Electric Manufacturing Company Ltd. is engaged in producing a variety of precision instruments and other specialised electric components. The company is presently following a policy of pricing all of its products at 150 per cent of the total variable costs to produce and sell them. Because of the specialised nature of these products, this has proved to be a useful pricing policy. Recently, the Government invited tender for 1,000 electric components to be used at the TV station. The company’s management is exploring the possibility of the firm entering into a Government contract. The management accountant has prepared the following cost estimates for the purpose:
The Government requires delivery of all 1,000 units within one year. In order to meet that schedule, the company would have to forego a regular sales order of value of `22,50,000. You are required to state the lowest price the company could bid on the contract for the components without sacrificing short-run profit. State your assumptions, if any.
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