Vinak Ltd. is operating at 75% level of activity produces and sells two products A and B. The cost sheet of the two products is given below.
|
Particulars
|
Product A
|
Product B
|
|
Units produced and sold
|
600
|
400
|
|
Direct materials
|
Rs.2.00
|
Rs.4.00
|
|
Direct labour
|
Rs.4.00
|
Rs.4.00
|
|
Factory overheads [40% fixed]
|
Rs.5.00
|
Rs.3.00
|
|
Selling and administration overheads
60% fixed
|
Rs.8.00
|
Rs.5.00
|
|
Total cost per unit
|
Rs.19.00
|
Rs.16.00
|
|
Selling price per unit
|
Rs.23.00
|
Rs.19.00
|
Factory overheads are absorbed on the basis of machine hours, which is the limiting [key] factor. The machine hour rate is Rs.2 per hour.
The company receives an offer from Canada for the purchase of product A at a price of Rs.17.50 per unit. Alternatively, the company has another offer from the Middle East for the purchase of product B at a price of Rs.15.50 per unit. In both the cases, a special packing charge of 50 p per unit has to be borne by the company.
The company can accept either of the two export orders and in either case the company can supply such quantities as may be possible to be produced by utilizing the balance of 25% of its capacity.
You are required to prepare,
I] A statement showing the economics of the two export proposals giving your recommendations as to which proposal should be accepted.
II] A statement showing the overall profitability of the company after incorporating the export proposal recommended by you.