A firm manufactures a uniform product whose selling price is Rs 10. It has a capacity of

Question:

A firm manufactures a uniform product whose selling price is Rs 10. It has a capacity of 10,000 units. The variable costs are Rs 2.50 per unit. The fixed costs are estimated at Rs 30,000 upto 50%

capacity utilisation and Rs 36,000 above that level, and Rs 42,000 if the utilisation is 80% or above.

(a) What is the break-even point?

(b) What will be the operating profit of the firm at 70%, 80% and 90% utilisation?

(c) The firm manufactures and sells only 6,000 units in a year due to market constraints. What is the margin of safety?

(d) What is the lowest level of activity at which the firm can make a profit of Rs 18,000?

(e) Management of the firm is advised that if the selling price is reduced to Rs 9 per unit, sales will go upto 7,500 units. Is it worthwhile reducing the price?

(f) Management of the firm is also advised that the sale of 7,500 units at the present selling price can be achieved if a sum of Rs 5,000 is spent on advertisement.

Which alternative is more profitable-reducing the selling price or spending on advertisement?

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Asim farooq

I have done MS finance and expertise in the field of Accounting, finance, cost accounting, security analysis and portfolio management and management, MS office is at my fingertips, I want my client to take advantage of my practical knowledge. I have been mentoring my client on a freelancer website from last two years, Currently I am working in Telecom company as a financial analyst and before that working as an accountant with Pepsi for one year. I also join a nonprofit organization as a finance assistant to my job duties are making payment to client after tax calculation, I have started my professional career from teaching I was teaching to a master's level student for two years in the evening. My Expert Service Financial accounting, Financial management, Cost accounting, Human resource management, Business communication and report writing. Financial accounting : • Journal entries • Financial statements including balance sheet, Profit & Loss account, Cash flow statement • Adjustment entries • Ratio analysis • Accounting concepts • Single entry accounting • Double entry accounting • Bills of exchange • Bank reconciliation statements Cost accounting : • Budgeting • Job order costing • Process costing • Cost of goods sold Financial management : • Capital budgeting • Net Present Value (NPV) • Internal Rate of Return (IRR) • Payback period • Discounted cash flows • Financial analysis • Capital assets pricing model • Simple interest, Compound interest & annuities

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