A Company manufactures radios, which are sold at Rs. 1600 per unit. The cost is composed of 30% of direct material, 40% of direct wages and 30% of overheads. An increase in material price by 30% and in wage rate by 10% is expected in the forthcoming year, as a result of which the profit at current selling price may be decreased by 40% of present profit per unit.
You are required to prepare:
1. A statement showing current and future profit at present selling price 2. How much selling price should be increased to maintain the present rate of profit
AFS / Case Study 3 / Capital Budgeting
KG Ltd, A plastic manufacturer has under consideration the proposal of production of higher quality plastic glasses. The necessary equipment to manufacture the glasses would cost Rs. 100k (depreciated @ 25% WDV) and would last 5 years. There is no other asset in this block. The expected salvage value is Rs. 10k. The glasses can be sold at Rs. 4 each. Regardless of level of production, the manufacturer will incur cash cost of Rs. 25k each year in the project is undertaken. Variable costs are estimated at Rs. 2 per glass. The manufacturer estimates it will sell about 75k glasses per year. Assuming a tax rate of 35% and 20% cost of capital with an additional working capital of Rs. 50k, should the company go ahead with this project ?
AFS / Case Study 2 / Marginal Costing
As a prelude to finalizing the plans for the coming year, the executives thought it advisable to have a look at the product-wise performance during the current year just completed. The following information is furnished: | Product X| Product Y| Product Z |
| Rs.| Rs.| Rs.|
Unit Selling Price| 80| 60| 36|
Direct Material | 28 | 24 | 16 |
Direct Labor | 20 | 12 | 12 |
Factory Overheads: |
Variable | 8 | 6 | 4 |
Fixed | 8 | 6 | 1.28 |
Cost of Production | 64 | 48 | 33.28 |
Selling, Distribution and General...