Reference no: EM133189424

Question - Ainsley's Apples grows and sells organic apples. Ainsley purchased a machine for $600,000 that sorts the apples by size. The largest apples are sold as loose apples to the various stores, the medium sized apples are bagged and sold to the grocers in their bagged state, and the smallest apples are sold to deep discounters or to a local manufacturing plant that processes the apples into applesauce. Ainsley is considering keeping the small apples and processing them into apple juice that would be sold under Ainsley's own label to local grocers.

The following are additional details:

The small apples currently sell to the deep discounters and local manufacturers for $5 per dozen.

The variable cost to prepare the small apples for sale is $1 per dozen.

Ainsley can sell each gallon of organic apple juice for $18 per gallon.

Ainsley can sell 260,000 dozen apples if it decides not to process further.

Ainsley can sell 190,000 gallons if it decides to process further.

The cost to produce the organic apple juice will be $10 variable cost per gallon plus $130,000 additional fixed costs for the one-year lease of the equipment needed to make and bottle the juice.

Required - What is operating income if sold at splitoff (if sold as apples instead of becoming apple juice)?