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.

AlthoughtheprofitmarginperunitofDeluxeversionisratherlow,SmugLtdbelievesthatitis 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 100,000units.

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) thanthatof'Deluxe'juicer(500unitsperbatch).Similarly,ittakes10salesvisitstosell1,000 units of the 'Deluxe' juicer, while it takes 25 visits to sell 1,000 units of 'Premium'juicer.

Required

1. Prepare a profitability statement based on the proposed sales mix, using the current method of allocatingoverheads.

2.Prepare a profitability statement based on the proposed sales mix, using a more appropriate basis of allocatingoverheads.

3.AdvisethemanagementofSmugLtdonwhetheritshouldgoaheadwiththeproposed change in salesmix.