Accountancy Assignment 3

STATEMENT OF COST AND PROFIT

A) If company chose option A
Selling price
Domestic production 4,00,000 units*6.00rs. 24,00,000rs.
Foreign order production 4,00,000 units*4.70rs. 18,80,000rs.

Particular Rs/unit Domestic Foreign production

production
Direct material 2.50 10,00,000 10,00,000

Direct labor 1.00 4,00,000 4,00,000

Variable expenses 0.50 2,00,000 2,00,000

Fixed expenses 1.00 2,40,000 2,40,000

Total cost 18,40,000 18,40,000

Gross profit:- selling price – total cost

Domestic gross profit:-24,00,000 – 18,00,000 = 5,60,000rs.

Foreign gross profit :- 18,80,000 – 18,40,000 = 40,000rs

There for total profit;- domestic profit + foreign profit

5,60,000 + 40,000
Total profit 6,00,000rs.
 Accountancy Assignment 3

B)If company chose option B

Total domestic production is 4,80,000 units@6.00rs. 28,80,000rs.

Total foreign order production is 4,00,00 units@4.70rs. 18,80,000rs.

Particular Rs./unit Domestic Foreign

production production
Direct material 2.50 12,00,000 10,00,000

Direct labor 1.00 4.80,000 4,00,000

Variable expenses 0.50 2,40,000 2,00,000

Fixed cost 2,92,000 2,43,000

Total cost 22,12,000 18,43,000

Gross profit:- selling price – total cost

Domestic gross profit:- 28,80,000 – 22,12,000 = 6,68,000rs.

Foreign gross profit :- 18,80,000 – 18,43,000 = 37,000rs

There for total profit;- domestic profit + foreign profit

6,68,000 + 37,000
Total profit 7,05,000rs.
 Accountancy Assignment 3

C)if company chose option C

Total domestic production is 4,80,000 units@6.00rs. 28,80,000rs.

Total foreign order production is 4,00,00 units@4.70rs. 18,80,000rs.

Particular Rs./unit Domestic Foreign

production production
Direct material 2.50 12,00,000 10,00,000

Direct labor 1.00 4,48,000

Variable expenses 0.50 2,40,000

Conversion cost 2.00(for foreign 8,00,000

order)
Fixed cost 4,80,000 36,000

Total cost 23,68,000 18,36,000

Gross profit:- selling price – total cost

Domestic gross profit:- 28,80,000 – 22,12,000 = 4,82,000rs.

Foreign gross profit :- 18,80,000 – 18,36,000 = 44,000rs

There for total profit;- domestic profit + foreign profit

4,82,000 + 44,000
Total profit 5,26,000rs.
 Accountancy Assignment 3

D) if company chose option D

Total domestic production is 4,80,000 units@6.00rs. 28,80,000rs.

Particular Rs./unit Total amount

Direct material 2.50 12,00,000

Direct labor 1.00 4,80,000

Variable expenses 0.50 2,40,000

Fixed cost 1.00 4,80,000

Total cost 24,00,000

Gross profit:- selling price – total cost

Domestic gross profit:- 28,80,000 – 24,00,000 = 4,80,000rs.

 Accountancy Assignment 3

Analysis
 The total profit earned in Option 2 is higher in comparison with the other Options
available. The profit that has been obtained in option 2 may be because the profit margin
of the Pieco Engineering Company has increased as for there is a reduction in the cost of
production but the selling price is the same.

 In this case the production company is not able to meet the domestic needs of the people
as a result it may lead to the preference of the commodity in the domestic market to
decrease and that can give an added advantage to the competitors of the commodity to
push back the sales of Pieco Engineering Company.

 The option 3 if opted will lead to increase in cost of production which will give less profit
inspite of exporting the commodities produced.

 The option 4 can’t be opted as that will again decrease the profit of the company. As they
are rejecting the foreign order they will lose a fair chance of getting their goods exported
in the later times as the foreign companies may not sign the deal with Pieco Engineering
Company. This may lead to loss of opportunity in the global business.

 The future of Pieco Engineering Company if not going for option 2 and preferring any
other option may lead to the less utilization of the available material and it leads to under
utilization of the production capacity.

 Whereas if the company is over-utilizing its capacity can lead to un-fulfillment of the
goods demanded in the market which infact will lead to loss of the company’s market
share as the competitors will gain the business and push back the sales.

 Opportunity Cost of the company is the next best alternative lost because of accepting the
option 2 as the cost of production. Rejecting the option A is the opportunity cost that is
lost in the process. Option 2 – Rs. 7,05,000 and Option 1 – Rs. 6,00,000 so that of the
opportunity cost will be (7,05,000-6,00,00) =Rs. 1,05,000

Conclusion
The option 2 is the best option available so as to maximize the profit of the company. So we
must accept the order and leave the other options.