Ex. 25. The XYZ company manufactures a product which costs: Fixed (per month) 1,000 Variable (per unit) 10 paise Sales are at present 10,000 units per month at 30 paise per unit. (a) A proposal to extend the sales to a foreign market has come where demand for an additional 5,000 units per month is expected. However, to do this it will be necessary to absorb additional shipping costs and duties amounting to 12 paise per unit. Will the foreign business be profitable? (b) A domestic chain store has offered to take 5,000 units per month at 18 paise per unit Should this order be accepted in place of the foreign order? (c) The sales department proposes to reduce the selling price of the product to increase sales. The following estimates of the sales volume at various prices are made: 30 p. per unit (the present price) 25 p. per unit (the present price) 10,000 p.m. 14,000 p.m. 20 p. per unit (the present price) * 19,000 p.m. Assuming that the above estimates are correct, should you reduce the price? If so, to what level? [Ans. (a) Yes; gain 400; (b) No, although the gain is same; (c) 25 paise per unit] Ex. 26. X Ltd. having an installed capacity of 1,00,000 units of a product is currently operating at 70% utilisation. At current levels of input prices, the FOB unit costs (after taking credit for applicable export incentives) work out as follows: Capacity Utilisation per cent FOB Unit costs 70 80 90 100 97 92 87 82 The company has received three foreign offers from different sources as under: Source A: 5,000 units at 55 per unit FOB Source B: 10,000 units at *52 per unit FOB Source C: 10,000 units at 51 per unit FOB Advise the company as to whether any or all the export orders should be accepted or not. [Ans. The company should accept all the export orders.]