Question 2. Answer all parts

Part A

Truetwo Ltd. plans to produce a new snack, Treeve. It is anticipated that variable costs will amount to 45p per snack. The company will produce Treeve in a processing facility with a capacity to produce 250,000 snacks a year. Fixed costs are anticipated to be 30,000 per year. The company plans to supply to retailers at a price of 70p per drink.

Required:

a. Calculate the break-even volume, at the expected price. (4 marks)

b. Calculate the break-even sales price to retailers if the factory is used at full capacity.

(6 marks)

Part B

Market research carried out by Truetwo Ltd has demonstrated that for sales at a price of 1.30 per snack demand from retailers would be zero, and that demand will increase, on a straight-line basis, by 40,000 drinks for every 10p (0.10) fall in price. The snacks are sold in boxes of 10 so you do not need to round to the nearest pence.

Required:

c. Calculate the sales price at which the companys profit will be maximised, and the profit the company will make at that sales price. (15 marks)

Part C

A major health food chain has approached Truetwo Ltd to ask if the company would be willing to provide 70,000 snacks in the forthcoming year at a price of 50p per snack. The company will only accept 70,000 snacks. Assume that the company has finalised production and sales plans for the year at a price of 0.80 and a volume of 200,000 snacks.

Required:

d. Assess whether Truetwo Ltd should accept this special order and calculate the companys profit or loss if the order is accepted. (12 marks)

e. Discuss other factors Truetwo Ltd should consider before accepting the order. (13 marks)