Q.6 Hi-tech Limited (HL) assembles and sells various components of heavy construction equipment. HL is working...

Transcribed Image Text:

Q.6 Hi-tech Limited (HL) assembles and sells various components of heavy construction equipment. HL is working on a proposal of assembling a new component EXV-99. Based on study of the product and market survey, the following information has been worked out: Projected lifetime sale of the component EXV-99 Selling price per unit Units 500,000 Rs. 11,000 40% Target gross profit percentage Information about cost of production of the new component is as follows: (i) One unit of EXV-99 would require: Parts no. Net quantity Cost per unit/kg (Rs.) XX 1 unit 2,350 YY 1.5 kg 1,400 ZZ 1 unit 1,200 (11) (111) The above parts would be imported in a lot, for production of 1,000 units of EXV-99. Custom duty and other import charges would be 15% of cost price. HL is negotiating with the vendor who has agreed to offer further discount. On average, assembling of one unit of EXV-99 would require 1.8 skilled labour hours at Rs. 200 per hour. The production would be carried out in a single shift of 8 hours. At the start of each shift, set-up of machines would require 30 minutes. 6% of the input quantity of YY and ZZ would be lost during assembly process. HL works at a normal annual capacity of 4,000,000 skilled hours. Actual production overheads and skilled labour hours for the last two quarters are as under: Quarter ended 30-Sep-2014 31-Dec-2014 Total assembly hours 950,000 1,050,000 Production overheads (Rs.) 65,600,000 68,000,000 (iv) A special machine that would be used exclusively for the production of EXV-99 would be purchased at a cost of Rs. 1,500,000. Required: From the above information, determine the discount that HL should obtain in order to achieve the target gross profit. (16) Q.6 Hi-tech Limited (HL) assembles and sells various components of heavy construction equipment. HL is working on a proposal of assembling a new component EXV-99. Based on study of the product and market survey, the following information has been worked out: Projected lifetime sale of the component EXV-99 Selling price per unit Units 500,000 Rs. 11,000 40% Target gross profit percentage Information about cost of production of the new component is as follows: (i) One unit of EXV-99 would require: Parts no. Net quantity Cost per unit/kg (Rs.) XX 1 unit 2,350 YY 1.5 kg 1,400 ZZ 1 unit 1,200 (11) (111) The above parts would be imported in a lot, for production of 1,000 units of EXV-99. Custom duty and other import charges would be 15% of cost price. HL is negotiating with the vendor who has agreed to offer further discount. On average, assembling of one unit of EXV-99 would require 1.8 skilled labour hours at Rs. 200 per hour. The production would be carried out in a single shift of 8 hours. At the start of each shift, set-up of machines would require 30 minutes. 6% of the input quantity of YY and ZZ would be lost during assembly process. HL works at a normal annual capacity of 4,000,000 skilled hours. Actual production overheads and skilled labour hours for the last two quarters are as under: Quarter ended 30-Sep-2014 31-Dec-2014 Total assembly hours 950,000 1,050,000 Production overheads (Rs.) 65,600,000 68,000,000 (iv) A special machine that would be used exclusively for the production of EXV-99 would be purchased at a cost of Rs. 1,500,000. Required: From the above information, determine the discount that HL should obtain in order to achieve the target gross profit. (16)

Answer rating: 100% (QA)

SOLUTION To determine the discount that HL should obtain in order to achieve the target gross profit ... View the full answer