Question

Apple Country Orchards in Idalou, Texas, has 6,000 apple trees and offers 30 varieties of apples. The orchard is 29 years old and allows customers to pick their own apples or to purchase pre-picked apples. In addition to apples and apple picking, the orchard offers hayrides, lunch, pumpkins, and a variety of other items.

Apple Country Orchards makes cider from several different apple varieties. One of the varieties used to make cider is the Granny Smith apple, which is known for its ability to be easily preserved in storage for up to a year and for its high antioxidant activity.

Assume that Apple Country Orchards sells Granny Smith apples for $0.90 per pound. One gallon of fresh-pressed cider at Apple Country Orchards sells for $8. (On average, ten pounds of Granny Smith apples yield one gallon of fresh-pressed cider.)

Question: Do you need to know the cost per pound that Apple Country Orchards uses for its Granny Smith apples to be able to decide if the Granny Smith apples should be sold as is (as raw apples) or processed further into cider, pie, turnovers, or any other apple product? Why or why not?

Answer 1

Solution-

In the given case,Apple Country Orchards have an option to either sell the Granny Smith apples directly as a product or to use it as a raw material for production of fresh-pressed cider.As the selling price of both apples and cider is provided,the cost used for production is not required.

The comparison of profit earned by Orchards can be directly computed as follows:

Selling price of 1 pound of Apples= $0.90

(Since 10 apples are used to make 1 gallon cider,we will calculate the selling price of 10 pounds of apples)

Selling price of 10 pounds of apples= $0.90*10=$9

Selling price of 1 gallon of cider= $8

Since the selling price of apples is more than that of cider,we will advice the Apple Country Orchards to sell apples and not to put them into further process of production of cider to maximise the profit