CIMA Adopted

Present installed capacity of the Leeman Brothers Limited is 12 million units and management is concerned about the underutilized capacity. The income statement of the company for the year ended December 31, 2019 is as follows: (Rupees in millions) Sales (9,600,000 units) 160 Cost of Goods sold: Direct Material 38.40 Direct Labour 28.80 Factory overhead 48.00 115.20 Gross profit 44,80 Marketing and administrative expenses 28.80 Operating income 16 Due to uncertain demand in the market the task of evaluating product demand was assigned to Fords, Rohdes Inc. a marketing research consulting firm. Following are the predictions of the study regarding price volume relationships: Quantity Demanded Sales Price per unit 10 million units 16.00 12 15.50 14 14.50 18 14.25 Fixed factory over head during 2019 were Rs.28,800,000 and fixed marketing and administrative expenses were 19,200,000. If company wants to increase its production capacity to 18 million units it needs to spend Rs. 100,000,000 as additional capital expenditures. Same will result in additional fixed factory overhead of Rs. 10,000,000 per year. Required: Determine the recommended level of activity