Ex: A summary of a manufacturing companys budgeted profit statement for its next financial year, when it expects to be operating at 75% of capacity is given below.

Sales (9,000 units x Rs. 32 288,000 (-) D/Mate. 54,000

D/L 72,000

P/OH - fixed 42,000

- Variable 18,000 186,000

Gross profit

102,000

(-) Adm,selling,dist. - fixed - varying with sales volume Net Profit

36,000 27,000

63,000 39,000

Option 1

(i) If the selling price per unit were reduced to Rs. 28, the increased demand would utilize 90% of the companys capacity without any additional advertising expenditure.

Option 2

(ii) To attract sufficient demand to utilize full capacity would require a 15% reduction in the current selling price and a Rs. 5,000 special advertising campaign.

You are required to :

(a) BEP (units) based on the original budget.

(b) Whether you recommend the above two independent options.