A newly organized manufacturing business plans to manufacture and sell 50,000 units per year of...
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Accounting
A newly organized manufacturing business plans to manufacture and sell 50,000 units per year of a new product. Direct materials cost Rs. 47 per unit while direct labor cost is Rs. 32. Manufacturing overheads has two parts: variable part is Rs. 4 per unit while fixed costs are Rs. 340,000 per year. Selling expenses are Re.1 per unit while administrative expenses are Rs. 200,000 for a year.
What should the company establish as the selling price per unit if it sets a target of earning an operating income of Rs. 260,000 by producing and selling 50,000 units during the first year of operations?
At the unit price computed in part a, how many units must the company produce and sell to break even? Calculate breakeven point in currency value too.
What will be the margin of safety (in units and currency) if the company produces and sells 50,000 units at the sales price computed in part a)?
Compute operating income at 50,000 units.
Due to heavy competition, the marketing manager thinks that the selling price must not be more than Rs. 94, in order to maintain sales of 50,000 units. Can the company survive by making profits at this price? Show calculations to justify your answer.
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