ABC Ltd. manufactures a single product for which market demand exists for additional quantity. Present sales of Rs.60, 000…
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ABC Ltd. manufactures a single product for which market demand exists for additional quantity.
Present sales of Rs.60, 000 per month utilize only 60% capacity of the plant. Sales Manager assures
that with a reduction of 10% in the price, he would be in a position to increase the sales by about 25%
to 30%. The following data are available.
Selling price: Rs.10 per unit
Variable cost: Rs.3 per unit
Semi variable cost: Rs.6, 000 fixed plus Rs.0.50 per unit
Fixed cost: Rs.20,000 at present level estimated to be Rs.24,000 at 80% output
You are required to,
• Prepare a statement showing the operating profit at 60%, 70% and 80% levels of capacity utilization
at current selling price and at proposed selling price
The percentage increase in the present output which will be required to maintain the
profit margin at the proposed selling price.