a. Laxman Toys earns an average net profit of Rs.3 per unit at a selling price of Rs. 15 by producing and selling 60,000 units at 60% potential capacity. The composition of cost of sales per unit is as follows: Direct materials Rs.4.00 Direct labour Rs.1.00 Production overhead Rs.6.00 (50% fixed) Sales overhead Re.1.00 (75% fixed) Under these circumstances, the firm obtained an order for an additional 20% of its capacity. What minimum selling price, would you recommend for accepting the order to ensure Laxman Toys earns an overall profit of Rs.250000? (8 marks) b. For a given level of sales, what is the inplication of breakeven point and margin of safety for managerial decision making.

Q 2) Laxman Toys earns an average net profit of Rs.3 per unit at a selling price of Rs. 15 by producing and selling 60,000 units at 60% potential capacity. The composition of cost of sales per unit is as follows: Direct materials Rs.4.00 Direct labour Rs.1.00 Production overhead Rs.6.00 (50% fixed) Sales overhead Re. 1.00 (75% fixed) Under these circumstances, the firm obtained an order for an additional 20% of its capacity. What minimum selling price, would you recommend for accepting the order to ensure Laxman Toys earns an overall profit of Rs.250000? (8 marks) b. For a given level of sales, what is the inplication of breakeven point and margin of safety for managerial decision making. (2 marks)