The Dairy Division of Famous Foods, Inc - Assume the Dairy Division Is Operating at Capacity

Multiple Choice

The Dairy Division of Famous Foods, Inc.produces and sells milk to outside customers.The operation has the capacity to produce 200,000 gallons of milk a year.Last year's operating results were as follows: $$\begin{array} { l r } \text { Sales } ( 160,000 ) \text { gallons } & \$ 500,000 \\\text { Variable costs } & 312,000 \\\text { Contribution margin } & 188,000 \\\text { Fixed costs } & 100,000 \\\text { Net Income } & \$ 88,000\end{array}$$
- Assume the Dairy Division is operating at capacity.If the Yogurt Division wants to purchase 30,000 gallons of milk from the Dairy Division, what is the minimum price that will allow the Dairy Division to maintain its current net income?

A) $3.13 per gallon
B) $1.18 per gallon
C) $1.95 per gallon
D) $0.55 per gallon