CAT 2007 — DILR Question 7
Answer the following question based on the information given below.
The following table shows the break-up of actual costs incurred by a company in last five years (year 2002 to year 2006) to produce a particular product.
The production capacity of the company is 2000 units. The selling price for the year 2006 was Rs. 125 per unit. Some costs change almost in direct proportion to the change in volume of production, while others do not follow any obvious pattern of change with respect to the volume of production and hence are considered fixed. Using the information provided for the year 2006 as the basis for projecting the figures for the year 2007, answer the following questions.
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Given that the company cannot sell more than 1700 units, and it will have to reduce the price by Rs. 5 for all units, if it wants to sell more than 1400 units, what is the maximum profit, in rupees, that the company can earn?
Answer & solution
25,400
- B
24,400
- C
31,400
- D
32,900
- E
32,000
Profit for 1400 units = 1400 × 125 – (1400 × 100 + 9600) = 25400
Profit for (1400 + m) units = (1400 + m) × 120 - ((1400 + m) × 100 + 9600) = 18400 + 20m
Maximum value of m = 300
Maximum profit for 1400 + 300 units = 24400
∴ Maximum profit that the company can earn is 25400.
Hence, option (a).