Academic MBA Question:
IGNOU MBA Assignment question: XYZ Ltd. manufactures a document reproducing machine which has a Variable Cost Structure as follows:
Rs. Material 40 Labour 10 Overhead 4 and a selling price of Rs. 90
Sales during the current year are expected to be Rs. 13,50,000 and Fixed Overhead Rs. 1,40,000.
Under a wage agreement, an increase of 10% is payable to all direct workers from the beginning of the forthcoming year, while material costs are expected to increase by 7 ½%, variable overhead costs by 5% and fixed overhead costs by 3%.
You are required to calculate:
(a) the new selling price if the current profit/volume ratio is to be maintained; and
(b) the quantity to be sold during the forthcoming year, to yield the same amount of profit as the current year assuming the selling price to remain at Rs. 90.