Question 1 Read through the information below and answer the questions that follow. The Aroma Counter is located in a kiosk on the concourse of a main line railway station. The manager is deciding how much shelf space to devote to three different perfumes. Sales and costs for the last month are shown below: Lavender Passion Musk Selling price per unit 6.00 4.90 8.00 Variable costs per unit 2.40 3.34 5.20 Average units sold per day 25 20 15 Average units sold per metre of shelf space per day 6 10 9 Number of days in month 30 Total fixed costs 1,000 From the next month, after a re-allocation of shelf space, the Aroma Counter will have a maximum front shelf space of 10 metres available for the three perfumes. The manager wants a minimum of one metre and a maximum of six metres shelf space for each perfume. a. Show the contribution margin per unit for each perfume and the total revenue, total contribution and total profit for the last month. (8 marks) b. It is assumed that all the unit sales and cost information above, and the mix of products and sales, will remain the same for the current month. i. Based on the proportion of products sold, what is the average contribution per unit for all three perfumes? (4 marks) ii. How many of each perfume needs to be sold in this month to reach break-even? (7 marks) c. A co-worker incorrectly suggests that the profit will be maximised if the maximum shelf space is devoted to those perfumes with the highest selling price per unit. Using your knowledge of marginal costing, explain precisely how the maximum shelf space available should be used to maximise profitability. (4 marks) d. i. What shelf space allocation for the three perfumes would you recommend for the Aroma Counter? Show all workings. (6 marks) ii. How much profit will the Aroma Counter earn in this month from your plan? (8 marks) e. What underlying assumptions of the analysis you have used might act as limitations on reaching the 'best' decision for the firm? What might the Aroma Counter do to understand and minimise these limitations? (6 marks)