Question $02)$

$($A$)$ AC Products Ltd$.$ manufactures a single product $($Product $x)$

and selling price per unit is Rs$\mathrm{.}750.$ The

manufacturing cost per unit is given below:

Cost Per Unit

Direct Material A $-250$g @ Rs$\mathrm{.}1,000$ per kg

Direct Material B $-750$g @ Rs$\mathrm{.}400/-$ per kg

Direct Material C$-01$ unit @ Rs$\mathrm{.}25/-$per unit

Skilled Labour $-5$ minutes @ Rs$\mathrm{.}240/-$per hour

Unskilled Labour $-10$ minutes @ Rs$\mathrm{.}150/-$ per hour

Variable Overheads $-$ Rs$\mathrm{.}30/-$

Total Fixed Overheads for a month is Rs$\mathrm{.}2,880,000$ and are

absorbed based on machine utilization.

AC Products Ltd has received an order from a new customer

to supply $4000$ units of product $x$ at Rs$.600$ each before end

of the current month and the following additional

information is given:

Material A will have an excess stock of $1,500kg$ of material

which will expire by end of the current month.

Available stock of direct material B is just sufficient for the

planned production and the next

consignment from the usual supplier is due only on the $01$ st day

of the next month. If the new

customer's order is accepted direct material B will have to be

purchased at Rs $500$ per kg$.$

Skilled labour is sufficient only to meet the current production

level and overtime premium of Rs$.120$ per hour has to be paid

for any additional time.

Assess whether the order of the new customer should be

accepted. $(15$ marks$)$

$($B$)$ SLFP Company is considering whether to produce their key

raw material inside the company or to purchase it from external

suppliers if they produce internally the cost structure is as

follows;

Direct Material cost $-$ Rs$.55$

Direct Labor Cost $-$ Rs$.40$

Variable Overhead per unit $-$ Rs$.20$

Fixed overhead per unit $-$ Rs$.35$

The same product could be purchased from external supplier at

Rs$.140.$ Since the external supplier is a close friend of SLFP

Company's Managing Director it is possible to get a $10\%$

discount as well.

Make your recommendations to the Managing Director on

making the above decision. $(10$ marks$)$