Ghosh and company making pipes is considering investment in an aggressive advertising campaign for the next year’s sales. The data for the last year 2009-10 is:
|
Variable Expenses
|
|
Direct Material
|
Rs.3.25 per piece
|
|
Direct Labour
|
Rs. 8.00 per piece
|
|
Variable overhead
|
Rs. 2.50 per piece
|
|
|
Rs. 13.75 per piece
|
|
Fixed Expenses
|
|
Manufacturing
|
Rs. 25,000
|
|
Selling
|
Rs. 40,000
|
|
Administrative
|
Rs. 70,000
|
|
Total Fixed
|
Rs. 1,35,000
|
Selling price per pipe Rs. 25
Sales 2009-10
(20,000 units) Rs. 5,00,000
The sales target for 2010-11 is Rs. 5,50,000:
(i) What is the profit and break even point for the year 2009-10?
(ii) How will the BEP change if the company spends Rs. 11,250 on advertising in 2010-11?
(iii) What will be the profit if the company is able to sell 21,000 pipes only in 2010-11?