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 75

# If the USA dollar becomes cheap by 12% over its original cost and the cost of German mark increased by 20%, what will be the gain? (The selling price is not altered.)

Solution

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*1.2 = 36
and price of US component is 50*0.88=44

Total increase equals (36+44)-(30+50) = 0
Hence, the total production cost did not change.
As the selling price also did not change, the gain percentage equals 20%

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