Question 28

A small and medium enterprise imports two components A and B from Taiwan and China respectively and assembles them with other components to form a toy. Component A contributes to 10% of production cost. Component B contributes to 20% of the production cost. Usually the company sells this toy at 20% above the production cost. Due to increase in the raw material and labour cost in both the countries, component A became 20% costlier and component B became 40% costlier. Owing to these reasons the company increased its selling price by 15%. Considering that cost of other components does not change, what will be the profit percentage, if the toy is sold at the new price?

Solution

Let the production cost be Rs. 100
The, Selling Price = Rs. 120
Price of component A = Rs. 10
Price of component B = Rs. 20
Price of other components = Rs. (100 - 10 - 20) = Rs. 70

After increase in prices,

Price of component A = Rs. 12
Price of component B = Rs. 28
Price of other components = Rs. 70
Total Cost of production = Rs. (12 + 28 + 70) = Rs. 110
Selling price = Rs. (1.15 * 120) = Rs. 138
Profit = Rs. 28
Profit % = 25.45%

Hence, option B is the correct answer.


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