain yogurt into

11,520 individual portions (3/4 cup each) of fruited yogurt. A recent market analysis indicates that demand for the product exists. Dairyplus would sell each individual portion for $0.40. Packaging would cost $0.05 per portion, and fruit would cost $0.10 per portion. Fixed costs would not change. Should Dairyplus 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.

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