Maximin currently manufactures and sells two types of a product, the Max and the Min. Both

of these products use the same raw materials but in different quantities. The Max is a superior

version of the Min and uses more materials and labour. However, due to superior quality, the

retail price for the Max is double than that of the Min. You have been provided with details of

last year$$s sales and costs below, when the company operated at $80\%$ capacity. It is assumed

all units produced are sold, i$.$e$.,$ there is no stock.

Product Selling price p$.$u$.$ Variable cost p$.$u$.$ Sales $($units$)$

Max $1681\mathrm{.}2$m

Min $850\mathrm{.}8$m

Total fixed costs amounted to $4\mathrm{.}2$m$.$ If the company operates at more than $80\%$ capacity,

it will then have to employ a further $1$ manager and $2$ supervisors, each with an annual salary

of $60,000$ for the manager and $40,000$ for the supervisor respectively, in order to comply

with the local legislation. Due to the economic recession, the companys market researchers are

predicting that customers will most likely substitute quality for price this year. They have told

the board of directors that total demand is expected to increase by $100,000$ units, but twice as

many Min will be sold than the Max.

Questions

$1.$ What was last year$$s break$-$even point and margin of safety in euro and units?

$2.$ Assuming Maximin was operating at full capacity last year, what would have been the

company$$s profits given the same sales mix as last year?

$3.$ Assuming that selling price and variable cost per unit remain unchanged, what will be

the break$-$even point in units this year, if the company$$s board follows the advice of the

market researchers?

$4.$ By how much will profits increase or decrease this year compared to last year?

$5.$ Would Maximin be better off not satisfying the extra $100,000$ units this year?