Mary’s Apples grows organic apples and sells them to national grocery chains, local grocers, and markets. Mary purchased a machine for $450,000 that sorts the apples by size. The largest apples are sold as loose apples to the various stores, the medium-sized apples are bagged and sold to the grocers in their bagged state, and the smallest apples are sold to deep discounters or to a local manufacturing plant that processes the apples into applesauce. Mary is considering keeping the small apples and processing them into apple juice that would be sold under Mary’s own label to local grocers. The small apples currently sell to the deep discounters and local manufacturers for $1.10 per dozen. The variable cost to prepare the small apples for sale, including transporting the apples, is $0.30 per dozen. Mary can sell each gallon of organic apple juice for $3.50 per gallon. It takes two dozen small apples to make one gallon of apple juice. The cost to produce the organic apple juice will be $0.60 variable cost per gallon plus $200,000 fixed costs for the one-year lease of the equipment needed to make and bottle the juice. Mary normally harvests and sells 2,400,000 small apples per year. Which of these costs is irrelevant? Classify this cost. a.$200,000; Fixed cost b.$0.60; Variable cost c.$450,000; Sunk cost d.$0.30 per dozen; Variable cost

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

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Mary’s Apples grows organic apples and sells them to national grocery chains, local grocers, and markets. Mary purchased a machine for $450,000 that sorts the apples by size. The largest apples are sold as loose apples to the various stores, the medium-sized apples are bagged and sold to the grocers in their bagged state, and the smallest apples are sold to deep discounters or to a local manufacturing plant that processes the apples into applesauce. Mary is considering keeping the small apples and processing them into apple juice that would be sold under Mary’s own label to local grocers. The small apples currently sell to the deep discounters and local manufacturers for $1.10 per dozen. The variable cost to prepare the small apples for sale, including transporting the apples, is $0.30 per dozen. Mary can sell each gallon of organic apple juice for $3.50 per gallon. It takes two dozen small apples to make one gallon of apple juice. The cost to produce the organic apple juice will be $0.60 variable cost per gallon plus $200,000 fixed costs for the one-year lease of the equipment needed to make and bottle the juice. Mary normally harvests and sells 2,400,000 small apples per year. Which of these costs is irrelevant? Classify this cost. a.$200,000; Fixed cost b.$0.60; Variable cost c.$450,000; Sunk cost d.$0.30 per dozen; Variable cost

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