APPLICATION OF KEY FACTORS

1 A co. annually manufactures 10,000 units at a cost of Rs.4 p.u. & the entire production is sold in the home market at the sale price of Rs.4.25 p.u. In the year 2009-10, there is a fall in the demand for home market which can consume 10,000 units at a sale price of Rs.3.72 p.u. The analysis of 10,000 units are as follows: Material Rs.15,000 Wages Rs.11000 fixed ovd Rs.8000 variable ovd Rs.6000 The foreign market is explored & it is found that this market can consume 20,000 units at a price of Rs.3.55 p.u. The fixed ovd for additional 10,000 units (over initial 10,000 units) will increase by 10%. Is it worthwhile to capture the foreign market?

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B ltd is currently operating 70% and producing 10,000 units p.a. The details of cost of production per unit are as follows: raw material 10 labour cost 08 Variable 3.20 fixed overhead 12.80 Total cost of production 34 One of the competitor ready to supply above finished goods at a price of Rs.28 Should co. make or buy the above product? Suppose the co. has rented out the factory premises for Rs.1000 per month, in that case co. should make or buy the above product?

3 Stoner co. manufactures product x which requires 3 different components (raw materials). Component I & II can be manufactured in the factory. The annual details for component III (for 12000 units) are as follows: unit cost Materials 1.40 Labour 2.20 Fixed ovd 0.40 Variable factory ovd 1.00 Other variable exp 0.50 Avg storage cost (fixed) 0.40 Total 5.90 The purchase manager investigated outside suppliers and found one that would sign a one year contract to deliver 12000 units as needed at a price of Rs.5.20 per unit. Should the company make or buy the component?

4 A co. produces 24000 units. The cost sheet gives the following information: Direct material 120,000 Wages 84,000 Variable ovd 48,000 Fixed ovd 108,000 Total 360,000 The product is sold at Rs.20 per unit. The management proposes to incrase the production by 3000 units for sales in the foreign market. It is estimated that the fixed overhead will increase by Rs.1000. the product will be sold at Rs.14 per unit in the foreign market. What will you advise them?