Question 3 Blue Navy Limited produces three products. Recently, one of its suppliers has suffered from shortages of raw material. The details are as follows: -

	Ivory	Mink	Ambergris
	per unit	per unit	per unit
Selling Price	4.00	4.50	3.40
Direct Material	0.50	3.10	1.50
Direct Material 2	2.10	0.35	1.40
Variable Overheads	0.30	0.70	0.80
Allocation of Shared Fixed Costs	0.30	0.60	0.20
Profit	0.80	-0.25	-0.50
Estimated Sales Volume in Units (Demand)	100000	250000	300000

Required: - a. Advice the managers which products should be manufactured, and which should be discontinued. b. You have now learnt that 0.50 of Minks's fixed cost is a separable fixed cost, will this alter your recommendation? c. Assume the business's fixed costs are all shared, not separable, and Direct Material 2 costs 0.07 per ml. You have been advised that due to a shortage of Direct Material 2 the business can only secure 1,300,000 ml from its suppliers in the current year. Advise the business on a sales mix that will maximise its contribution and calculate this contribution. Numerically justify your recommended sales mix. d. Assume the fixed costs are separable. The business plans to launch a new advertising campaign costing 10,000. Calculate its expected profit for the upcoming year, the breakeven volume and the margin of safety. e. The advertisement agency has offered the business an option to pay a commission of 0.15 for each unit of sales, as opposed to a fixed annual fee of 10,000. If the business accepts this offer, what will its expected profit, break-even volume and margin of safety be for the upcoming period?