A company manufacturing several products for regular sales has conducted a market survey at a cost of Rs.100000 to introduce a new product NP. The market survey suggests that there is a demand for the sale of 100000 units of NP at RS.18 each for one year.

The following information has been furnished by the company:

RAW MATERIAL:Each article of NP requires 1 unit of each of the three types of raw material namely A, B and C.

Material A is in regular use of the company and the stocks are replaced as and when exhausted.

Material B is not in regular use of the company but as a result of over buying in an earlier contract, the company at present holds a stock of 60000 units.

Material C is used only in NP and hence the company has to purchase the same as per the requirement of the production of the new product.

The data relating to the three items of raw material are as under:

DIRECT LABOUR: NP requires for ach article

Skilled labour 0.25 hours at Rs.3 per hour and unskilled labour 2 hours at Rs.2 per hour. Due to shortage of skilled labour, the company has in the event of deciding to take up the production of NP, to divert the skilled labour from some other product which earns a contribution of Rs2 per hour of skilled labour. The company has a surplus of 300000 hours of unskilled labour for which payment is being made one time basis as per contract and it is not possible to terminate these surplus workers.

ADDITIONAL STAFF: required for the manufacture of NP:

One foreman at Rs.36000 per annum

One supervisor at Rs24000 per annum

MACHINES:

Two machines namely Machine type P and Machine Type Q are required for NP. Machine type P is in regular use on other products also and machine type Q is now idle. If NP is not produced Machine type Q can be sold immediately. The relevant data to each type of machine are as under:

The company charges depreciation on straight line basis

OVERHEADS

Fixed overhead of the company Rs.1800000 per annum

Variable overheads of Rs.1.50 per unit of the new product NP

Required:

Using the concept of relevancy of costs, prepare an cost sheet to show the total cost and cost per units of the new product NP. Substantiate the figures with necessary explanation.