Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

Florida Citrus Inc. (FCI) produces and sells a sport drink in the North American market. For years, it has sold in the Asian market through

Florida Citrus Inc. (FCI) produces and sells a sport drink in the North American market. For years, it has sold in the Asian market through a Tokyo-based importer. The contract with the importer is up for renewal, and FCI decides to reconsider its Asian strategy. After much analysis, it decides that three alternatives warrant further consideration. OPTION1: STAY WITH THE IMPORTER. Sell through the current importer who manages all the marketing and distribution of FCI's sport drink in the Asian market. The cost for FCI to produce a barrel in the U.S. and ship it to Japan is $91 per barrel. There are no fixed costs. The importer pays FCI $117 per barrel sold in the Asian market. OPTION 2: MOVE TO PRODUCTION LICENSING. License production of FCI drinks to a Japanese beverage firm who also will manage marketing and distribution. This firm will charge FCI a fixed fee of $6.2 million each year to cover its costs of maintaining the quality of FCI products. It will pay FCI $43 per barrel sold in the Asian market. OPTION 3: TURN TO SELF PRODUCTION. FCI purchased a fully operational beverage plant from a Japanese company with excess capacity. FCI has already spent $4.7 million to retrofit the beverage plant. The annual fixed costs of operating the plant are $44 million (which does not include the previously spent $4.7 million retrofit cost), and the variable cost is $60 per barrel. FCI will sell to independent wholesalers in Asia at $141 per barrel. The most profitable option depends on how many barrels FCI will sell in Asia. What is the maximum number of barrels that FCI can sell for option 1 to be the best option?

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Healthcare Finance Modern Financial Analysis For Accelerating Biomedical Innovation

Authors: Andrew W. Lo, Shomesh E. Chaudhuri

1st Edition

0691183821, 978-0691183824

More Books

Students also viewed these Finance questions

Question

2. Experiment with peer editing.

Answered: 1 week ago