CVP, international expansion alternati 3. Dortmund Inc. produces and sells the highly popular Dortmund Lager beer in Europe. I i the current year, it will sell 20 million barrels of beer in Europe. For many years it has sold in he North American market through a New York-based importer. The contract with the import is up for renewal and Dortmund decides to reconsider its North American strategy. After much analysis, it decides that three alterna- tives warrant further consideration:

♦ Alternative A (stay with the importer): Sell through the current importer who manages all the marketing and distribution of Dortmund Lager in North America. Dortmund receives a net payment of $5 per barrel (net after transportation costs and import duties) sold in the North American market.

♦ Mternative B (move to production licensing): License production of Dortmund Lager to a North American brewer who also will manage its marketing and distribution. This brewer will charge Dortmund a fixed fee of $5 million each year to cover its costs of maintaining the quality of Dortmund products. It will pay Dortmund $10 per barrel of Dortmund Lager it sells in North America.

♦ Alternative C (turn to self-production): Purchase a fully operational brewing plant from a North American brewer with excess capacity. The annual fixed costs of operating the plant are $30 million and the variable costs are $60 per barrel. Dortmund will sell to independent wholesalers in North America at $100 per barrel.

Required 1. Compute the breakeven point for each of the three alternatives that Dortmund Inc. is con- sidering.

2. At which unit sales level (barrels) of Dortmund Lager in North America would Dortmund Inc. report the same operating income under alternatives B and C?

3. What is the operating income to Dortmund Inc. for unit sales of

(a) 500,000 barrels and (b)

2,000,000 barrels under each of the three strategy alternatives (A, B, and C) being consid- ered? Comment on the results.