Q: How do you decide if Gul Ahmed is earning a profit on Item 007 at Rs.15 a meter? If you are the manager of the department that produces Item 007, would it be to your financial advantage to lower the price or keep it at the same level for 2018? (Provide support for your answer with figures, calculations, and logical reasoning)

Table 1 Item 007, Prices and Production, 2012 – 2018

Year	The volume of Production (meters)		Price (Rs)
	Industry total	Gul Ahmed	Competitor	Gul Ahmed
2012	610,000	213,000	20	20
2013	575,000	200,000	20	20
2014	430,000	150,000	15	15
2015	475,000	165,000	15	15
2016	500,000	150,000	15	20
2017	625,000	125,000	15	20
2018	700,000	175,000	15	15

Production volumes	75,000	100,000	125,000	150,000	175,000	200,000
Direct Labor	4	3.9	3.8	3.7	3.8	4
Material	2	2	2	2	2	2
Material Spoilage	0.2	0.2	0.19	0.19	0.19	0.2
Department expense
Direct	0.6	0.56	0.50	0.50	0.50	0.50
Indirect	4	3	2.4	2	1.71	1.5
General Overhead	1.2	117	1.14	1.11	1.14	1.2
Factory cost	12	10.83	10.03	9.50	9.34	9.40
Selling and admin exp.	7.8	7.04	6.52	6.18	6.07	6.11
Total cost	19.8	17.87	16.55	15.66	15.41	15.51

Should the price for 2018 be kept at 15 Rs or should it be increased to 20 Rs?

Answer rating: 100% (QA)

Gul Ahmeds product 007 is one of the industrys most competitive and premium products Selling at Rs 2... View the full answer