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Old MathJax webview need project explanation updated Total 10 pu CVP Analysis and Decision-Making Utilize the Idle Capacity for meeting an Export Demand for Product
Old MathJax webview
need project explanation
updated
Total 10 pu CVP Analysis and Decision-Making Utilize the Idle Capacity for meeting an Export Demand for Product D whose Sales Price and Cost data are given as below Selling Price 372 Direct Material 20 Direct Labour 820 Variablo Overheads 310 Additional Fixed Cost for production of D will be * 70,000. Hire out the idle Capacity for 60,000 annually Valuate each proposal and give your views plution: 1. Basic Computations Particulars Product A Product B a) Sales Quantity 6,000 units 16,000 units $) Contribution per unit = Fred Costs pu + Prolit pu 8 +B= 16 12 + 12 = 24 (c) Labour Hours per unit - Wages Cost pu + 8 ph 1 hour 1.5 hours Contribution per Labour Hour = (b + c) 7 16 16 (2) Total Contribution (a x b) 96,000 3,84,000 4,80,000 (0) Total Fixed Costs = (6,000 x 8) + (16,000 x ? 12) 32,40,000 ) Present Total Profits (e-f) 72,40,000 3) Total Labour Hours presently used (a x c) = 2/3 of Capacity 6,000 hours 24,000 hours 30,000 hours Since 2/3'd of Capacity = 30,000 hours, balance 1/3" Idle Capacity 15,000 hours 2. Evaluation of Options 1. Discontinue A, & 2. Discontinue B, and 4. Hire out Particulars / Option 3. Use spare use that time for B use that time for C in Idle capacity for D and reduce SP of B export market Capacity (a) Time required p.u. of * 12 pu 720 pu = 1.5 hrs 1.25 hrs = 2.50 hrs NA product to be produced 8 ph 28 ph * 8 ph b) Hours used on new product 6,000 hours 24,000 hours 15,000 hours 15,000 hours (C) No. of units of product to be 4,000 units 19,200 units 6,000 units NA produced with above hours 324-2 Price 52-(15+10+5) 72-(20+20+10) d) Contribution per unit NA Reduction = 22 22 -722 19,200 units x 22 6,000 units x 22 Hire Revenue Te) Additional Contribution (Note) 56,000 =4,22,400 = 1,32,000 = 60,000 Contribution lost on A Contribution lost on B Additional FC Nil (0Additional Costs = 96,000 = 3,84,000 +370,000 ( 40,000) 38,400 262.000 (9) Net Addnl Benefit / (Cost) 60,000 "Note: Additional Contribution from Option 1 = Revised Total Contribution less Present Total Contribution from B = [(16,000 + 4,000) units x ? 22) less ? 3,84,000 = 56,000 Conclusion: Since Additional Profit in Option 3 is maximum, the same is recommended. Also, renting out of factory to a hird party will curtail the flexibility in future production planning. N 18 12 Evaluation of Alternatives - Proposals Analysis Mercury Ltd has prepared the following budget estimates for the year 2017-18. Product Y Unit Product X / Unit Particulars 6,000 16,000 Sales (Units) 400 640 Selling Price 120 220 Direct Materials 80 120 Direct Wages @Step by Step Solution
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