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Wholesome Dairy processes milk. The cost of the milk processing is $1,350,000. Wholesome is looking to...

Wholesome Dairy processes milk. The cost of the milk processing is $1,350,000. Wholesome is looking to increase its net income and is exploring the possibility of expanding its products to include cream and/or ice cream. It takes 2 gallons of milk to make a half gallon of ice cream.

Product

Units Produced

Selling Price

Additional Processing costs

Milk

810,000

gallons

$

3.07

per gallon

Ice Cream

?

6.17

per half gallon

$

0.30

per half gallon

Required:

1. How many half gallons of ice cream can Wholesome make?

2. What are the additional processing costs to convert the milk to ice cream?

3. Should Wholesome sell the milk or process it further and sell ice cream?

Complete this question by entering your answers in the tabs below.

Required 1
Required 2
Required 3

How many half gallons of ice cream can Wholesome make?

Number of half gallons of ice cream

Required 2
Required 3

What are the additional processing costs to convert the milk to ice cream?

Additional processing cost

Required 3

Should Wholesome sell the milk or process it further and sell ice cream?

Decision

Expert Solution

1) Computatio of Quantty of Half Gallon icecream
Milk Produced Unit	810000
Milk Required to produced half gallon of Icecream	2 Gallon
No. of Half gallon of Ice Cream can be produced (810000/2)	405,000

Part-2 Computation of Additioal processing Cost
Additional processing Cost to Convert Milk to icecream	0.30 per Half Gallon
No. of Half gallon of Ice Cream can be produced	405000
Tototal Additional Cost to convert milk to Incecream (405000*0.30)	$121,500.00

Part-3
Revenue from Sale of Icecream ( 6.17X405000)	$2,498,850.00
Additional Cost to Convert milk to icecream	$121,500.00
NRV of selling Icecream (a)	$2,377,350.00
Revenue from Sale of Milk without processing (810000*3.07) (b)	$2,486,700.00
Differential (a-b)	-$109,350.00

It Should not Sell milk by further processing in Ice Cream becasue thre will be loss of $109350

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ekkarill92 answered 1 year ago

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