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Instructions

Answer the following questions based on the following information.

A company purchases components A and B from Germany and USA respectively. A and B form 30% and 50% of the total production cost. Current gain is 20%. Due to change in the international scenario, cost of the German mark increased by 30% and that of USA dollar increased by 22%. Due to market conditions, the selling price cannot be increased by more than 10%.

Question 74

What is the maximum current gain possible?

Solution

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Let the total production cost be 100.
Hence, selling price is 120.
Price of German component A is 30 and the price of the US component B is 50

After change in exchange rate, price of German component is 30*1.3 = 39
and price of US component is 50*1.22=61

Total increase equals 39+61-30-50 = 20
Hence, the minimum production cost is 100+20=120
The maximum possible selling price is 120*110% = 132.

So, maximum possible gain is (132-120)/120 = 10%

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