International Flowers Ltd is a large, multinational flower & perfume company. It started a new division in a rural area outside a major city in 2021. This was very good news for the area, as at the time, a number of other unrelated factories had closed in the area and unemployment was above the national average. The plant employs 2,000 people and it has a shift pattern to allow it to operate from 6.00 am until 11.30 pm Monday to Saturday. It chose this location as it is close to the various wildflowers that IFL currently uses in production. At the time there was some opposition to a large factory set up in a delicate natural environment, but the promise of so many new jobs meant that the local feeling was mostly positive to the factory.
IFL has a board meeting in one week. You are required to prepare a report to the board on the two current issues being considered by the board of the plant.
IFL has recently developed sales of ‘Fleur’ Perfume in a recyclable atomizer which is sold alongside the companies traditional products of bottles of ‘Fleur’ Perfume and bottles of ‘Rose’ Perfume. The company is now considering the sale of ‘Rose’ Perfume in atomizer bottles.
It is the company policy that any new product must be capable of generating sufficient profit to cover all costs, including initial marketing and advertising expenditure of €1,100,000. Current weekly production, with unit costs and selling prices, is as follows:
Sales volume is equal to production volume. A 50 week trading year is assumed. Rates of absorption of fixed costs are based on current levels of output. All products have a similar cost structure.