Blue Ribbion Case Essay Example

Whole tomatoes are produced from Crop A and Crop B, but Haneda assigns one price for all tomatoes without taking into account their varying quality. Additionally, Haneda calculates the contribution incorrectly in his analysis, leading to an inaccurate net profit calculation.

If we assign some of the crop production to juice, which needs a minimum average of 6 points, it may be worthwhile to blend Grade A and B during the production process.

3. What reasoning does Reynoso use to determine that the company should utilize 2,000,000 pounds of grade "B" tomatoes for paste and the remaining grade "B" and grade "A" tomatoes for juice? What is the flaw in Reynoso's logic?

The demand forecasts for different product categories are shown in Exhibit 1. Tomato Juice is expected to have a demand of 1 million pounds (50,000 cases x 20 pounds per case), while Tomato Paste is anticipated to have a demand of 2 million pounds (80,000 cases x 25 pounds per case). Reynoso suggests taking advantage of this demand by producing the estimated quantity of Tomato Paste and using the remaining harvest for Tomato Juice production. The demand for tomato paste requires 2,000,000 pounds of tomatoes or 80,000 cases.

Fulfilling the demand for juice contributes to the rest of his solution. According to his analysis of marginal profit, tomato paste has the highest marginal profit, followed by tomato juice. However, Reynoso's reasoning has a flaw when he considers the cost of tomato (sunk cost), which affects resource allocation optimization. This is because whole tomato is actually more profitable than tomato juice (exhibit B). Another issue observed in Reynoso's reasoning

is that Grade A crop becomes a sunk cost as it is already purchased. If they use crop A for juice production, which requires a minimum of 6 points, it increases the product's cost and reduces the juice's profit. Ultimately, Reynoso is utilizing unnecessarily expensive raw materials.