A Gel pen (advanced technique) manufacturer makes an average profit of Rs. 2.80 per piece on a selling price of Rs. 15.10 by producing and selling 50,000 pieces or 50% of the potential capacity. His cost of sales is: (per unit)
|
Direct material |
Rs. 3.80 |
|
Direct wages |
Rs. 1.40 |
|
Works overhead |
Rs. 6.40 (50% fixed) |
|
Sales overhead |
Rs. 0.90 (30% variable) |
During the current year, the manufacturer anticipates that his fixed charges will increase by 10% and rates of direct material and direct labour will increase by 7% and 9%, respectively. He has no option of increasing the selling price. Under this situation, he obtains an offer of an order equal to 20% of his capacity. This customer is a special customer.
What minimum price will you recommend for acceptance to ensure an overall profit of Rs. 1,81,000?