A company annually manufactures 10000 units of a product at a cost of Rs.4 per unit and there is home market for consuming the entire volume of production at the sale price of Rs.4.25 per unit. In the year 1987, there is a fall in the demand for home market which can consume 10000 units only at the sale price of Rs.3.72 per unit. The analysis of the cost per 10000 units is as follows: Materials Rs. 15000 Wages Rs.11000 Fixed Overheads Rs.8000 Variable Overheads Rs.6000 The foreign market is explored and it is found that this market can consume 20000 units of the product if offered at a sale price of Rs.3.55 per unit. It is also discovered that for additional 10000 units of the product (over initial 10000 units) the fixed overheads will increase by 10 percent. Is it worthwhile to try to capture the foreign market? showing the advisability of selling roods in foron mal Year 1986 Year 1987 Particulars Home Market Home Market Foreign Market Total 10000 units 10000 units 20000 units 30000 units PU Rs. PU Rs. PUR, R Materials 15.000 15,000 30,000 35.000 Wares 11.000 11.000 22.000 33.000 Overheads Fixed 3.000 3.000 1.600 9.500 Variable 5.000 6,000 12.000 18.000 Total Cost 400 40.000 40.000 65.600 105 600 Profit 0.25 2.500 12.00 5.400 2500 Sales 423 42.500 3.72 37.200 35571.000 104 100 From the above, it is clear that it is advisable to sell goods in the foreign market. It will compensate not only for the loss on count of sale in the domestic market but will also reult in an overall profit of Rs 26001 $14 Problem No.2 Due to industrial depression, a plant is running, at present, at 50% of its capacity. The following details are available. Cost of Production (per unit) is as follows. Direct Material Direct Labour Rs.1 Vriable o/h Rs. 3 Fixed O/h Rs.2 Total Cost Rs.8 Rs. 2 Production per month 20000 units, Total cost of production Rs. 160000 Sale Price Rs. 140000 Loss Rs.20000 An exporter offers to buy 5000 units per month at the rate of Rs.6.50 per unit and the company hesitates to accept the offer for fear of increasing its already large operating losses. Advise whether the company should accept or decline this offer