La Jolla Beverage Products is considering producing a wine cooler that would be
ID: 470434 • Letter: L
Question
La Jolla Beverage Products is considering producing a wine cooler that would be a blend of a white wine, a rose wine, and fruit juice. To meet taste specifications, the wine cooler must consist of at least 45% white wine, at least 20% and no more than 35% rose, and exactly 25% fruit juice. La Jolla purchases the wine from local wineries and the fruit juice from a processing plant in San Francisco. For the current production period, 10,000 gallons of white wine and 6,500 gallons of rose wine can be purchased; an unlimited amount of fruit juice can be ordered. The costs for the wine are $1 per gallon for the white and $1.5 per gallon for the rose; the fruit juice can be purchased for $0.5 per gallon. La Jolla Beverage Products can sell all of the wine cooler it can produce for $3 per gallon.
(a) Is the cost of the wine and fruit juice a sunk cost or a relevant cost in this situation? - Select your answer -Sunk costRelevant costItem 1 Explain. The input in the box below will not be graded, but may be reviewed and considered by your instructor.Explanation / Answer
a) Relevant cost
Cost of wine and fruit juice considered as relevant cost for this situation because these costs are needed to make a wine cooler. Management can recover these cost in future
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b)
Maximize: $10000 W +$2437.5 R + $4062.5 F
subject the constraint of
5,000 W+ R+ F >50% of 10,000 white
5,000 W + 1,300 R + F >20% of 6,500 rose minimum
5,000 W + 1,625 R + F >25% of 6,500 rose maximium
5,000 W + 1,625 R + 1,625 F =25% of 6,500% fruit juice
5000W <Available white(10,000 gallons -5,000 gallons)
4875R < Available rose(6500 gallons -1,625 galons)
W, R, F > 0
Optimal Solution:
W =5,000 gallons need to be used
R = 1,625 gallons need to be used
F =1,625 gallons need to be used
Profit Contribution:
W =$10000
R =$2437.5
F =$4062.5
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Total = $16,500
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Calcualtion for allocating the gallons for the appropriate items
White wine = 10,000 gallons * 50/100( atleast 45% so I am allocated 50%)=5,000 gallons
Rose wine =6,500 gallons *20/100(minimum)=1,300 gallons
Rose wine =6,500 gallons *25/100(atleast 20% so I am allocated 25%)=1,625 gallons( maximum)
Fruit juice =25% from unlimited I would like allocate same measures like rose wine 6,500 gallons *25/100 =1,625 gallons.
Cost Calculation:
White wine 5,000 gallons * $1 =$5,000
Rose wine 1,625 gallons * $1.50=$2437.50
Fruit juice 1,625 gallons. * $0.50=$812.50
Selling price Calculation:
White wine 5,000 gallons * $3 =$15,000
Rose wine 1,625 gallons * $3=$4,875
Fruit juice 1,625 gallons. * $3=$4,875
Profit Allocation for each, profit = selling price - Cost price
Profit = Selling price - Cost price
White wine =$15,000 - $5,000 = $10000
Rose wine =$4,875 - $2437.50 = $2437.5
Fruit juice =$4,875 - $812.50 =$4062.5
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c) Yes, additional number of white wine can purchased because it allocated its 50% share in wine cooler blend
additionally 50% gallons can purchase, reduced the cost of $0.25 buy per gallons for $0.75
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d) No, additional number of rose wine not to purchase currently because there is more availaibility
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