1. MRF Ltd. Organised a market survey at a cost of Rs. 100000 to introduce a new product Ridemaster. The survey suggests that there is a demand for the new product of 100000 units @ Rs. 18 each.

i)Raw materials: Each article of Ridemaster requires one unit each of three types of materials namely, AR, BR and CR. Material AR is in regular use of the company and the stocks are replaced as and when exhausted. Material BR is not in regular use of the company but the company holds an old stock of 60000 units. Material CR is to be used exclusively for production of Ridemaster, and the company does not hold any old stock for the same. The relevant data for the three materials are as given below:

Raw Material

Current Stock (units)

Original cost/unit (Rs.)

Current replacement cost/unit (Rs.)

Current resale cost/unit (Rs.)

AR

100000

2.00

2.50

1.75

BR

60000

3.50

3.00

1.00

CR

--

--

6.00

5.00

ii)Direct Labour: Ridemaster requires for each unit of Ridemaster:

Skilled labour 0.25 hour @ Rs. 3.00 per hour and unskilled labour @ Rs. 2 / hour. The skilled labour is in short supply and if the company decides to produce Ridemaster, they have to divert skilled labour from some other product that generates a contribution of Rs. 2/ hour of skilled labour. However, the unskilled labour is available in abundance. These unskilled labours are already hired by the company and they can not retrench them.

iii)Machines: Two machines namely machine X and machine Y are

required to produce Ridemaster. Machine X is already in use for producing other products, but machine Y is not in use currently. If the company decides not to produce Ridemaster, Machine Y will be sold immediately.

Particulars

At the beginning of the year

At the end of the year

X - Replacement Cost

160000

130000

X - Resale Value

120000

94000

Y - Replacement Cost

26000

18000

Y - Resale Value

22000

17000

iv)Overheads: Fixed Overhead of the company is estimated at Rs. 1800000 p.a, and Variable Overhead Rs. 1.50 /unit of Ridemaster. The company also has to recruit one engineer with a salary of Rs. 42000 p.a, and one Chargeman at Rs. 28000 p.a.

Compute the unit cost of Ridemaster by using the Relevant cost concept. All the working notes are to be shown in detail.