MARKETING: Kroger, the country's leading grocery-only chain, added a line of private label organic and natural foods call Simple Truth to its stores. If you've priced organic foods, you know they are more expensive. For example, a dozen conventionally farmed Grade-A eggs at Kroger costs consumers $1.61.6, whereas Simple Truth eggs are priced at $3.43.4 per dozen. One study found that, overall, the average price of organic foods is 85 percent more than that of conventional foods. However, if prices get too high, consumers will not purchase the organic options. One element of sustainability is organic farming, which costs much more than conventional farming, and those higher costs are passed on to consumers. Suppose that a conventional egg farmer's average fixed costs per year for conventionally-farmed eggs are $1 million per year, but an organic egg farmer's fixed costs are threethree times that amount. Further assume that the organic farmer's variable costs of $1.81.8 per dozen are twicetwice as much as conventional farmer's variable costs. Most large egg farmers sell eggs directly to retailers. Using Kroger's prices, what is the farmer's price per dozen to the retailer for conventional and organic eggs if Kroger's margin is 1515 percent based on its retail price? The price the farmer sells a dozen of conventional eggs is $nothing. (Round to the nearest cent.)

Cornerstones of Cost Management (Cornerstones Series)

4th Edition

ISBN:9781305970663

Author:Don R. Hansen, Maryanne M. Mowen

Publisher:Don R. Hansen, Maryanne M. Mowen

Chapter18: Pricing And Profitability Analysis

Section: Chapter Questions

Problem 10E

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MARKETING:

Kroger, the country's leading grocery-only chain, added a line of private label organic and natural foods call Simple Truth to its stores. If you've priced organic foods, you know they are more expensive. For example, a dozen conventionally farmed Grade-A eggs at Kroger costs consumers

$1.61.6,

whereas Simple Truth eggs are priced at

$3.43.4

per dozen. One study found that, overall, the average price of organic foods is 85 percent more than that of conventional foods. However, if prices get too high, consumers will not purchase the organic options. One element of sustainability is organic farming, which costs much more than conventional farming, and those higher costs are passed on to consumers. Suppose that a conventional egg farmer's average fixed costs per year for conventionally-farmed eggs are $1 million per year, but an organic egg farmer's fixed costs are

threethree

times that amount. Further assume that the organic farmer's variable costs of

$1.81.8

per dozen are

twicetwice

as much as conventional farmer's variable costs.

Most large egg farmers sell eggs directly to retailers. Using Kroger's prices, what is the farmer's price per dozen to the retailer for conventional and organic eggs if Kroger's margin is

1515

percent based on its retail price?

The price the farmer sells a dozen of conventional eggs is

$nothing.

(Round to the nearest cent.)

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