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A manufacturer of breakfast cereals has the opportunity to purchase barley at​ $3.00 a bushel for​ 10,000 bushels, if it also buys​ 5,000 bushels of wheat at​ $16.00 per bushel.​ However, the manufacturer does not use any barley in its​ products, and currently needs​ 20,000 bushels of wheat. If the current market price of barley is​ $3.80 per bushel and that of wheat is​ $15.80 per​ bushel, should this opportunity be​ taken, and​ why? A. Because the value of the opportunity is​ positive, the opportunity should be taken. B. Because the company has no need of​ barley, the opportunity should not be taken. C. Because the opportunity does not meet the​ company's need for​ wheat, the opportunity should not be taken. D. Because the value of the opportunity is​ negative, the opportunity should not be taken.

Answer :

Answer:

A. Because the value of the opportunity is​ positive, the opportunity should be taken.

Explanation:

As we can see in the question that there are two cases

First one is when it is purchased on market price i.e

= 20,000 bushels × $15.80

= $316,000

The second one is of opportunity

The current need is of 20,000 wheat bushels but he buys 40,000 barley bushels  

So it would be

= $16 × 20,000 wheat bushels + $3 × 40,000  barley bushels

= $440,000

Now he sold at market price

= 40,000 × $3.80

= $152,000

So the net purchased cost is

= $440,000 - $152,000

= $288,000

As we compare both costs so the wheat of bushels is $28,000 less in case when he takes the opportunity

Therefore the opportunity should be accepted

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