1.

Ways to Increase Profitability:

a. Diversify Product Range: Introduce new flavors or variations of yogurts to cater to
changing consumer preferences.
b. Expand Distribution Channels: Explore new markets or increase presence in existing
ones through partnerships with supermarkets, convenience stores, or online
platforms.
c. Marketing and Branding: Invest in targeted marketing campaigns to increase brand
awareness and customer loyalty.
d. Cost Optimization: Streamline operations to reduce production costs without
compromising on product quality.
i. Analyze cost structure to identify areas for cost reduction (e.g., renegotiate
with suppliers, improve production efficiency).
ii. Evaluate the $0.5M equipment investment to reduce repair time (potential
cost savings need to outweigh the investment).
e. Expand Product Line:
i. Introduce new vegan yogurts with a higher price point ($4/cup, production
cost: $1.5/cup).
ii. Need to determine the number of units required to break even within a
year.
2. Conclusions from Cost Structure
Without access to ABC Ltd.'s detailed cost structure, it's difficult to draw definitive
conclusions. However, some potential insights can be gleaned from the information
provided:
a. High Yogurt Revenue Share: The high dependence on yogurt revenue (85%) suggests
that even a small increase in yogurt profitability can significantly impact overall
company profits.
b. Profit Margin Analysis: Analyzing the cost of ingredients, packaging, production, and
distribution can reveal areas where costs can be optimized. A stagnant profit margin
over the past 3 years might indicate inefficiencies that need to be addressed.
3. Equipment Investment Analysis
a. Whether the $0.5M investment in equipment reconfiguration is worthwhile
depends on the following factors:
b. Current Repair Costs: Calculate the annual cost associated with equipment repairs
under the current scenario.
c. Repair Time Reduction Impact: Estimate the reduction in production downtime due
to the reduced repair time (5%). Translate this downtime reduction into potential
cost savings (e.g., increased production output).
d. Investment Payback Period: Compare the investment amount ($0.5M) with the
projected annual cost savings. The investment is worthwhile if the payback period
(time to recover the investment through cost savings) is reasonable (e.g., within 2-3
years).
4. Break-Even Point for Vegan Yogurts
a. To determine the number of vegan yogurt units needed to break even in a year, you
can use the following formula:

Break-Even Units = Total Fixed Costs + (Variable Cost per Unit * Planned Sales Volume)

b. Pricing and Costing: With a selling price of $4/cup and production cost of $1.5/cup,
the profit margin per cup is $2.5.
 c. Break-even Analysis: To break even in one year, ABC Ltd. needs to sell 200,000 cups
of vegan yogurt ($0.5M investment / $2.5 profit margin per cup).
5. Recommendation to the Company:
a. Product Diversification: Introduce new flavors or variations of the existing yogurt
products to cater to diverse customer preferences and increase market share.
b. Investment in Equipment Reconfiguration: Conduct a detailed cost-benefit analysis
to assess the potential ROI from reducing repair time to 5% with a $0.5M
investment. If the ROI is favorable, proceed with the equipment reconfiguration to
improve production efficiency and reduce downtime.
c. Launch of Vegan Yogurts: Capitalize on the growing demand for plant-based
products by introducing vegan yogurts priced at $4/cup. Given the production cost
of $1.5/cup and no additional fixed costs mentioned, the company will breakeven
from the first unit sold, making it a viable and profitable venture.
d. Conduct a cost analysis to identify areas for cost reduction. This will help determine
if the equipment investment is worthwhile (cost savings from reduced repair time
should exceed $0.5M).
e. Analyze the potential profitability of vegan yogurts. Calculate the break-even point
(number of units needed to be sold in a year to cover all costs).
f. Based on the cost analysis and sales potential, determine if introducing vegan
yogurts aligns with the overall profitability goals.