Direct wages Problem 9.44 (B.E. Analysis Utilisation of spare capacity by reducing price). A summary of a manufacturing company's budgeted profit statement for its next financial year, when it expects to be operating at 75 per cent of capacity is given below. Sales 9,000 units at Rs. 32 Rs. 2,88,000 Less: Direct materials Rs. 54,000 72,000 Production overhead: -fixed 42,000 --variable 18,000 1.86,000 Gross Profit 1,02,000 Less: Administration, selling and distribution costs: -fixed 36,000 -varying with sales volume 27,000 63,000 Net profit 39,000 Your are required to: (a) Calculate the break-even point in units and in value. (b) It can be estimated that: (i) if the selling price per unit were reduced to Rs. 23, the increased demand would utilise 90% of the company's capacity without any additional advertising expenditure, and (ii) to attract sufficient demand to utilise full capacity would require a 15% reduction in the current selling price and a Rs. 5,000 special advertising campaign. You are required to present a statement showing the effect of the two alternatives compared with the original budget and to advise management which of the three possible plans ought to be adopted, i.e., the original budget plan or (i) above or (ii) above. (c) An independent market research study shows that by spending Rs, 15,000 on a special advertising campaign, the company could operate at full capacity and maintain the selling price at Rs. 32 per unit