A fi rm is considering two alternative prices for its new product which is expected to be marketed very soon.

The sales department wants the price to be Rs. 20 per unit whereas the top management wants that the price be fi xed at Rs. 22 per unit. To resolve the issue, data were collected from the Market Research and the Production Department. The data are as follows:

(a) Expected sales distribution per annum if the price is Rs. 20 per unit:

Fixed costs are likely to be around Rs. 35,000 per annum.
Which price the fi rm should choose? Show your workings nearly.

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Sales in Units Probability 5000 .20 5500 .50 6000 .30 (b) Expected sales distribution per annum if the price is Rs. 22 per unit: Sales in Units Probability 4,500 .10 5,000 .40 5,500 .50 (c) Estimated costs for production up to 6,500 units: Variable cost per unit Rs. 10 Rs. 11 Probability .30 .70