MedTech Pvt. Ltd. produces has started producing high-end personal protective equipment (PPEs) for hospital use. The data for the first nine months of year 2020 is as follows:

1. Total cost (including manufacturing, administrative and selling costs) Rs. 8,900,000

2. Total PPES produced 10,000

3. Cost per canister Rs. 890.

Recently Government of Nepal requested the company to supply of 5,000 PPEs at a price equal to its variable cost per PPE. Government says that the PPEs will be used in public hospitals so that the safety standards of public hospitals can be enhanced. As the company is making good profit in regular market and it has excess capacity available to meet the government demand, it thinks that the offer is acceptable. But the difficulty is that the company has not maintained its cost records classifying costs into variable and fixed. All it has is the data on total PPEs produced in a month and total cost incurred per month. A Chartered Accountant (CA) tells company owner that if she gets 12 months' data on total monthly costs and production, she will help find what the variable cost per unit is.

The CAwas given monthly data of production and total cost. She makes a few calculations and says that

the annual fixed costs are Rs. 26,400,000 spread evenly over twelve months of the year.

Required:

1. 2. What is the variable cost per PPE as per the calculations of CA?

Suppose Simran is selling at Rs. 1,500 per PPE in the market, what is the net profit it is currently earning? By what amount will its net profit go up if it accepts the government

offer?

Explain why accepting government offer is good for the company