ABC Ltd. manufactures a single product for which market demand exists for additional quantity.
Present sales of Rs.60, 000 per month utilize only 60% capacity of the plant. Sales Manager assures that with a reduction of 10% in the price, he would be in a position to increase the sales by about 25% to 30%. The following data are available.
Selling price: Rs.10 per unit
Variable cost: Rs.3 per unit
Semi variable cost: Rs.6, 000 fixed plus Rs.0.50 per unit
Fixed cost: Rs.20, 000 at present level estimated to be Rs.24, 000 at 80% output
You are required to,
• Prepare a statement showing the operating profit at 60%, 70% and 80% levels of capacity utilization at current selling price and at proposed selling price
• The percentage increase in the present output which will be required to maintain the present profit margin at the proposed selling price.