Question

An umbrella manufacturer makes an average net profit of Rs. 2.50 per piece in a selling price of Rs. 14.30 by producing and selling 60,000 pieces or 60% of the potential capacity. His cost of sales is :
 
Direct material Rs. 3.50
Direct wages Rs. 1.25
Works overheads Rs. 6.25 (50% fixed)
Sales overheads Re.0.80 (25% varying)
 
During the current year he intends to produce the same number but anticipates that his fixed charge will go up by 10% while the rates of direct labour and direct material will increase by 8% and 6% respectively. But he has no option of increasing the selling price (because of recession). Under this situation, he obtains an offer for a further 20% of his capacity. What minimum price you will recommend for acceptance to ensure the manufacturer an overall profit of Rs. 1.673 lakhs?

Answer 1

Explanation:

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