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 the potential capacity.
His cost of sales per unit is as follows:
6.25 (50% fixed)
0.80 (25% variable)
During the current year, he intends to produce the same number but estimates that his Fixed Cost would go up by 10% while the rates of direct wages and direct materials will increase by 8% and 6%, respectively. However, the selling price cannot be changed. Under this situation, he obtains an offer for a further 20% of his potential capacity.
What minimum price would you recommend for acceptance of the offer to ensure the manufacturer with an overall profit of Rs. 1,67,300?