normal activity level. (12) Question 6 AUTUMN 2006 - Q4 One-way Limited is engaged in manufacturing and sale of socks. The sales of the company are mostly to USA and European Countries. At the end of the first quarter, the results of operations of the company are as follows: Rs. Sales (Rs. 40 per unit) 5,300,000 Less: Material cost 1,987,500 Wages cost 795,000 Variable overhead 397,500 Fixed overhead 848,000 4,028,000 Gross profit 1,272,000 The factory was working at 40% capacity in the first quarter, Management of the company has estimated that the quantity sold could be doubled next quarter if the selling price was reduced by 15%. The variable costs per unit will remain the same, but certain administrative changes to cope with the additional volume of work would increase the fixed overhead by Rs. 15,000. Required: Evaluate the management's proposal. (05) (b) What quantity would need to be sold next quarter in order to yield a profit of Rs. 2,000,000 if the selling price was reduced as proposed, variable cost per unit remains the same and fixed overheads increased as estimated above? (02) (c) Calculate the selling price needed to achieve a profit of Rs. 2,000,000 if the quantity sold last quarter cannot be increased, material prices increase by 12%, wage rates increased by 15%, variable overheads are higher by 10% and fixed overheads increase by Rs. 15,000. (04)