A company has a capacity of producing 1 lakh units of a certain product in a month. The sales department reports that the following schedule of sales prices is possible. VOLUME OF PRODUCTION SELLING PRICE PER UNIT % R) 60 0.90 70 0.80 80 0.75 90 0.67 100 0.61 The variable cost of manufacture between these levels is 15 paise per unit and fixed cost 40,000. Prepare a statement showing incremental revenue and differential cost at each stage. At which volume of production will the profit be maximum 16 p Statement showing computation of differential cost, incremental revenue and determination of capacity at which profit is maximum Capacity Units Sales V. Cost Fixed Total cost Differential Incremental @ 0.15 Cost Cost Revenue % R) R) R) R) R) 60% 60,000 54,000 9,000 40,000 49,000 70% 70,000 56.000 10.500 40.000 50.500 1,500 2.000 80% 80,000 60.000 12.000 40,000 52.000 1,500 4,000 90% 90,000 60,300 13,500 40,000 53.500 1,500 300 100% 1,00,000 61,000 15,000 40,000 55,000 1,500 700 From the above computation, it was found that the incremental revenue is more than the differential cost up to 80% capacity, the profit is maximum at that capacity. Problem 16 The operating statement of a company is as follows: 12.00.000 Sales (80,000 @ 15 each) Costs: Variable: Material Labour Overheads 2,40,000 3,20,000 1,60,000 7.20,000 3,20,000 Fixed Cost PROFIT 10,40,000 1,60,000 The capacity of the plant is 1 lakh units. A customer from U.S.A. is desirous of buying 20,000 units at a net price of 10 per unit. Advice the producer whether or not offer should be accepted. Will your advice be different, if the customer is local one