Reference no: EM132561512

A new product has been developed by a company, of which 10,000 units are to be produced each year. Expenditures incurred annually are given below :

                                                      Machine                            Manual

                                                          Rs.                                    Rs.

Purchase price of machine       40,000                              -

Direct material                         10,000                       10,000

Direct labour                              1,000                          6,000

Variable overhead cost                    4,000                         2,000

Fixed overhead cost

(excluding depreciation)                      3,000                    2,000

The selling price of the product has been fixed at Rs. 6 each. If the machine is purchased, it will have an estimated life of ten years with little or no residual value.

Required

Question (a) marginal costs and contributions; and

Question  (b) total costs including interest at 5% on the capital cost of the machine. (Depreciation to be calculated at 10% on straight line method where necessary.)