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Illustration 6 S. Ltd. manufactures and markets a single product. The following information is available: per unit Materials 8.00 Conversion costs (variable) 6.00 Dealer's margin

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Illustration 6 S. Ltd. manufactures and markets a single product. The following information is available: per unit Materials 8.00 Conversion costs (variable) 6.00 Dealer's margin 2.00 Selling price 20.00 Fixed cost 32,50,000 Present sales, 80,000 units Capacity utilisation: 60 per cent. There is acute competition. Extra efforts are necessary to sell. Suggestions have been made for increasing sales: (i) By reducing sales price by 5% (ii) By increasing dealers margin by 25% over the existing rate. Which of the two suggestions you would recommend if the company desires to maintain the present profit? Give reasons

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