23 Jul HOW DOES THIS COMPARE TO THE CURRENT PRICE PARAMETER?
s Raisin Company (RRC) is a food-processing firm Show more Reids Raisin Company Located in wine country Reids Raisin Company (RRC) is a food-processing firm that purchases surplus grapes from grape growers dries them into raisins applies a layer of sugar and sells the sugar-coated raisins to cereal and candy companies. At the beginning of the grape-growing season RRC has two decisions to make: what cost to contract for grape purchases (which are delivered in the autumn) and determining how much to charge for the sugar-coated raisins it sells. RRCs customers buy raisins in price-dependent quantities. Based on prior years experience Mary Jo Reid RRCs general manager believes that if RRC prices the sugar-coated raisins at $2.20 per pound the processors orders will total 750000 pounds of sugar-coated raisins. Furthermore demand will increase by 15000 pounds for each penny reduction in sugar-coated raisin price below $2.20. The same relationship holds in the other direction: demand will drop by 15000 for each penny increase. The price of $2.20 is a tentative starting point in the negotiations. Sugar-coated raisins are made by washing and drying grapes into raisins followed by spraying the raisins with a sugar coating that RRC buys for $0.55 per pound. It takes 2.5 pounds of grapes plus 0.05 pound of coating to make one pound of sugar-coated raisins the balance being water that evaporates during grape drying. In addition to the raw materials cost for the grapes and the coating RRCs processing plant incurs a variable production cost which includes labor of $0.20 to process one pound of grapes. RRC also incurs fixed (overhead) costs in its grape-processing plant of $200000 per year. Mary Jo has asked you to analyze the pre-tax profit for this situation in order to guide her in the upcoming negotiations. Her goal is to examine the effect of various what-if scenarios on RRCs profits. As a basis for the analysis she suggests using a contract price of $0.25 along with the selling price of $2.20 for sugar-coated raisins. 1- Build the spreadsheet in an Excel document.Use the information in the last paragraph of the problem statement as the base-case.Label this spreadsheet Task 3. 2- Perform Sensitivity Analysis.Create a separate sheet labeled Task 2 and answer the following questions.Please do not recreate your Task 3 worksheet simply use that worksheet to answer these questions. [NOTE: Make sure you reset to the base-case values before performing each part of this analysis] A- What is the break-even price for the contract price for grapes (per lb)? i- How does this compare to the current price parameter? B- Create a Parameter Sensitivity Analysis Report for raisin price ranging from a Lower Value of $1.80 to an Upper Value of $2.80.Run your report with 11 Major Axis Points (copy and paste your results onto your Task 2 sheet delete the report sheet).Clearly label the results. i- What price yields the highest profit? C- Create a Tornado Chart for this model (copy and paste the chart onto your Task 2 sheet). i- Which two parameters (names not cell references) have the biggest impact on profit? Show less
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