Energink Incorporated makes an energy drink based on a secret formula using exotic South American ingredients It sells its secret syrup to bottlers who add water and carbon dioxide to make the final product, Rainfresh Alimentation Montmorency Ltee (AML) has the exclusive bottling license for Rainfresh in Quebec They pay Energink $250 per liter of syrup plus 10 on every can sold Each liter makes 1,000 cans of Rainfresh A bottler adds the cost of a can (5) plus water and CO2(1 per can) plus labour (8 per can) Indirect production costs are quite high at $10,000 per day Fixed factory costs are $5,000,000 per year AML operates 20 days out of every month and makes 100,000 cans of Rainfresh every day ALM sells to retailers for 80 a can Retailers sell to consumers at between $1 75 and $2 00 per can Recently, Energink told AML that due to the scarcity of ingredients caused by the destruction of the Amazonian rain forest, the cost of a liter of syrup is going up to $275 a liter next month a) (2 marks) Which approach to pricing should ALM use and why b) (6 marks) With the increase in the price of its main ingredient, what new price should ALM charge to retailers in order to make a gross margin percentage similar to what it is getting now (Round to the nearest penny) c) (8 marks) Sun Drench Limited (SDL) has approached AML to consider a new venture SDL would supply fruit juice concentrate to AML at $30 per liter which would be added to the Energink syrup The new product, SunFresh, would be sold to retailers at the same price as Rainfresh (use the new costs and the new price calculated in part b) SDL would pay all marketing costs to develop the brand but AML would have to buy new machinery to add the juice plus it would cost them an extra $4,000 per day to properly clean the machines since juice is so sticky The new machinery would be a one time cost of $500,000 SDL guarantees sales of the first 2,000,000 cans of SunFresh Based on profit, and assuming these are the only sales of SunFresh, should AML accept this new venture with SDL d) (2 marks) Are there any non financial reasons AML should consider in making its decision to accept or turn down the order from SDL

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Energink Incorporated makes an energy drink based on a secret formula using exotic South American ingredients. It sells its secret syrup to bottlers who add

Energink Incorporated makes an energy drink based on a secret formula using exotic South American ingredients. It sells its secret syrup to bottlers who add water and carbon dioxide to make the final product, Rainfresh.

Alimentation Montmorency Ltee (AML) has the exclusive bottling license for Rainfresh in Quebec. They pay Energink $250 per liter of syrup plus 10 on every can sold. Each liter makes 1,000 cans of Rainfresh. A bottler adds the cost of a can (5) plus water and CO2(1 per can) plus labour (8 per can). Indirect production costs are quite high at $10,000 per day. Fixed factory costs are $5,000,000 per year. AML operates 20 days out of every month and makes 100,000 cans of Rainfresh every day. ALM sells to retailers for 80 a can. Retailers sell to consumers at between $1.75 and $2.00 per can.

Recently, Energink told AML that due to the scarcity of ingredients caused by the destruction of the Amazonian rain forest, the cost of a liter of syrup is going up to $275 a liter next month.

a)(2 marks)Which approach to pricing should ALM use and why?
b)(6 marks)With the increase in the price of its main ingredient, what new price should ALM charge to retailers in order to make a gross margin percentage similar to what it is getting now? (Round to the nearest penny).
c)(8 marks)Sun Drench Limited (SDL) has approached AML to consider a new venture. SDL would supply fruit juice concentrate to AML at $30 per liter which would be added to the Energink syrup. The new product, SunFresh, would be sold to retailers at the same price as Rainfresh (use the new costs and the new price calculated in part b). SDL would pay all marketing costs to develop the brand but AML would have to buy new machinery to add the juice plus it would cost them an extra $4,000 per day to properly clean the machines since juice is so sticky. The new machinery would be a one-time cost of $500,000.
SDL guarantees sales of the first 2,000,000 cans of SunFresh. Based on profit, and assuming these are the only sales of SunFresh, should AML accept this new venture with SDL?
d)(2 marks)Are there any non-financial reasons AML should consider in making its decision to accept or turn down the order from SDL?