Smug Ltd produces and sells two versions of fruit juicers: Deluxe and Premium. The juicers produced by Smug Ltd use a patented technology to extract maximum possible juice from most fruits. The Premium version can handle larger fruit and has more processing options relative to the Deluxe version. The following table provides the financial results of the most recent year of operations: Particulars Deluxe Premium Total Units sold 90,000 10,000 100,000 Revenue ($) 6,300,000 900,000 7,200,000 Direct material cost ($) 1,080,000 250,000 1,330,000 Direct labour cost ($) 1,440,000 160,000 1,600,000 Contribution ($) 3,780,000 490,000 4,270,000 Allocation fixed manufacturing overheads ($) 3,420,360 380,040 3,800,400 Allocated fixed selling and after sales support costs ($) 251,563 35,937 287,500 Operating profit ($) 108,077 74,023 182,100 Profit margin per unit ($) $1.20 $7.40 Labour cost is $16 per hour and each product requires one (1) hour of labour time. The company currently allocates all fixed manufacturing overheads using labour hours as the allocation basis. The company currently allocates fixed selling and after sales support costs using revenue as the allocation basis. Although the profit margin per unit of Deluxe version is rather low, Smug Ltd believes that it is strategically important to keep this model in the product mix keeping in mind its future export potential at a higher selling price. However, Smug Ltd can tailor its promotion and sales strategies to improve the sales mix to 8:2 from the current 9:1 ratio of Deluxe to Premium juicers, with total volume staying at 100,000 units. The notes to accounts indicate that of the total fixed manufacturing overheads, $1,100,400 relate to batch related activities such as scheduling production runs and the rest of the fixed manufacturing overheads relate to unit level activities. $114,600 is the amount of admin overheads out of the total selling and admin overheads. It is also noted that the Premium juicer is produced in smaller batches (250 units per batch) than that of Deluxe juicer (500 units per batch). Similarly, it takes 10 sales visits to sell 1,000 units of the Deluxe juicer, while it takes 25 visits to sell 1,000 units of Premium juicer.

Required (a) Prepare a profitability statement based on the proposed sales mix, using the current method of allocating overheads. (b) Prepare a profitability statement based on the proposed sales mix, using a more appropriate basis of allocating overheads. (c) Advise the management of Smug Ltd on whether it should go ahead with the proposed change in sales mix.