A company is at present working at 90% of its capacity and producing 8,000 units per annum. It operates a flexible-budgetary control system. The following figures are obtained from its budget:
|
90% Capacity Rs. |
100% Capacity Rs. |
|
|
1. Sales |
12,00,000 |
15,00,000 |
|
2. Fixed expenses |
2,50,000 |
2,50,000 |
|
3. Semi-fixed expenses |
75,000 |
1,00,000 |
|
4. Variable expenses |
1,25,000 |
1,50,000 |
|
5. Units made |
9,000 |
10,000 |
Labour and the material cost per unit are constant under present conditions. profit margin is 10%.
- You are required to determine the differential cost of producing 1,000 units by increasing the capacity to 100%.
- What would you recommend for an export price of these 1,000 units taking into account that the overseas prices are much lower than the indigenous prices.