Problem - Jebb's Lettuce Stand currently sells 60,000 heads of lettuce each year for $1.00 per head. Jebb is thinking of expanding Operations and serving the customer better by purchasing a "slice and dice" machine that will cut up each head of lettuce into bite-size pieces that can be used for salads. Jebb expects he will then be able to sell his lettuce for $1.70 per head. Jebb has prepared the following analysis for each option based on sales of 60,000 heads of lettuce:
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Per Head
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Total
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Selling Unsliced Lettuce:
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|
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Variable costs
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$0.25
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$15,000
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Fixed costs
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0.30
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18,000
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Total
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$0.55
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$33,000
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Selling Sliced Lettuce:
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|
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Variable costs
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$0.30
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$18,000
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Fixed costs
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0.90
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54,000
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Total
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$1.20
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$72,000
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Assume that Jebb is currently selling only 50,000 heads of lettuce per year instead of 60,000. Under this scenario, what will be Jebb's increase or decrease in profit for the year if he chooses to start slicing up the lettuce instead of selling it whole?
A) $2,000 increase B) $3,000 increase
C) $2,500 decrease D) $3,500 decrease