Question:
A firm at present operates at 60% of its capacity. At this level and at the level of 50% utilization of capacity, the figures relating to its operations could be summarized as stated below:
|
|
50%
|
60%
|
|
|
Rs
|
Rs
|
|
Materials
|
10,00,000
|
12,00,000
|
|
Labour
|
8,00,000
|
9,00,000
|
|
Manufacturing overheads
|
6,00,000
|
6,60,000
|
|
Administrative overheads
|
3,50,000
|
3,50,000
|
|
Selling and distribution overheads
|
4,50,000
|
5,00,000
|
|
Research and development
|
1,50,000
|
2,00,000
|
|
Total
|
33,50,000
|
38,10,000
|
|
Profit
|
1,50,000
|
3,90,000
|
|
Sales
|
35,00,000
|
42,00,000
|
Draw up the budget at 80% utilization of capacity assuming that -
(i) sales at this level can be maintained only by a flat 5% reduction in the selling price;
(ii) economy in purchase of material will equal to 2-1/2% of the current amounts;
(iii) the research and development expenditure will be pegged at 2,50,000 per annum; and
(iv) administrative overheads will require 10% increase.