A company currently manufactures 9,600 units per month of its only product and sells them at Rs.120
Question:
A company currently manufactures 9,600 units per month of its only product and sells them at Rs.120 per unit. Recently the company agreed to a union demand for 15% increase in wages. This will come into effect from next month. The details of current cost of production are as follows:
Cost per unit | |
Direct Material | 50 |
Direct Labour | 20 |
Variable overheads (100% Direct labour) | 20 |
The company is considering the following two strategies to neutralise the increase in cost with a view to maintaining profit at the current level.
Raise production/sales suitably, without changing the selling price. It is assumed that the market will absorb the additional volume sales. How much should be the production/ sales to maintain the same level of profit? What is the revised P/V ratio?
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