As a result of expansion programme, Pidilite Industries has excess capacity which is expected to be absorbed
Question:
As a result of 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 enquiries from two firms located abroad. One offers to buy 20,00,000 units of product A at Rs. 3.8 per unit, the second offers to buy 50,00,000 units of Product Bat Rs. 5.0 per unit. Standard cost for these products are given below: Items of Cost Product A Product B Material Rs. 1.20 1.30 Labour Rs. 0.60 Rs. 0.80 Overhead Rs. 0.12 Rs.0.16 Total Rs. 1.92 Rs.2.26 Ø Overhead is applied on a Machine Hour basis at the rate of Rs. 2 per hour. Ø Seventy five percent of the overheads is estimated to be fixed. Ø No selling and administration expenses would be allocated to either order Ø Transportation charges are to be paid by the buyer Ø One of the orders will be accepted Q1:Which of the orders should be accepted considering all the aspects of the case ? Q2: Justify which product should be selected?
Managerial Accounting An Introduction to Concepts Methods and Uses
ISBN: 978-0324639766
10th Edition
Authors: Michael W. Maher, Clyde P. Stickney, Roman L. Weil