Question
Sports Specialities Ltd is famous for specialized manufacture of quality chessboard sets. Presently, the company is working below its normal capacity of 1000 units per
Sports Specialities Ltd is famous for specialized manufacture of quality chessboard sets. Presently, the company is working below its normal capacity of 1000 units per month. The company sells its chessboards in the national market at Rs.150 per unit. During April 2020, 600 units were sold, which is regular sales volume for each month all through the year.
The unit cost of production (in Rs.) is as follows:
Direct Material 60
Direct labour 30
Factory overhead 30
Selling & administration overhead 15
The company has received an export order on 20 April 2020 for the supply of 600 units to be dispatched by June 2020. However the stipulated price per unit is Rs.100 only. The cost analysis indicates that the cost of direct material and direct labour that are to be incurred on the export order would be the same amount per unit as the regular line of production. However, an amount of Rs.2000 will have to be incurred on special packing, labelling packaging etc. No additional factory, selling or administrative overhead costs would be incurred in executing the export order since the firm is operating below normal capacity.
Using the differential cost analysis method, prepare the income statement to show whether the acceptance of the export order would be profitable to the company. Assumption and comments, if any may be given separately.
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