Manisa Manufacturers are known for producing quality coffee mugs. The relevant cost and
sales information for the past 2 quarters is as below:

Particulars	Quarter 1	Quarter 2
Direct materials (Rs.):
Material A	66,000	54,000
Material B	55,000	45,000
Labour wages (Rs.)	156750	138000
Factory overheads (Rs.)	86,000	83,000
Selling and Administration overheads (Rs.)	79,000	78,400
Sales (units)	5,100	4,800
Production (units)	5,500	4,500

The selling price of each coffee mug is Rs. 95.
Based on the market conditions, the variable costs are expected to rise whereas fixed costs are
expected to remain same, Manisa’s revised price and cost policy applicable from the next quarter
is as follows:
1. The factory overheads will increase by 20 percent.
2. The selling and administration overheads will increase by 25 percent.
PGDM (General) Term II Batch (2020-22) Page 2 of 4
3. There will be an increase of 10 percent in the price of material B, however, the price of material A will remain the same.
4. The labour rates will increase by 8 percent. Also, if the production volume increases beyond 5,500 units, the labour will be entitled to receive an overtime premium of 50 percent on the increased volume of work.
At the 6,500 level of output, the company allows a discount of 2 percent in the selling price, on all sales. However, there is no discount on the selling price below the output volume of 6,500 units.
Manisa Manufacturers are likely to receive an additional order of 2,000 units from the Indian Army. The company expects to make a profit of 20 percent on the surplus order.
1. What minimum price per unit should Manisa Manufacturers quote to the Indian Army for their order of 2,000 units.
2. Create a flexible budget for the third quarter at 5,500; 6,000; and 6,500 unit-levels. Also, calculate the expected profits.
3. Discuss why managers might find a flexible-budget analysis more informative than static budget analysis?

Answer rating: 100% (QA)

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