IB Business Management SL 5.5.2 Break-even chart and analysis Question Bank

Klar


Klar is a factory that bottles mineral water for use in large water dispensers. The factory is located on a hill next to a spring from where water flows naturally. Klar uses a flow production method with a production capacity of 35 million litres per year. Klar has a 60 % share of the national market and also exports bottled mineral water to several countries.
A multinational company called Kaiser is interested in acquiring Klar. "If the acquisition takes place, we will expand Klar's production to gain economies of scale; we will also add a new range of flavoured drinks that will be produced in batches and sold in 1.5 litre bottles. Our maximum production capacity of flavoured drinks will be 3 million bottles a year," says Roman Hitschfeld, Kaiser's Production Manager.
The forecast costs for producing Klar's new flavoured drinks are as follows:
- variable cost per bottle: $\$0.4$
- estimated sales price per bottle: $\$1.6$
- fixed costs: $\$240000$.
Klar is facing fierce competition from other companies that use plastic bottles and offer lower prices to consumers. Although the cost of glass bottles is higher than plastic ones, up until now Klar has only used re-useable glass bottles to support its ethical objectives of being environmentally-friendly. Now, Klar is considering switching from re-useable glass bottles to non re-useable plastic ones. The environmental pressure group Plastic No More! is campaigning against the use of plastic. A spokesperson from Plastic No More! said: "there is a growing trend among consumers to purchase products that will not damage the environment, but we are still a minority".