So, the decision will be to purchase if the marginal cost of manufacture plus traceable fixed costs plus the loss of contribution is more than the purchase price. 8. ACCEPTING ADDITIONAL ORDERS AND EXPLORING FOREIGN MARKET: Sometimes goods are sold at a price above total cost (i.e., at a profit) and still there remains some spare or unused capacity. In such circumstances, extra order may be accepted or goods may be sold in a foreign market at a price above marginal cost but below total cost. This will add to the profits as, after full recovery of the fixed cost, any contribution-either from additional orders or from selling in the foreign market-will make extra profit. In this way the spare plant capacity can be used to earn additional profit. 9. INCREASING OR DECREASING DEPARTMENTS OR PRODUCTS: Sometimes general fixed costs are apportioned to departments or products for ascertaining total cost but it may give misleading results. However, specific fixed costs traceable to departments or products should be deducted from individual contribution to get the Net contribution. If the net contribution of a department or product is positive, then it should not be discarded. 10. CLOSING DOWN/SUSPENDING ACTIVITIES: While taking decision in this line, the effect of fixed cost and contribution will have to be analysed. If the contribution is more than the difference in fixed costs by working at normal operations, and when the plant or product is closed down or suspended, then it is desirable to continue operation s11 -URI IVU. I With a view to increase the volume of sales, Ambitious enterprises has in mind a proposal to reduce the price of its product by 20%. No change in total fixed costs or variable costs per unit is estimated. The directors, however, desire the present level of profit to be maintained. Following information has been provided: Sales 50000 units Rs.500000 Variable Costs Rs.5 per unit Fixed Costs Rs.50000 Advise management on the basis of the various calculations made from the data given