Question # 2

A company produces mineral water. Based on the projected annual sales of 40,000 bottles of mineral water, cost studies have produced the following estimates:

Total annual costs

(in rupees) Variable cost percentage

Material 193,600 100

Labour 90,000 70

Overhead 80,000 64

Administration 30,000 30

The production will be sold through dealers who would receive a commission of 8% of sale price.

Required:

(i) Compute the sale price per bottle which will enable management to realize a profit of 10 percent of sales.

(ii) Calculate the break-even point in rupees if sale price is fixed at Rs. 11 per bottle.