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Question:
(a) For a business annual sales are Rs 50,000 and variable expenses are Rs 35,000 and fixed expenses are Rs 25,000. The owner wants to earn at least Rs 5,000 as profit, how much he will have to sell?
(b) A company is venturing into a new product line and it estimates that it would sell 15,000 units during a full year at a price of Rs 10 each. It also estimates that the total fixed cost as applicable to this product would be Rs 34,000 and variable cost of production per unit would be Rs 6. Now the question is at least how much to sell to avoid losses. The company also contemplates a decrease of 10 per cent in selling price because of fierce competition or an increase of 10 percent in its variable cost because of scarcity or an increase of Rs 6,000 in fixed costs because of extra establishment. The company would like to know the impact of these likely changes on its profits for this product.
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Examples
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