Blue Mountain Dairy is reevaluating the pricing of its organic milk in half-gallon containers. Variable costs...
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Blue Mountain Dairy is reevaluating the pricing of its organic milk in half-gallon containers. Variable costs per half-gallon container of organic milk are $2.00. Based on Blue Mountain's market study, management has determined that the price per half-gallon should be between $3.00 and $3.50. Management knows from past experience that demand is affected by price and estimates the demands for various prices. Which price should Blue Mountain choose to maximize its contribution margin from sales of half-gallon organic milk? Provide an analysis of the effect on the income statement.
Price per Half Gallon | Estimated Demand (Half-Gallon Units) |
$3.00 | 85,000 |
$3.05 | 82,500 |
$3.10 | 80,000 |
$3.15 | 77,500 |
$3.20 | 75,000 |
$3.25 | 72,500 |
$3.30 | 70,000 |
$3.35 | 67,500 |
$3.40 | 65,000 |
$3.45 | 62,500 |
$3.50 | 60,000 |
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