The directors of Goodluck Ltd are considering the results of the profit and loss statement for the year that ended on 31 December 2009. The extract is as follows:

Sales

15,00,000

Direct materials

4,50,000

Direct wages

3,00,000

Variable overheads

1,20,000

Fixed overheads

4,40,000

13,10,000

Profit

1,90,000

16.9.7.1 Effect of Change in Selling Price

The budgeted capacity of the company is Rs. 20,00,000, but the key factor is sales demand. The sales manager is proposing that in order to utilize the existing capacity, the selling price of the only product manufactured by the company should be reduced by 5%.

You are required to prepare a forecast statement which should show the effect of the proposed reduction in the selling price and to include any changes in the costs expected during the year 2010.

The following additional information is provided:

  1. Sales forecast: Rs. 19,00,000.
  2. Direct material prices are expected to increase by 2%.
  3. Direct wages are expected to increase by 5% per unit.
  4. Variable overhead costs are expected to increase by 5% per unit.
  5. Fixed overheads will increase by Rs. 20,000.