Question

Upstate Growers (Upstate) is a cooperative corporation owned by 12 large apple farmers in New York State. Upstate is responsible for managing all 12 apple orchards, picking and sorting the apples, and producing the final apple products. Apples are washed and sorted into three grades: “large unbruised apples,” “large bruised apples,” or “small apples.” These three apple grades/categories comprise the final products produced and sold by Upstate. Large unbruised apples are sold in supermarkets as whole “eating apples” after they are wrapped, packed, and shipped. Large bruised apples are peeled, cored, sauced, cooked, bottled, packed, and shipped to retailers as applesauce. And, small apples are juiced, cooked, filtered, and bottled as apple juice that is sold to supermarkets, but cannot be sold as whole “eating apples” or “apple sauce.” Large unbruised apples also can be converted into either applesauce or apple juice. Large bruised apples also can be juiced and bottled as apple juice like small apples, but cannot be sold as whole “eating apples. All three types of apples can be sold as is at $11 per 100 pounds of whole apples for use as livestock feed without incurring any additional costs. All three types of apples (large bruised, large unbruised, and small) are sorted into crates containing 100 pounds of apples. The cost of wrapping, packing, and shipping 100 pounds of large unbruised apples is $12, which can be sold as whole apples for $31. The cost of peeling, coring, cooking, saucing, bottling, packing, and shipping 100 pounds of apples is $60, which can be sold as applesauce for $80. The cost of juicing, cooking, filtering, bottling, packing, and shipping 100 pounds of apples is $28, which can be sold as apple juice for $34. Upstate harvested, washed, and sorted 4.6 million pounds of apples. The cost of operating the 12 orchards was $274,000, and the cost of picking, washing, and sorting the apples was $48,000. These 4.6 million pounds of apples yielded 9,300 (100-pound) crates of large unbruised apples, 14,200 (100-pound) crates of large bruised apples, and 22,500 (100-pound) crates of small apples. The orchards’ operating costs and the costs of picking, washing and sorting the apples are allocated to three apple categories based on apple weight. Use Excel and show all work—use formulas where useful—do not just key in answers. Required: a. Prepare a table that calculates the net profits of processing (1) eating apples from a 100-pound crate of unbruised apples, (2) applesauce from a 100-pound crate of apples, and (3) apple juice from a 100-pound crate of apples after allocating the orchards’ operating costs and the costs of picking, washing, and sorting the apples. b. Given the data in the problem, what should Upstate Growers do with each of the three sorted categories of apples harvested? In other words, to maximize firm value prepare a production plan for each 100-pound crate of the large unbruised apples (sell as whole “eating apples,” whole apples to be used as applesauce, apple juice, or livestock feed), the large bruised apples (sell as apples to be used as applesauce, apple juice, or livestock feed), and the small apples (sell as apples to be used as apple juice or livestock feed)? Explain the logic underlying your production plan and show calculations.

Answer 1

Working NOtes:

Upstate Growers Cooperative Coperation
12 Apple Orchids
Production of 4.6 million Pounds
Cost of 12 Apple Orchids = 274000$
Allocation Cost = 48000 $ allocated on the basis of apple weight
	Large Unbruised Apples	Large Bruished Apples	Small Apples
No. of Apple Crates in 100 Pounds	9300( 100 Pounds)	14200 ( 100 Pounds)	22500 ( 100 Pounds)
Market Place	Super market	Retailers	Super markets
Product	Whole Apples	AppleSauce	Apple Jiuce
Other Options	Apple Juice or Apple Sauce	Apple Juice	No Other Option Available
Expenses	Wrapped , Packed , Shipped	Peeled, cored, sauced, cooked, bottled, packed , shipped	Juice, cooked, filtered, bottled
Separated in to crates of 100 pounds
SP as Livestock on per 100 pound	11$	11$	11$	No Additional Cost further
Expenses Cost per 100 Pounds	12$	60$	28$
SP for Standard Product	31$	80$	34$

1. Calculating the Net Profit of Apples
	Large Unbruised Apples	Large Bruished Apples	Small Apples
No. of Apple Crates in 100 Pounds	9300( 100 Pounds)	14200 ( 100 Pounds)	22500 ( 100 Pounds)
If Sold as Per Standard requirement
Sold as	Whole Apples	Apple Sauce	Apple Juice
SP	288300	1136000	765000
Cost as Standard	111600	852000	630000
Contribution	176700	284000	135000
Cost of Picking , Washing and Sorting	9704	14817	23478	48000
Allocation Basis	48000 X 9300 / 46000	48000 X 14200 / 46000	48000 X 22500 / 46000
A	166996	269183	111522	547700
Net Profit on Per 100 Pound	18.0	19.0	5.0
Cost of Operating	-	-	-	274000
Net Profit Total As a Whole( A- Cost of Opearting Orchids)	273700

2. Here We come to the conclusion that by Selling Lare Unbruised and Large Bruised apples sold as Sauce will fetch 20$ per 100 pound Contribution and Selling Small as Live Stock will increase the firm value. Here Cost of Picking , sorting 48000$ will remain same.

	Large Unbruised Apples	Large Bruished Apples	Small Apples
Option Aviabale	Whole Apple	NA	NA
Apple Sauce	Apple Sauce	NA
Apple Juice	Apple Juice	Apple Juice
Crates	9300	14200	22500
If Sold as Standard	31 $ -12 $ = 19$	80$ -60$ = 20$	34$-28$ = 6 $
Decision Making Option 1: Sold Whole as Live Stock
	102300	156200	247500
Cost of Picking , Washing and Sorting	9704	14817	23478	48000
	92596	141383	224022	458000
Less: Other Cost			274000
Net Profit As a Whole			184000
Decision Making Option 2: Sold Small Apple as Live Stock and other as per Standard
Contribution	176700	284000	247500
Cost of Picking , Washing and Sorting	9704	14817	23478	48000
	166996	269183	224022	660200
Less: Other Cost			274000
Net Profit As a Whole			386200
Decision Making Option 3: Sold Small Apple as Live Stock and other as perApple Sauce
Contribution	186000	284000	247500
Cost of Picking , Washing and Sorting	9704	14817	23478	48000
	176296	269183	224022	669500
Less: Other Cost			274000
Net Profit As a Whole			395500