7-11: Nirmala Ltd. manufactures and sells light bulbs. The company developed its 2021 business plan based on the assumption that the bulbs would sell at a price of 300 each. The variable costs for each bulb were projected to be 250, and the annual fixed costs were budgeted at 1,50,000. The goal for the company's after-tax operating profits was 2,45,000; the company's effective tax rate is 30%.

While the companys sales usually rise during the second quarter, the May financial statements reported that sales were not meeting expectations. For the first five months of 2021, only 370 units had been sold at the established price, with variable costs as planned. It was clear that the 2021 after-tax operating profit goal would not be reached unless some corrective actions were taken. The company's president assigned a management committee to analyze the situation and develop several alternative courses of action. The following mutually exclusive alternatives were presented to the president

A. Reduce the selling price by 15. The sales organization forecasts that with the significantly reduced sales price, 4,000 units could be sold during the remainder of the year. Total fixed costs per annum and variable costs per unit will stay as budgeted.

B. Lower the variable costs per unit by 35 through the use of less expensive materials and slightly modified manufacturing technique. The sales price will also be reduced by 10 and sales of 3,100 units for the remainder of the year are forecast.

C. Cut fixed costs by 40,000 and lower the selling price by 2% and variable costs by 5%. Sales of 3,300 units would be expected for the remainder of the year.

1 point

Determine the number of units that Nirmala Ltd. must sell in order to break even, assuming no changes are made to the selling price and cost structure.

1000

2000

3000

4000

1 point

Determine the number of units that NirmalaLtd. must sell in order to achieve its after-tax profit objective.

9000

9500

10000

10500

1 point

Compute profit after tax for alternative A per annum

Rs.5,950

Rs.6,950

Rs.7,950

Rs.8,950

1 point

Compute profit after tax for alternative B per annum

Rs.50,700

Rs.60,700

Rs.70,700

Rs.80,700

1 point

Compute profit after tax for alternative C per annum

Rs.66,465

Rs.66,564

Rs.66,456

Rs.66,546