4 Healthfoods Ltd (HFL) is a well-established company which markets fruit and vegetables under their ‘Good Health’
brand name at each of its 6 outlets in the country of Ateland. During recent years HFL has marketed organically grown
fruit and vegetables. The directors are now planning to market organic mushrooms which have a unique eating quality
and will be the most nutritious mushrooms available on the market.
The finance director has collated the following information regarding the proposed introduction and sale of organic
mushrooms within Ateland:
(1) HFL will purchase the organic mushrooms from Orgmush Ltd (OML) and sell them at each of its 6 outlets within
Ateland. Sales volumes of organic mushrooms are expected to be at the same level at each outlet.
(2) OML, which is the only grower of this particular type of organic mushroom within Ateland, has offered HFL a
choice of four different contracts in respect of the forthcoming year. OML has the capacity to produce 360,000
kilograms of organic mushrooms for each of the 6 outlets.
The cost incurred by HFL in respect of organic mushrooms will vary according to contract size, as shown in the
following table: