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Determine what effect would accepting order have on company

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Reference no: EM132573661

Question (A) KPR manufactures deals in various products. Relevant details of the products are as under:

                                                             AW                          AX                             AY                        AZ

Estimated annual demand (units)     5000                   1000                     7000                8000

Sales price per unit (Rs.)                 150                     180                       154                175

Material consumption:

Q (Rs)                                         27                          29.5                     24.5             29.75

Labor hours (Rs)                           50                           56.25                    43.75               62.5

Variable overheads (based on labor cost)70%                    80%                      10%              90%

Fixed overheads per unit (Rs.)              10                      20                          14                  16

Machine hours required:

Processing machine hours                         5                         6                       8                      10

The capacity utilization is as under:

Hours

Processing machine 150,000

Required

Compute the number of units of each product that the company should produce in order to maximize the profit.

Question (B) KPR manufactures is considering a special order for 20 handcrafted gold bracelets to be given as gifts to members of a wedding party. The normal selling price of a gold bracelet is Rs 184 and its unit product cost is Rs140.00 as shown below:

Direct materials . . . . . . . . . . . . . . . . . . . . Rs 81.00

Direct labor . . . . . . . . . . . . . . . . . . . . . . . 42.00

Manufacturing overhead . . . . . . . . . . . . . 17.00

Unit product cost . . . . . . . . . . . . . . . . . . . Rs140.00

Most of the manufacturing overhead is fixed and unaffected by variations in how much jewelry is produced in any given period. However, Rs 5.00 of the overhead is variable with respect to the number of bracelets produced. The customer who is interested in the special bracelet order would like special filigree applied to the bracelets. This filigree would require additional materials costing Rs 5.00 per bracelet and would also require acquisition of a special tool costing Rs 255 that would have no other use once the special order is completed. This order would have no effect on the company's regular sales and the order could be fulfilled using the company's existing capacity without affecting any other order.

Required:

What effect would accepting this order have on the company's net operating income if a special price of Rs 165 per bracelet is offered for this order? Should the special order be accepted at this price?

Reference no: EM132573661

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