MGT402 GDB Solution Spring 2017

Global Company manufactures and sells two products, product A and product B. The total monthly fixed expenses of the company are Rs.480,000. Sales price per unit of product A and product B is Rs.100 and Rs.200 and variable cost per unit is Rs.50 and Rs.80 respectively. Global’s management has set the goal to achieve the sales revenue of Rs.2,600,000 in the following month. To achieve this target, following alternatives are available to the company:

  1. To sell 8,000 units of product A and 9,000 units of product B
  2. To sell 16,000 units of product A and 5,000 units of product B

Required:

  1. Calculate break-even point (in rupees) if Company chooses to opt alternative (i).
  2. Calculate break-even point (in rupees) if Company chooses to opt alternative (ii).
  3. Decide on the basis of net operating income that which alternative is better for the company. (mention the calculated figures of net operating income under both alternatives)
  4. Briefly discuss the reason of change in break-even point (in rupees) under both alternatives.
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