Reference no: EM132516631

Point 1: An umbrella manufacturer makes an average profit of Rs. 2.50 per unit on a selling price of Rs. 14.30 by producing and selling 60,000 units at 60% of potential capacity His cost of sales per unit is as follows Direct Material Rs 3.50 ; Direct wages Rs 1.25; Factory overheads Rs. 6.25 (50% fixed); Sales overheads Rs. 0.80 (25% variable) During the coming year 2017-18, he intends to produce the same number but estimates that his fixed cost would go up by 10% while the rates of direct material and direct wages will increase by 8% and 6% respectively. However, the selling price cannot be changed. Under this situation, he receives an order for a a further 20% of his potential capacity.

Question 1: What minimum price would you recommend for acceptance of the offer to ensure the manufacturer and overall profit of Rs. 1,67,300?