1. The installed capacity of a factory is 1,00,000 units but for the first stage it is 80,000 units. At present, the production is being done on a level of 60,000 units and the cost structure is as under:

Up-to First Process In Subsequent Process

                                           Rs.        Rs.

Materials                          10           5

Labour                               3            5

Overheads: Variable        5           3

Fixed                                   5          10

The present selling price is Sh.50 and at this rice the entire 1,00,000 units, if it could be produced, can be sold. However, present quota of raw materials can sustain a production of 60,000 units only. The restricted raw materials are consumed only in the first process. Again goods completed up to first process are available in the market at Sh.30 per unit, as there are a number of firms engaged in the manufacture up to first process only.

Required: 

Will it be worthwhile to increase the level of activity? 

Answer rating: 100% (QA)

To determine whether it would be worthwhile to increase the level of activity we need to calculate t... View the full answer