Question
Aqua Ltd., a US confectionary company is planning to establish a subsidiary company in India to produce - Aquafresh Mineral Water. Based on the estimated
Aqua Ltd., a US confectionary company is planning to establish a subsidiary company in India to produce - Aquafresh Mineral Water.
Based on the estimated annual sales of 40,000 bottles of the mineral water, cost studies produced the following estimates for the Indian subsidiary:
ParticularsTotal annual costs (Rs.)% of total annual cost that is variable
Material 193,600100%
Labour 90,00070%
Overhead80,00064%
Administration30,00030%
The Indian production will be sold by manufacturer's representative who will receive a commission of 8% of the sale price.No portion of the US office expenses is to be allocated to the Indian subsidiary.
You are required to:i) Compute the sale price per bottle to enable management to realize an estimated 10% profit on sale proceeds in India, and
ii)Calculate the break-even point in Rupee sales for the Indian subsidiary on the assumption that the sale price is Rs. 11 per bottle.
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