Bonanza Company is in business since last many years, which is manufacturing swimming suits for professionals. Analysis of the company’s financial record for the current year indicates the following:

· Average Selling price per swim suit    Rs. 700

· Variable cost per swim suit:

· Direct material                                               Rs. 280

· Direct Labour                                                Rs. 120

· Variable Overheads                            Rs. 55

· Annual fixed cost:

· Administrative                                               Rs. 250,000

· Selling                                                           Rs. 100,000

Required

• Compute the contribution margin ratio and contribution margin per unit.
• Compute the breakeven sales revenues and breakeven sales in units.
• If the company desires to earn a profit of Rs. 210,000 per annum, compute the sales revenues and sale units to achieve the target profit.
• The company is considering purchasing a faster sewing machine that will save Rs. 35 per swim suit in labor cost but will raise annual fixed cost by Rs. 50,000 on depreciation. The new sewing machine requires capital investment of Rs. 500,000 and has 10 years useful life. Should the company switch over to new sewing machine? Draw your recommendations supported by statistical computation.                              

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