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.
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.
(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?
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