Cost accounts. somebody help

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rohit

student

132 Points Joined March 2011

A company produces 400000 components of machinery annualy at 80% of full capacity. regular selling price of the component is 33. Budgeted annual production costs and other expenses for the year are as follows:-

Raw material cost per unit Rs.4.25

Direct labour cost per unit Rs.5.75

Variable factory overhead per unit Rs.7.75

Variable selling cost 5% of selling price

Fixed factory and administrative overheads 3950000

During the year, the company received a one time order to sell 25000 components for which no selling expenses will be incurred. What should be the minimum price quoted by the company if it wants to earn minimum of rs.1per component on this order?

Replies (10)

Sunshine

Helping All

10575 Points Joined March 2010

total variable cost will be 17.75 per unit..

distribute the fixed overheads on 25000 components...= 3950000/400000=9.875

total cost per unit will be - 27.625

add profit - 1

selling price will be 28.625

rohit

student

132 Points Joined March 2011

Thanx for help...

Thanx a lot!!!

Puneet Mittal

Sr. Officer Accounts

212 Points Joined December 2009

Dear Mr. Rohit,

Company can produce extra 25000 unit in his released capacity. Minimum price for this offer is as follws-

Variable cost 17.75

Add Desired Profit 1.00

Minimum price 18.75

Fixed cost will not be includes for decision making becuase there is no change in fixed cost due to this offer.

Regards

Puneet Mittal

Vijay

Adamo Studio

2112 Points Joined March 2011

@ puneet we need to consider fixed cost too.

Otherwise the co might end up doing price discrimination.

Coz price to one customer is around 19 rs and to the other around 30 rs

rohit

student

132 Points Joined March 2011

i want complete solution!!!

sivaram

Asst Mgr-Taxation

6918 Points Joined April 2009

Mr Rohit Answer is right.Since based on Marginal Costing.Snehas Answer based on Absorption Costing

santhosh Kumar

129 Points Joined September 2009

i agree with puneet

CA Green Agarwal

Financial Functional Consultant

35 Points Joined February 2009

Dear Rohit

Following will be complet answer of it.

First we will check whether capacity to produce Order Quantity is available or not.

company is currently working at 80% capacity and producing 320000 components so the company has unutilized capacity of 80000 components.

for calculating the cost of components we will consider only relevant variable cost

Raw Material 4.25

Direct Labour 5.75

Variable F.O. 7.75

Variable S.O. 0

-----------

17.75

Desired Profit(PU) 1.00

----------------

Selling Price 18.75

we will not consider fixed cost and variable selling overheads becouse both are not applicable in this case.

fixed overhead will not changed due to order and variable selling overheads will not be incurred in this case (as given in the Question)

Kapil

Profession

30 Points Joined February 2009

Puneet is right........... as while we have to go for these type of decision making we should not include fixed costs in the working of Costing ............. as it is already absorbed with the existing production..

Secondly............... @ Vijay ............ about the rate difference........ we have calculated the costing......... this is the least price with which we can go......... now it depends on Sales team what the maximum they can get.

MANOJ SHRIPATI

CA FINAL

56 Points Joined April 2011

THE QUESTION IS ASKED FOR A SPECIAL ORDER AND FOR THAT SPECIFIC ORDER IT WANTS A PROFIT OF 1 PER UNIT....

AS WE HAVE ALREADY INCURED THE FIXED COST IT WILL NOT BE APPOTIONED, WHICH IS SUNK COST AND IRRELEVENT FOR THE DECISION AND HENCE ONLY VARIABLE COST WILL BE CONSIDERED...

DERISED S.P WILL BE = V.C.P.U + PROFIT P.U

= 17.75 + 1 = 18.75/--