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Foster Case Study.edited

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Florida State College at Jacksonville
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Running Head: FORSTER CASE STUDY 1
FORSTER CASE STUDY
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Course)
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Institutional affiliation
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FORSTER CASE STUDY 2
Forster Case Study
Question 1
a. The Two Capacity Options
Forster is considering investing in a large coffee roaster. Therefore, he needs to consider the
capacity option of buying a large coffee roster and a capacity option of not buying a coffee
roaster.
b. Variable and Fixed Costs
The cost of the two options is;
Not buying option; Variable cost = $3 per pound, and Fixed cost = 0
The buying option; Variable cost = $1.60 per pound while Fixed cost = 35,000.
c. The Two Options Indifference Point
The indifference point is the point that the pound is the same for both options.
Total Pounds for not buying a roster = Total pound for not buying a roster
Total cost of not buying = Total cost of buying
3Q+0=1.60Q+35,000,
1.4Q = 35,000
Quantity = 35,000/1.4
Quantity = 25,000 pounds

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Running Head: FORSTER CASE STUDY 1 FORSTER CASE STUDY By (name) Course) Professor Institutional affiliation Date FORSTER CASE STUDY 2 Forster Case Study Question 1 a. The Two Capacity Options Forster is considering investing in a large coffee roaster. Therefore, he needs to consider the capacity option of buying a large coffee roster and a capacity option of not buying a coffee roaster. b. Variable and Fixed Costs The cost of the two options is; Not buying option; Variable cost = $3 per pound, and Fixed cost = 0 The buying option; Variable cost = $1.60 per pound while Fixed cost = 35,000. c. The Two Options Indifference Point The indifference point is the point that the pound is the same for both options. Total Pounds for not buying a roster = Total pound for not buying a roster Total cost of not buying = Total cost of buying 3Q+0=1.60Q+35,000, 1.4Q = 35,000 Quantity = 35,000/1.4 Quantity = 25,000 pounds FORSTER CASE STUDY 3 d. Indifference Point Implications. Since the indifference point is higher than the current option of not buying a coffee roaster. Then, Foster would have to look for an external market to sell the extra pound. This is because he sells the current 14,400 internally; thus, the additional would have to be sold in an external market. Question 2 a. Decision Tree Demand scenarios and the expected pound are as shown below. The percentage is calculated as 100%/3 = 33% per each demand scenario. The demand interpretation; Demand scenario Low demand Med ...
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