Stahlbush Island Farms grows organic vegetables and sells them to local restaurants after processing. The farm’s leading product is Salad-Delight™, which is a mixture of organic green salad ingredients prepared and ready to serve.
Salad-Delight™ Cu
ent Revenue & Cost Structure
Unit (bag) Selling Price
$29.95
Variable Cost per unit
$20.10 (includes $1.10 delivery charge.)
Average Total Cost per unit
$24.25
Because the vegetables are perishable and Stahlbush Island Farms is experiencing a large crop, the farm has extra capacity. A representative of a restaurant association in another city has offered to buy fresh salad stock from the company to supplement its regular supply during an upcoming 'foodie' festival. The restaurant association wants to buy 2,750 bags for the festival at a price of $22.22 per bag. Delivery of this special order to the festival is estimated to cost Stahlbush Island Farms $2,000 in total. It can meet most of the order with excess capacity but would sacrifice 625 bags of regular sales to fill this special order.
Karla is the owner of Stahlbush Island Farms and needs help in making the decision. As Salad-Delight™ is a mixed ingredient offering, she has ‘mixed’ feelings about accepting the order. You are the new-hire MBA at Karla’s company and she has asked you for a memo with supporting appendices to analyze the specifics and make a recommendation of the above scenario.
Required
· Karla has asked for a modification to the scenario above, and that is, how would your analysis change if the special order were for 2,750 bags per month for the next five years with no loss of regular sales? What is your recommendation? (Show a differential analysis with comments.)