Daffodil Food Manufacturing (DFM) Inc. has received high

  1. Daffodil Food Manufacturing (DFM) Inc. has received high demand for its high-quality and great-tasting dairy products. This trend is expected to continue consistently for quite an extended period. To cope with the growing demand, Mr. Kim, the production manager, proposed to purchase a fully automated food processing machine. The Senior Management required detailed analysis and justification for the purchase because the machine is expensive. Mr. Kim is insistent in his request since he is confident that the new machine will help cut down some costs, and as a result, the sales of the dairy product will significantly contribute to the company's profit. Some of the information about the production of the dairy product are as follow:

Without the new machine

With the new machine

Contribution per kg

$18

$45

Fixed cost

$4,500,000

$18,000,000

TASK

Mr Kim requested you to prepare a short note before meeting with the Senior Management. He asked you for the following information:

  1. A calculation that shows the effect of the increase in sales from 500,000 kg to 1 million kg on the company's profit, for both scenarios: without the new machine and with the new machine. 
  2. Based on (a) provide a detailed explanation of how the new machine will significantly increase the dairy product sales profit. (11 marks) (Word limit: 150 words or less)