Please can anyone solve this question? It's urgent

Jassie · 20 Aug 2025

Thanks

Sonu · 20 Aug 2025

Solution

Sonu · 20 Aug 2025

Given SP = ₹40 Variable costs: Materials 16 + Conversion 12 + Dealer margin 4 = ₹32 Contribution per unit (now) = 40 − 32 = ₹8 Fixed cost = ₹5,00,000 Present sales = 90,000 units → Total contribution = 90,000×8 = ₹7,20,000 Present profit = 7,20,000 − 5,00,000 = ₹2,20,000 Capacity at 60% for 90,000 units ⇒ Full capacity = 1,50,000 units We must maintain profit = ₹2,20,000, so required total contribution under any option = ₹7,20,000. Option (a): Reduce selling price by 5% New SP = 40 × 0.95 = ₹38 New contribution/unit = 38 − 32 = ₹6 Units needed = 7,20,000 / 6 = 1,20,000 units Increase over current = 30,000 units (+33.33%) Capacity use = 1,20,000 / 1,50,000 = 80% (feasible) Option (b): Increase dealer’s margin by 25% New dealer margin = 4 × 1.25 = ₹5 New variable cost = 16 + 12 + 5 = ₹33 New contribution/unit = 40 − 33 = ₹7 Units needed = 7,20,000 / 7 ≈ 1,02,857 units Increase over current ≈ 12,857 units (+14.29%) Capacity use ≈ 68.6% (feasible) Recommendation Choose (b) – increase dealer’s margin by 25%. It requires a much smaller sales increase to keep the same profit (≈14% vs 33%),