S Ltd. is producing a component at the following cost: 

 

Nature of Cost	Rs per Unit
Cost of Raw Material Consumed	11.50
Labour Cost	4.00
Direct Expenses	2.50
Semi Variable Overheads - as a % of Direct Cost	18.0%
Semi Variable Overheads - Variable component	40.0%
Semi Variable Overhead - Fixed component	60.0%
Fixed Overheads	11.00
Sales and   Distribution Overheads - Total Cost	40,000
Other information provided is as under:
Qty Production & Sold [Nos]	10,000
Installed Capacity   [Nos]	14,000
Sale Price [ Rs/ per unit]	42.00

 

The company wants to expand its sales to fully utilize its installed capacity. In order to do so the following is planned: 

1. Reduction of 18% on Selling Price 
2. Increase in labor cost by 5%, reduction in material cost by 4%. 

 

From the above information please advise whether the company should continue with its present volumes or go in for full capacity utilization.

Answer rating: 100% (QA)

To determine whether the company should continue with its present volumes or go for full capacity utilization after implementing the planned changes w... View the full answer