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:

-Based on the information above, 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)$3,000 increase
B)$3,000 decrease
C)$12,000 decrease
D)$30,000 increase

Question

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:

-Based on the information above, 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?

-Based on the information above, 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)$3,000 increase 
B)$3,000 decrease 
C)$12,000 decrease 
D)$30,000 increase

Quizplus · Accepted Answer

If Jebb chooses to start slicing up the lettuce, he will be able to sell 20% more lettuce at a higher price per pound. This means he will likely generate more revenue from selling sliced lettuce compared to whole lettuce. Since his variable costs will remain the same, his net profit will increase by $3,000 (20% of $15,000).

Jebb's Lettuce Stand Currently Sells 60,000 Heads of Lettuce Each