A manufacturer produces 7,500 units per month. Due toincrease in demand and consequent extension of delivery dates and dissatisfaction amongcustomers, the management decided to increase the output to 11,500 units per month in the nextyear (against anticipated demand of 14,500 units). Given below is the data of per unit costsand sales value on the basis of current production level of 7,500 units:
Rs. Rs.
Direct material 180
Direct labour 120
Fixed overhead (Rs.1,200,000) 160
Variable overhead 240 700
Selling and distribution expenses:
Fixed (Rs.480,000) 64
Variable 90 154
General administrative expenses (fixed Rs.1,440,000)192
Profit margin 30 222
Sales value 1,076
If the proposal to increase in output is adopted, thenfollowing changes are expected:
Additional capital outlay of Rs.3,600,000 would berequired on which financial charges would amount to 10% per annum.
There will be an increase of 25% in fixedoverheads.
An increase of 20% in fixed selling anddistribution expenses is expected.
10% increase in general administrative expenses isalso expected besides the financial charges.
In the coming year there will be an increase of 5%in different items of expenses, except fixed expenses irrespective of the productionlevel.
If it is decided to maintain the present level ofsales, an increase of 2% in sales price is possible and impact of this increase should be taken forthe level of production at 7,500 units per month.
Required:
Prepare a comparative (total and per unit) cost statementshowing anticipated margin of profit for the present output of 7,500 units and proposed output of11,500 units.