Direct wages 8 - An engineering company produces P in its production shop A. The overhead recovery rate is 100% of direct wages based on the following budgeted figures: 1,60,000 Variable overhead 64,000 Fixed overheads 96,000 The production plan for the same budget period envisage an output of 18,000 units of product P whose sales and cost data are as under: Rs./unit Selling Price 42 Direct Materials 12 Direct Wages Total Overhead 8 The company propose to use the balance capacity of Shop A after completing the above said production plan. for the manufacture of component Q whose cost data are as under: Rs./unit Direct Material 8 Direct Wages 6 Total Overheads 6 The component Q is used by the company in the manufacture of some other product in another Production Department. The company receives an export order from abroad for the purchase of 2,000 units of Product P at Rs. 30 each. This offer can be accepted by diverting the capacity from component Q. In that event the company has to buy the component which is available from an outside supplier at a price of Rs. 40 each. You are required to evaluate the alternative course of action and state with reasons whether the spare capacity should be utlised for the manufacture of: (a) The component Q, or (6)2,000 units of Production P for export and buying of the component Q from the outside supplier