Question: 7. After reading the case, answer the following question: As a consultant you are required to advise the company that how many units of both
7. After reading the case, answer the following question: As a consultant you are required to advise the company that how many units of both the products should be sold to achieve five years old level of profit? Toyko ltd manufactures toy drones. Five years back, it was able to earn profit of Rs 1500000 by selling 5000 units of the toy annually at Rs 500 per toy. Fixed cost was Rs 500000 and variable cost was Rs 100 per unit. Thereafter, due to competition from Chinese products, demand for its toy kept on declining. In subsequent years, its sales declined to 1500 units per year. The management decided to decrease selling price from Rs 500 to Rs 350. The sales started to increase and reached upto 3200 units. At this level also, the company was not able to earn five year old profit level. The company redesigned its product to reduce cost. Consequently, variable cost was reduced to Rs 40 per unit. Further, the company decided to launch one more toy(helicopter). For the new toy variable cost would be Rs 10 per unit. During last five years, fixed cost has increased. At present, fixed cost is Rs 550000. Further, the company decided to incur fixed advertisement and sales promotion cost of Rs 50000. Selling price of older product and new product are Rs 200 and Rs 100 respectively. The machines are designed in such a way that it would produce five units of new product for every two units of old product. Company wishes to achieve five years old level of profit
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