Em Siated Ltd makes cosmetics that are not tested on animals. One of the companys products is

Emé Siated Ltd makes cosmetics that are not tested on animals. One of the company’s products is a cold cream (the brand name is Linego) that sells for £7.50 per jar (of 200 grammes), and has a variable cost of production of £6 per jar.

The company currently further processes part of its output of Linego to produce LuxLinego, an enhanced formula cold cream for the more pampered face ! The selling price for LuxLinego is £14 per jar (of 200 grammes).

The extra processing for LuxLinego has an input of 150 grammes of Linego per jar together with other ingredients, plus additional labour and variable overheads amounting to a total of £3.75 per jar. Furthermore, variable other costs amount to £0.50 per jar.

If LuxLinego is dropped from Emé Siated’s range, fixed costs of £11,250 per year would be saved.

Required

(a) If the annual demand for LuxLinego is 2,900 jars, is your decision to produce or not to produce?

(b) If the annual demand for LuxLinego is 3,100 jars, is your decision to produce or not to produce?

(c) How many jars of LuxLinego must be sold to justify its manufacture?