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Question 2. Answer all parts Part A Foamy Ltd, plans to produce a coffee-based drink called Alert. It is anticipated that variable costs will amount to 40p per drink. The company will produce Alert in a processing facility wit a capacity to produce 200,000 drinks a year. Fixed costs are anticipated to be 100,000 per year. The company plans to supply to retailers at a price of 95p per drink. Required: a. Calculate the break-even volume, at the expected price, to retailers. (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 Foamy Ltd has demonstrated that for sales at a price of 1.90 per drink demand from retailers would be zero, and that demand will increase, on a straight- line basis, by 20,000 drinks for every 10p (0.10) fall in price. Required: C. Calculate the sales price at which the company's profit will be maximised, and the profit the company will make at that sales price. (15 marks) Part A major health food chain has approached Foamy Lid to ask if the company would be willing to provide 100,000 drinks in the forthcoming year at a price of 80p per drink. The company will only accept 100,000 drinks. Assume that the company has finalised production and sales plans for the year at a price of 1.10 and a volume of 130,000 drinks. Required: d. Assess whether Foamy Ltd should accept this special order and calculate the company's profit or loss if the order is accepted. (12 marks) e. Discuss other factors Foamy Ltd should consider before accepting the order. (13 marks)

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