Nauman Engineering Works (NEW) is engaged in the manufacturing and sale of electric motors of a...
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Nauman Engineering Works (NEW) is engaged in the manufacturing and sale of electric motors of a single specification, Model EMV33. The production process of EMV33 involves two departments, A and B. Relevant details are as follows: Available monthly hours (30 days) Hours required per unit Machine Labour Machine Labour Department A Department B 5,400 3,600 5,600 7,500 6 7 5 10 Department A Department B Total Profit details of EMV33 Rs. per unit Sales price 60,000 Less: Cost of production Material 14,000 6,000 20,000 Labour 2,100 3,200 5,300 Fixed overheads 600 900 1,500 Variable overheads (based on machine hours) 1,800 2,000 3,800 Total cost per unit 30,600 Profit 29,400 NEW has recently been approached by a customer interested in purchasing 990 units of a special type of motor, Model LTM78, offering Rs. 105,000 for each unit. However, accepting this order would require suspending the production of EMV33. The following information has been gathered in relation to the proposed order: (i) Details relating to each unit of LTM78: Cost of raw material Machine hours per unit Labour hours per unit (Rs. per unit) Department A 20,000 10 Department B 10,000 6 8 12 (ii) The setup time required to prepare for production of LTM78 is 3 days. Another 2 days would be required to revert back to the production of EMV33. (iii) Labour is not allowed to work overtime. Further, the labour of each department is specifically trained for tasks within that department and cannot be used in other departments. (iv) Idle labour is paid at 85% of the normal wage rate. Idle labour hours related to EMV33 have already been included in fixed overheads. Required: Determine whether NEW should accept the order for supply of LTM78. Nauman Engineering Works (NEW) is engaged in the manufacturing and sale of electric motors of a single specification, Model EMV33. The production process of EMV33 involves two departments, A and B. Relevant details are as follows: Available monthly hours (30 days) Hours required per unit Machine Labour Machine Labour Department A Department B 5,400 3,600 5,600 7,500 6 7 5 10 Department A Department B Total Profit details of EMV33 Rs. per unit Sales price 60,000 Less: Cost of production Material 14,000 6,000 20,000 Labour 2,100 3,200 5,300 Fixed overheads 600 900 1,500 Variable overheads (based on machine hours) 1,800 2,000 3,800 Total cost per unit 30,600 Profit 29,400 NEW has recently been approached by a customer interested in purchasing 990 units of a special type of motor, Model LTM78, offering Rs. 105,000 for each unit. However, accepting this order would require suspending the production of EMV33. The following information has been gathered in relation to the proposed order: (i) Details relating to each unit of LTM78: Cost of raw material Machine hours per unit Labour hours per unit (Rs. per unit) Department A 20,000 10 Department B 10,000 6 8 12 (ii) The setup time required to prepare for production of LTM78 is 3 days. Another 2 days would be required to revert back to the production of EMV33. (iii) Labour is not allowed to work overtime. Further, the labour of each department is specifically trained for tasks within that department and cannot be used in other departments. (iv) Idle labour is paid at 85% of the normal wage rate. Idle labour hours related to EMV33 have already been included in fixed overheads. Required: Determine whether NEW should accept the order for supply of LTM78.
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To determine whether NEW should accept the order for supply of LTM78 we need to evaluate the costs and benefits of accepting the order First lets calc... View the full answer
Related Book For
Accounting Information Systems
ISBN: 978-1133935940
10th edition
Authors: Ulric J. Gelinas, Richard B. Dull
Posted Date:
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