Maximin currently manufactures and sells two types of a product, the Max and the Min. Bothof these products use the same raw materials but in different quantities. The Max is a superiorversion of the Min and uses more materials and labour. However, due to superior quality, theretail price for the Max is double than that of the Min. You have been provided with details oflast year's sales and costs below, when the company operated at 80% capacity. It is assumedall units produced are sold, i.e., there is no stock.ProductMaxMinSelling price p.u. Variable cost p.u.€16€8€8€5Sales (units)1.2m0.8mTotal fixed costs amounted to €4.2m. 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 salaryof €60,000 for the manager and €40,000 for the supervisor respectively, in order to complywith the local legislation. Due to the economic recession, the companys market researchers arepredicting that customers will most likely substitute quality for price this year. They have toldthe board of directors that total demand is expected to increase by 100,000 units, but twice asmany Min will be sold than the Max.Questions1. 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 thecompany's profits given the same sales mix as last year?3. Assuming that selling price and variable cost per unit remain unchanged, what will bethe break-even point in units this year, if the company's board follows the advice of themarket 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?

Last year’s break-even point and margin of safety in euro and units:For the Max product:Break-even…

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?

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?

Cornerstones of Cost Management (Cornerstones Series)

4th Edition

ISBN:9781305970663

Author:Don R. Hansen, Maryanne M. Mowen

Publisher:Don R. Hansen, Maryanne M. Mowen

Chapter20: Inventory Management: Economic Order Quantity, Jit, And The Theory Of Constraints

Section: Chapter Questions

Problem 17E

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