QUESTION TWO As part of it its portfolio of products, Mahim Manufacturers Limited has three products in the fast- moving consumer goods market. The company diversified its portfolio to ensure that it has some protection against a sudden drop in the sales of any particular product. The budgeted selling price and other relevant information at the beginning of 2019 are as follows: Products P123 X456 Y789 300 300 300 Selling price Variable cost 125 245 210 Sales mix 45% 33% 22% Fixed costs 205,000 Total revenue 556,500 At the end of the year, the initial forecast was not achieved. The company expected to sell a large volume of P123 but X456 ended up being the most popular product. This led to a change in the actual sales mix at the end of the year. Moreover, there were also changes in the variable costs for all products due to a sudden regulatory change in the market. As a result, the company's overall revenue did not meet the original expectations. Mahim Manufacturers Ltd.'s actual performance at the end of 2019 is as follows: Products P123 X456 4789 Selling price 300 300 300 Variable cost 140 285 231 Sales mix 28% 43.2% 28.8% Fixed costs 205,000 495,000 Total revenue [CONTINUED) Since the 2019 performance was rather frustrating for the company, its managers hired a financial analyst to evaluate the business. After analysing the actual sales data, the analyst recommended that the company drop one of its three products. He argues that the company should focus on two products and transfer the resources spent so far on the dropped product to develop a stronger marketing campaign to build up a brand image for the company and the two remaining products. The company board has accepted the analyst's recommendations and agreed to drop a product. Thus, in the new sales mix, there are two products, each of which carries 50% weight of the total sales mix. The board instructed the marketing department to design an extensive advertising campaign for the products in the new sales mix. Required: a) Calculate the break-even point for Mahim's original sales mix of the three products in units and pounds. Support your answer by showing calculations for each product and the sales mix. (20 marks) b) How much profit does the company generate with the original sales mix? (10 marks) c) Calculate the profit of the company using the end of year' (actual) data. (10 marks) d) Based on the end of year' data (i.e. second table above), which product would you recommend dropping? Justify your recommendation and show all the calculations for each product and the sales mix, if relevant. (10 marks) e) Discuss the qualitative factors the company should consider in deciding to drop a product in such a context and how these factors might affect the final decision. (10 marks) [TOTAL: 60 MARKS]
