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?
Explanation:
Let initial production cost be 100.
Then cost of A = 10 and cost of B = 20
Selling price = 120
∴ Cost of rest =100 – Cost of A – Cost of B
= 100 – 10 – 20 = 70
New cost of A = 1 + 20100 × 10 = 12
New cost of B = 1 + 40100 × 20 = 28
∴ New cost = 28 + 12 + 70= 110
New selling price = 1+15100 × original selling price
= 1+15100 × 120
= 138
New profit = New SP-New CPNew CP × 100
= 138-110110 × 100
≈ 25.5%
Hence, option (b).
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