Tropico Ltd (Tropico) manufactures a range of Fruit Nectar and Fresh Salad which it sells under its own brand name in supermarkets throughout the region.
Recently, Value Mart, a low-cost supermarket chain, approached Tropico and asked if it would be interested in supplying this orange juice and allow it to be sold under the Value Mart brand in its supermarkets as part of a one-off, three-month promotion. To supply all of its supermarkets during the three-month promotion, Value Mart requires 50,000 bottles of orange juice at an offer price of GH¢12.5 per bottle.

The following information, relating to the production of one bottle of orange juice, is available.

i) Materials:

• Tangerine 0.125kg at GH¢11.60 per kg.

• Sugar 0.25kg at GH¢10.32 per kg.

• Sweetener 0.015 litres at GH¢15.25 per 0.75 litre bottle.

ii) The orange juice is sold in a bottle which Tropico purchases from its suppliers in batches of 100,000 for GH¢124,000. These bottles are in constant use in the production of a variety of Tropico products.

iii) Each bottle of orange juice supplied must have a Value Mart brand label. The labels cost GH¢15,000 for a batch of 500,000 and if not used for this contract they would be disposed of at the cost of GH¢2,000 regardless of the quantity.

iv) Tropico applies fixed overheads to products based on machine hours. Budgeted fixed overheads allocated to orange juice for the year amount to GH¢45,000 and the company expects that in total 100,000 machine hours will be spent producing the orange juice. The production team in Tropico calculated that on average each bottle of orange juice requires a total of six minutes of machine time. Variable manufacturing overheads have been calculated at GH¢5 per bottle.

v) Another jam producer has offered Tropico GH¢100,000 per month to lease machinery that would be required to produce the orange juice for Value Mart.

Required:
Based on the information provided above, advise whether Tropico should accept the contract to produce orange juice for the low-cost supermarket chain. You should provide calculations to support your recommendation.                                                                                                                                                                                                                                                                                                                                                                                                                                                    B)

Tropico currently sells a product at an all–inclusive price of GH¢164.5 each (including VAT at 17.5%) with a profit of 20% on cost. Material cost makes up 40% of the total product cost. Due to high rate of inflation, the supplier of the material is planning to increase the price of material by 10%.

Required:
Compute the new all- inclusive price of the product if Tropico needs to maintain the same profit margin if material price increment goes ahead.