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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:
Sales (160,000) gallons $500,000
Variable costs
312,000
Contribution margin 188,000
Fixed costs
100,000
Net Income
$88,000

Assume the Yogurt Division wants to purchase 30,000 gallons of milk from the Dairy Division. The minimum price that will increase the Dairy Division’s profit is

$1.18 per gallon.
$2.50 per gallon.
$1.95 per gallon.
$0.55 per gallon.

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