Following are the budgeted information of a company for the next year”s operation:


Following are the budgeted information of a company for the next year’s operation:

Capacity Output

2,50,000 units

Budgeted Sales (2,30,000 units)

23,00,000

Cost of Sales

13,80,000

Selling and Distribution Expenses

5,75,000

Budgeted Profit

3,45,000

The Fixed Costs included in the cost of sales amount to Rs. 4,60,000. Variable selling and distribution expenses comprise of 10% commission on sales and Re. 0.50 per unit to be paid as the license fee to the designer of the product.

A new customer has approached to buy 10,000 units of the product at a price of Rs. 7 per unit. The budgeted sales have been projected on the basis of orders already at hand and the offer is an addition to that.

You are required to determine: (a) the net profit that will result if this offer is accepted; (b) the lowest price per unit that the company could quote for this offer and yet maintain the budgeted level of profit; and (c) whether it is profitable if the order is for 40,000 units from the new customer, instead of 10,000 units.

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