"S produces and sells one product, P, for which the data are as follows:
Selling price Rs 28
Variable cost Rs 16
Fixed cost Rs 4
The fixed costs are based on a budgeted production and sales level of 25,000 units for the next period. Due to market changes both the selling price and the variable cost are expected to increase above the budgeted level in the next period. If the selling price and variable cost per unit increase by 10% and 8% respectively, by how much must sales volume change, compared with the original budgeted level, in order to achieve the original budgeted profit for the period?"
A. 10.1% decrease
B. 11.2% decrease
C. 13.3% decrease
D. 16.0% decrease
Answer: Option B
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Variable cost - Sales price = Gross earning x Budgeted Production = Revenue
16 - 28 = 12 x 25000 units = 300000
17.28 (8%)- 30.8(10%) = 13.52
to arrive at the production quantity we need to divide revenue of Rs 300000 with the increased gross earning
300000/13.52= 22189.
the percentage decrease in production quantity to maintain the same profit is given by
(25000-22189/25000)*100= 11.24%
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