Reference no: EM133077209
Question - Star Cycle Company manufactures its own wheels for its cycles. The company is currently operating at 80% capacity at a normal capacity of 2,00,000 wheels per year. The direct materials and direct labor costs per unit to make the wheels are Rs 3.00 and Rs 4 respectively. The variable manufacturing overhead is charged to production at the rate of 30% of direct labor cost. The fixed cost is Rs 2 per wheel.
Required -
a) For long-run pricing, what is the full-cost base per unit?
b) Hero Motors is approached by BlueStar Motors to fulfill a one-time-only special order for 1,000 units. What is the minimum acceptable bid per unit on this one-time-only special order?
c) If the markup is 25% of the cost, how many wheels company has to manufacture to achieve the break-even point? Further, how many wheels the company should produce to achieve the target profit of Rs 5,00,000?
d) If a supplier offers to make the wheels at Rs 9 each, prepare an incremental analysis for the decision to make or buy the wheels. Should the company buy the wheels from an outside supplier? Justify the explanation?
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