You work as the management accountant in Pizza4U Ltd., a snack food manufacturing company that produces a successful range of snacks and finger foods. However, one of the pizzas in the range, the pineapple veggie, seemed not to be selling well and drastic measures are needed to improve the sale.

Your manager had asked the marketing department to conduct a marketing survey eleven months ago. In the survey which involves 2000 customers, each customer was asked about their preferred flavour, packaging and price. Based on the responses, alterations to the ingredients, packaging and prices were deemed necessary and the sales forecast for each month was made. A business plan was presented to management and it is anticipated that this will help increase profitability this year, allowing the promised dividends to be paid to the shareholders.

The plan consists of two phases. The first phase involves making changes to the pizza top mixture. By increasing the veggie option from three to four types of veggies and at the same time reduce the quantity of cheese, will make it lighter but the size remains the same. Besides the extra veggie option, customers will have the option to decide on the mix of the four types of veggies to suit their tastebuds. The second phase involves changing the shape of the pizza from circle to rectangle to fit the new packaging. These changes will mainly affect the variable cost.

Required:

Your manager, Mrs Dassen, presented you with the following information regarding the forecasted price/quantity behaviour of the new product for one month and asked you to prepare a report that:

1. shows graphically the cost, price and quantity on customer's demand behaviour and to comment on the results, and
2. indicates which cost strategy would provide the best value for money and justify your reason(s).
3. Mrs Dassen thinks making 900 pizza a month is the best strategy because it yields the highest profit. Do you agree with her? Justify your answer.

Forecasted Prices Fixed Variable cost Total Quantity (riyals) cost per unit costs ('000) (SAR'000) (riyals) (riyals '000) 100 49 1000 20 3000 150 40 1000 20 4000 200 40 1000 20 5000 250 55 1000 20 6000 300 55 1000 20 7000 350 70 1000 20 8000 400 79 2000 15 8000 500 60 2000 15 9500 800 48 2000 15 14000 900 50 5000 17 20300 1000 48 5000 17 22000 1000 35 5000 17 22000 1000 39 5000 17 22000 1000 41 5000 17 22000 1000 42 5000 17 22000 1200 30 5000 17 25400