Cereal Foods Lid is makes and sells packs of muesli cereal of three different types in different outlets. All products go through the same machine processes but have different ingredients and packaging. They are sold to the retailers in packs of 50 boxes as follows: 'Priceslash' own brand, is only sold in Priceslash stores. It has basic ingredients and packaging. 'Healthy Breakfast' is sold in many supermarkets. It has a variety of ingredients and smart packaging. 'Gourmet Breakfast' is sold in high class stores. It has a larger quantity and quality of fruits in the ingredients and superior packaging. The predicted costs and revenues per pack of each of the products for the forthcoming year are: Priceslash Healthy Breakfast Gourmet Breakfast f E Selling price 24 40 50 Variable Material costs 6 9 11 Variable production costs 2 2 N The annual fixed costs are estimated at $5,000,000. Total production capacity and sales for the year are estimated at 300,000 packs. Based on the previous year, sales are expected to meet total capacity. The expected mix of packs sold will be Priceslash 20%, Healthy Breakfast 50% and Gourmet Breakfast 30%. However in the current economic climate Cereal Foods Ltd wishes to explore the impact of a mix of packs of Priceslash 30%, Healthy Breakfast, 55% and Gourmet 15%. Required: (a) Using the above information, for each of the predicted mixes of packs sold, calculate the breakeven in units and the predicted operating income for the forthcoming year if the total target sales are achieved. In each case, your answer should provide a breakdown of the number of units of each type of pack required for both breakeven and operating income. (10 marks) (b) To stimulate sales of the Gourmet Breakfast product, Cereal Foods Ltd have discussed with the high class stores a plan to refresh the ingredients of that product at an additional cost of $2 per pack and spend $50,000 on promotion to relaunch the product. They do not wish to extend total production at present but would be prepared to reduce the sales of Priceslash. Assuming a mix of packs of Priceslash 10%, Healthy 55% and Gourmet 35%, show calculations of the breakeven and operating income of this proposal. (5 marks) (c) Using the assumptions in (b) above, the company wishes to explore the effect of inflation on their plans. They predicted that inflation will be continuous throughout the year. By the end of the year all costs will be 8% higher than at the beginning of the year. The inflationary effect on product selling prices by the end of the year will be 6%. Due to competitive pressures it is not possible to increase the prices beyond the rate of inflation. Under these assumptions calculate the operating income