Problem
Sangria Fido operates a wine outlet in a tourist area. One-gallon bottles sell for $18. Daily fixed costs are $4, 500, and variable costs are $9 per gallon. An average of 750 gallons is sold each day. Sangria Fido has a capacity of 800 gallons per day.
Required:
a. Determine the average cost per gallon.
b. A bus loaded with 40 senior citizens stops by, at closing time and the tour director offers Sangria Fido Manager $450 for 40 gallons. The manager refuses, saying they would lose $3.75 on each gallon. Is the manager of Sangria Fido correct about the $3.75? Do you agree with Sangria Fido manager decision? Why or why not? Consider quality factors.
c. A fund-raising organization has offered Sangria Fido a one-year contract to buy 300 gallons a day for $10.75 each. Should they accept the offer? Why or why not? Consider quality factors in your decision.