Peper

The Farm Fresh Orange juice simulation walked us through making decisions when considering costs, revenues, profits, and how to reduce loses. I chose the state of CA to setup production because it appeared this state offered the best overall profit margin while producing the most tons of oranges. In the first year, we were able to increase our quantity to 130K tons of orange and bring in a nice profit of $1.4M. The total cost to produce was $2.5, ATC was $19.32, and the per unit profit was $10.68. In 2008, Farm Fresh was hit hard from competition in South America, which brought down the market price for orange juice. To reduce financial loses, Farm Fresh had to reduce our quantity to 80K in tons, and we suffered an operating loss of about $400K. Out total cost to produce was $1.6M and our total revenue was only $1.2M. ATC was $20.08, and the per unit profit -$5.08. A tax cut mid-way in 2008 allowed us to increase production by 10K tons and minimize our loses from $400K to about $200K. A negative profit margin is never easy to accept, however, the tax cuts did help the bottom line. Marginal increase in profit per unit and ATC helped the company through a down year. It appears the most optimal choice would have been to shut down the plant. In 2011, anti-dumping laws minimized the overseas competition, and with the increase in popularity of fruit beverages, Farm Fresh were able to find the right mix of production, while managing marginal cost and marginal revenues. The financials for 2011 allowed the company to recover from the down year in 2008. With production up 100K tons, the company was able to increase revenue to $2.3M and profits were in the black again at $270K. It appears the ATC was a bit higher than expected at $20.32 and the profit per unit was a modest $2.68. Other than the very costly error (about 32K) in 2008 to not shut down the plant, my decision we in line with the optimal choices. Clearly, making decisions based upon market demand, production costs, competition, and environmental factors have an impact of profit and revenue. Using graphs to analyze data can help in the decision-making process.