Find which alternative is cost effective and by how much

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Compostela Farms, Inc. grows and sells tomatoes and tomato products. Each plot yields 1,500 pounds of tomatoes, referred to as a load; of the 1,500 pounds, 1,000 pounds are Grade A tomatoes and 500 are Grade B. The cost of growing and harvesting the tomatoes is $200 per load. Compostela can sell the 1,000 pounds of Grade A tomatoes in a load to grocers for $0.40 per pound. Alternatively, the tomatoes could be processed into hot sauce. Each bottle of hot sauce sells for $1.50 and requires one pound of tomatoes. The cost of additional processing averages $1 per bottle; this amount includes the remaining ingredients, bottles, labor, and needed processing activities.

Problem 1: Which alternative is more cost effective and by how much?

Problem 2: WHAT IF? the best of the Grade A tomatoes, Premium As, could be sold to grocers for $0.80 per pound? Of the 1,000 pounds of Grade A tomatoes in a load, about 30 percent are Premium As. The grocers, however, will not buy the Premium As unless they are also sold the regular Grade A tomatoes. (They will deal with another supplier instead.) It will cost an additional $50 per load to separate the Premium As from the regular Grade As.

Problem 3: Which alternative would be better?

Reference no: EM132719423

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