Which of the orders should be accepted and why? CASE NO.5 As a result of an expansion
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Which of the orders should be accepted and why?
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CASE NO.5 As a result of an expansion programme, Pidilite Industries has excess capacity which is expected to be absorbed by the domestic market in a few years. Twenty five thousand machine hours are available for the next year. It has received inquiries from two firms located abroad. One offers to buy 2000000 units of product A at Rs. 3.80 per unit, the second offers to buy 5000000 units of product B at Rs; 5.00 per unit. Standard costs for these products are given below: Items of cost Product A Product B Material Rs. 1.20 Rs. 1.30 Labour Rs.0.60 Rs.0.80 Overhead Rs.0.12 Rs. 0.16 Total Rs. 1.92 Rs. 2.26 Overhead is applied on a Machine-hour basis at the rate of Rs. 2 per hour. Seventy five percent of the overhead is estimated to be fixed. No selling and administrative expenses would be allocated to either order, transportation charges are to be paid by the buyer. One of the orders will be accepted. Which should it be? Why? CASE NO.5 As a result of an expansion programme, Pidilite Industries has excess capacity which is expected to be absorbed by the domestic market in a few years. Twenty five thousand machine hours are available for the next year. It has received inquiries from two firms located abroad. One offers to buy 2000000 units of product A at Rs. 3.80 per unit, the second offers to buy 5000000 units of product B at Rs; 5.00 per unit. Standard costs for these products are given below: Items of cost Product A Product B Material Rs. 1.20 Rs. 1.30 Labour Rs.0.60 Rs.0.80 Overhead Rs.0.12 Rs. 0.16 Total Rs. 1.92 Rs. 2.26 Overhead is applied on a Machine-hour basis at the rate of Rs. 2 per hour. Seventy five percent of the overhead is estimated to be fixed. No selling and administrative expenses would be allocated to either order, transportation charges are to be paid by the buyer. One of the orders will be accepted. Which should it be? Why?
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Related Book For
Canadian Income Taxation planning and decision making
ISBN: 9781259094330
17th edition 2014-2015 version
Authors: Joan Kitunen, William Buckwold
Posted Date:
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