New Green Ltd. manufactures and markets quality tea in domestic market. The following data are available; Per Kg.

Sh.

Raw materials 16

Convention cost (variable) 12

Dealer's Margin (10% of sales) 4

Selling price 40

Fixed costs 500,000

Present sales 90,000 Kg.

Capacity utilization 60%

There is acute competition. Extra efforts are necessary to sell. Suggestions have been made for increasing the sales;

1. By reducing sales price by 5%
2. By increasing dealer's margin by 25% of the existing rate

Required: Advice the management on which of the above two suggestions would you advise, if the company desires to maintain the present profit