RB Ltd manufactures and markets a single consumer product. The following information is available:

Materials

10

Conversion costs (variable)

7

Dealer’s margin

3

Selling price

30

Fixed cost

Rs. 4,00,000

Present sale

75,000 units

Capacity utilization

60%

There is severe competition and extra efforts are needed to sell. Suggestions have been made for increasing sales:

  1. By reducing sales price by 10%.
  2. By increasing dealers’ margin by 25% over the existing rate.