Reference no: EM131084901

Florida Citrus Inc. (FCI) produces and sells a highly popular sports drink in the North American market. For many years, it has sold in the Asian market through a Tokyo-based importer. The contract with the importer is up for renewal, and FCI decides to reconsider its Asian strategy. After much analysis, it decides that three alternatives warrant further consideration. Option 1. Stay with the importer. Sell through the current importer who manages all the marketing and distribution of FCI’s sport drink in the Asian market. The variable cost for FCI to produce a barrel in the U.S. and ship it to Japan is $100 per barrel. There are no fixed costs. The importer pays FCI $105 per barrel sold in the Asian market. Option 2. Move to production licensing. License production of FCI drinks to a Japanese beverage firm who also will manage marketing and distribution. This firm will charge FCI a fixed fee of $5 million each year to cover its costs of maintaining the quality of FCI products. It will pay FCI $10 per barrel sold in the Asian market. Option 3. Turn to self-production. FCI purchased a fully operational beverage plant from a Japanese company with excess capacity. FCI has already spent $5 million to retrofit the beverage plant. The annual fixed costs of operating the plant are $30 million (which does not include the previously spent $5 million retrofit cost), and the variable costs are $60 per barrel. FCI will sell to independent wholesalers in Asia at $100 per barrel. a) Compute the break-even volume for each of the three options that FCI is considering. b) How many barrels would FCI need to sell in Asia so that it has the same profit from options 2 and 3? c) The most profitable option depends on how many barrels FCI will sell in Asia. Which option should FCI pursue based on the number of barrels it will sell? In other words, express your answer as “if the number of barrels sold is between X and Y, FCI should pursue this option.”