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Ex: A summary of a manufacturing companys budgeted profit statement for its next financial year, when it expects to be operating at 75% of capacity is given below.
Sales (9,000 units x Rs. 32 288,000 (-) D/Mate. 54,000
D/L 72,000
P/OH - fixed 42,000
- Variable 18,000 186,000
Gross profit
102,000
(-) Adm,selling,dist. - fixed - varying with sales volume Net Profit
36,000 27,000
63,000 39,000
Option 1
(i) If the selling price per unit were reduced to Rs. 28, the increased demand would utilize 90% of the companys capacity without any additional advertising expenditure.
Option 2
(ii) To attract sufficient demand to utilize full capacity would require a 15% reduction in the current selling price and a Rs. 5,000 special advertising campaign.
You are required to :
(a) BEP (units) based on the original budget.
(b) Whether you recommend the above two independent options.