Java Ltd manufactures and markets a single product. The following information is available:
|
Materials per unit |
Rs. 8.00 |
|
Conversion costs (variable) per unit |
Rs. 6.00 |
|
Dealer’s margin per unit |
Rs. 2.00 |
|
Selling Price per unit |
Rs. 20.00 |
|
Fixed Cost |
Rs. 2,50,000 |
|
Present sales |
80,000 units |
|
Capacity utilization |
60% |
There is acute competition. Extra efforts are necessary to sell. Suggestions have been made for increasing sales: (i) by reducing the sales price by 5% and (ii) by increasing the dealer’s margin by 25% over the existing rate.
Which of the two suggestions would you recommend if the company desires to maintain the present profit?