In mid-November 2018, Bob, Paul and Cherry were almost through with the 2018 operating budget for their company, Holstein Corporation. Holstein produced milk products in three primary forms (yogurt, cheese and ice-cream). The industry was dominated by Milksted, Laughingcow, Happycow, and Holstein, which made several of types of milk products. Holstein was a small player in the industry with solid customer base and a profitable business over last few years. This year was a little different their profit was significantly lower than the prior years. The companys proforma financials are provided in Exhibit 1. The company produces 3 products. The standard costs for these three products are provided in Exhibit 2. The selling, general, and administrative (SG&A), other costs, interest income, and interest expense were likely to remain the same no matter which product-line combinations are used by the company. The company hires your services as their consultant. They believe that they can improve their bottom-line (net profits) by changing the product mix, pricing and advertising decisions. (Note: The total production capacity is fixed at 420,000 units). If the company decreases the price of its product, the result would be an increase in the sales of the product; the company provides you the following information on the estimated increase in the sales (based on the research by their sales team).

Given the production capacity constraint, what is the most profitable product-mix? Please show work and explain.

Ice-cream $1.60 25,000 Cheese $1.10 20,000 Yogurt $0.75 12,000 Decrease in Price Increase in sales Exhibit Holstein Corp Proforma Statement 2018: Draft 12/31/2018 Sales Less: costs of products sold Gross margin SG&A Other Fixed costs Other costs Operating income Less: Interest expense Plus: Interest income Income before tax Income taxes Net income $4,480,000 2.150.092 $2,329,908 193,500 1,458,108 22.150 S656,150 74,000 7.800 $589,950 206.483 383.468 Exhibit 2 Holstein Corp. Standard Costs of each product Ice-creamCheeseYogurt 05,000125,000 190,000 Notes Planned units Per unit Sales price Direct costs $16.00$11.00 $7.50 Materials Labor 2.25 2.5 0.75 directly related to volume 1.5 directly related to volume 1.25 Subtotal Indirect cost: S4.75$3.25$2.25 0.2 directly related to volume Supplies Labor Ener Supervision 0.8 0.4 three-fourth varies with direct labor, the 0.8 rest is fixed two third varies with direct labor, the rest 0.8 0.5 0.48is fixed 0.8 Depreciation Accounting/Legal/IT support Other Fixed Costs 0.1unrelated to volume 0.5 unrelated to volume 0.6 unrelated to volume 0.4unrelated to volume 0.8 0.8 Exhibit 3 Actual 2018 Volume & Price Cheese Yogurt Price Volume Ice-cream S16.00 105,000 $11.00 125,000 $7.50 190,000