The Rafan Company manufactures a product which is sold at Rs.16 each. Under present business conditions, the company is operating at 30% normal capacity with production and sales of 8,000 units per month. An analysis of costs for recent month sows:

Direct Materials

Rs. 10,000

Direct Labor

12,000

Superintendent’s salary

5,000

Depreciation Building

2,000

Heat and light

500

Indirect labor

6,000

Deprecation of machinery

3,000

Machinery Repair

1,000

Fire Insurance

1,500

Miscellaneous

8,00

Factory Rent

5,000

Property Tax

400

Total

Rs. 47,200

The total marketing expenses were Rs. 50,000, which included 3,000 for packing and shipping. The sales on the special order would require a similar unit cost for packing and shipping. The total administrative and general costs were Rs. 7,000.

An offer has been received from a large chain store to purchase 96,000 units to be shipped in equal months each month during the coming year. These units would be manufactured with slight immaterial modifications under the chain store’s label. The price offered was Rs. 7.5 per unit.

The Rafan Company management does not expect any improvement in business conditions and feels that the chain store’s sales will not affect Rafan sales. The management does not believe that it can afford to accept this offer, feeling that it would reduce the present operation profit.

Required:

An analysis is required comparing the operating results if the order is or is not accepted. Also Assume that the various items are either completely fixed or variable, depending upon the dominant characteristics of each item and the data given.