Short-Term Business
Decisions
Chapter 25
Exercises
Short-Term Business Decisions

In-Class Exercises:
Exercise No.
E25-17
Page
1568
Sales Mix Decisions
Short-Term Business Decisions
Exercise E25-17:
Ned’s Beach Hut stocks its drink case each morning. The drink case has 115 linear feet
of refrigerated drink space. Each linear foot can hold either six 12-ounce cans or three
20-ounce bottles. Products are as follows:
Yummy Time
Yummy Time
Pretty Pop
12-ounce can
20-ounce bottle 20-ounce bottle
Selling Price…………. $1.45 ………….. $1.75 …………… $2.30
Cost……………………
0.15 ………….. 0.35 …………… 0.65
Ned’s Beach Hut’s monthly fixed costs include:
Hut rental…………….. $ 360
Refrigerator rental…..
80
Ned’s salary…………. 1,500
Total fixed costs……. $1,940
Ned’s Beach Hut can sell all the drinks stocked in the display case each day.
Requirements:
(1) What is Ned’s constraining factor? What should Ned stock to maximize
profits?
(2) Suppose Ned’s Beach Hut refuses to devote more than 75 linear feet to any
individual product. Under this condition, how many linear feet of each drink should
Ned’s stock? How many units of each product will be available for sale each day?
Short-Term Business Decisions
Short-Term Business Decisions
Short-Term Business Decisions
End of Exercise
Short-Term Business Decisions

In-Class Exercises:
Exercise No.
E25-18
Page
1569
Outsourcing Decisions
Short-Term Business Decisions
Exercise E25-18:
Fiber Systems manufactures an optical switch that it uses in its final product.
The switch has the following manufacturing costs per unit:
Direct materials…………………$ 9.00
Direct labor……………………… 1.50
Variable overhead…………....... 5.00
Fixed overhead…………………. 9.00
Manufacturing product cost…. $24.50
Another company has offered to sell Fiber Systems the switch for $18.50 per
unit. If Fiber Systems buys the switch from the outside supplier, the
manufacturing facilities that will be idled cannot be used for any other purpose,
yet none of the fixed cost are avoidable.
Requirement:
Prepare an outsourcing analysis to determine whether Fiber Systems should
make or buy the switch.
Short-Term Business Decisions
Short-Term Business Decisions
Short-Term Business Decisions
End of Exercise
Short-Term Business Decisions

In-Class Exercises:
Exercise No.
E25-20
Page
1569
Sell or Process Further
Short-Term Business Decisions
Exercise E25-20:
Naturalmaid processes organic milk into plain yogurt. Naturalmaid sells plain
yogurt to hospitals, nursing homes, and restaurants in bulk, one-gallon containers.
Each batch, processed at a cost of $800, yields 600 gallons of plain yogurt.
Naturalmaid sells the one-gallon tubs for $7 each and spends $0.16 for each plastic
tub.
Naturalmaid has recently begun to reconsider its strategy and wonders if it would be
more profitable to sell individual-size portions of fruited organic yogurt at local food
stores.
Naturalmaid could further process each batch of plain yogurt into 12,800 individual
portions (3/4 cup each) of fruited yogurt. Naturalmaid would sell each individual
portion for $0.54. Packaging would cost $0.07 per portion, and fruit would cost
$0.11 per portion. Fixed costs would not change.
Should Naturalmaid continue to sell only the gallon-size plain yogurt (sell as is) or
convert the plain yogurt into individual-size portions of fruited yogurt (process
further)? Why?
Short-Term Business Decisions
Short-Term Business Decisions
Short-Term Business Decisions
End of Exercise