tactory produces 5,000 articles for home consumption at the following costs:

Materials Rs
50,000
Nages 30,000
actory Overheads Rs,
Fixed 30,000
Variable 10,000 40,000
dministration Overheads (fixed) 28,000
g&Distribution
Fixed
Overheads:
15,000
Variable 10,000 25,000
1,73,000
 The home market can consume only 5,000 articles at a price of Rs. 40 each and no
moreT
mos
foreign market for this product can, however, consume 3,000 additional prices at a
Rs. 22 each C.I.F. ce
If this export order is executed, the following additional costs will be incurred
(1) Special packing, forwarding charges etc. Rs. 1.00
per un
(2) Freight, insurance etc. Rs. 2.00 per
The following 'Export Benefits should also be considered
un
(1) Duty drawback on direct materials cost 10%
(2) Cash subsidy @ 10% on F.O.B. value
Is foreign market worth trying?
Solution:
Statement showing the Financial Position
Home Market Export Market Total
No. of Units 5,000 3,000 8,000
Selling Price (per unit) Rs. 40 Rs. 22 (CIF)
Rs. Rs. Rs. Rs. Rs. Rs
Sales 2,00,000 66,000 2,66,00
Less: Variable Costs
Material (per unit Rs. 10) 50,000 30,000 80,000
Wages (Per unit Rs. 6) 30,000 18,000 48,000
VOverhead (unit Rs. 2) 10,000 6,000 16,000
S+D (Rs. 2 per unit + Special 10,000 6,000 16,000
pack+ Forward) Re 1 per unit 3,000 3,000
Freight nsurance etc. 6,000 6,000
1,00,000 69,000 1,69,000
Fixed Cost:
Admn. Overhead 28,000 28,000
F. Overhead 30,000 30,000
S+ DOverhead 15,000 15,000
Total Cost 1,73,00o 2 4200
27,000 24,00
Ad Exportnefit
Duty drawback on direct mat.
10% on Rs. 30,000 (+) 3,0000
Cash Subsidy @ 10% on FOB value
Rs. 20 (22 2) on 3,000 (+) 900
)6,000
33,00
Profit 27,000

Thus, the foreign market is worth trying since an additional profit of Rs. 6,000 may be earnea.