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Agribiz Food Products, Inc., produces a wide variety of food and related products.
Agribiz Food Products, Inc., produces a wide variety of food and relatedproducts. The company’s tomato canning operation relies partly ontomatoes grown on Agribiz’s own farms and partly on tomatoes boughtfrom other growers.Agribiz’s tomato farm is on the edge of Sharpestown, a fast-growing,medium sized city. It produces 8 million pounds of tomatoes a year andemploys 55 persons. The annual costs of tomatoes grown on this farm areVariable production costs $550,000Fixed production costs $1,200,000Shipping costs (all variable) $200,000Total costs $1,950,000Fixed production costs include depreciation on machinery and equipment,but not on land because should not be depreciated. Agribiz owns theland, which was purchased for $600,000 many years ago. A recentappraisal placed the value of the land at $15 million because it is aprime site for an industrial park and shopping center.Agribiz could purchase all the tomatoes in needs on the market for $.25per pound delivered to it factory. If id did this, it would sell thefarmland and shut down the operation in Sharpestown. If the farm weresold, $300,000 of the annual fixed costs would be saved. Agribiz caninvest excess cash and earn an annual rate of 10%.How much does it cost Agribiz annually for the land used by the tomatofarm?How much would Agribiz save annually if it closed the tomato farm? Isthis more or less than would be purchase the tomatoes on the market?What ethical issues are involved with the decision to shut down thetomato farm?