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As a result of an expansion programme, Pidilite Industries has excess capacity which is expected to be absorbed by the domestic market in a few

As a result of an expansion programme, Pidilite Industries has excess capacity which is expected to be absorbed by the domestic market in a few years. Two hundred and fifty thousand machine hours are available for the next year. It has received inquiries from two firms located abroad. One offers to buy 2,000,000 units of product A at Rs.3.80 per unit, the second offers to buy 5,000,000 units of product B at Rs.5.00 per unit. Standard costs for these products are given below:

Items of cost

Material Labour

Overhead

Total

Product A

Product B

$1.20

$1.30

50.60

50.80

$0.12

50.16

$1.92

$2.26

Machine hrs

Required per unit 2 3

Overhead is applied on a Machine-hour basis at the rate of Rs. 2 per hour. Seventy five percent of the overhead is estimated to be fixed. No selling and administrative expenses would be allocated to either order, charges are to be paid by the buyer. One of the orders will be accepted. 1. Which should it be? Why?

2. As a consultant to Pidilite what would be your role in advising the management in sustainability accounting?

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