A company currently operating at 80% capacity has the following particulars: A com Sales Direct materials Direct labour Variable overheads Fixed overheads 32,00,000 10,00,000' 4,00,000 2,00,000 13,00,000 An export order has been received that would utilise half the capacity of the factory. The order cannot be split, i.e., it has either to be taken in full and executed at 10% below the normal domestic prices or rejected totally. The alternatives available to the management are: (1) Reject the order and continue with the domestic sales only (as at present), or fr (2) Accept the order, split capacity between overseas and domestic sales and turn away excess domestic demand, or (3) Increase capacity to accept the export order and maintain the present domestic sales by: (a) buying an equipment that will increase capacity by 10%. This will result in an increase of 1,00,000 in fixed costs, and (b) work overtime to meet balance of required capacity. In that case, labour will be paid at one and a half times the normal wage rate. Prepare a comparative statement of profitability and suggest the best alternative.

A company currently operating at 80% capacity has the following particulars: A com Sales Direct materials Direct labour Variable overheads Fixed overheads 32,00,000 10,00,000' 4,00,000 2,00,000 13,00,000 An export order has been received that would utilise half the capacity of the factory. The order cannot be split, i.e., it has either to be taken in full and executed at 10% below the normal domestic prices or rejected totally. The alternatives available to the management are: (1) Reject the order and continue with the domestic sales only (as at present), or fr (2) Accept the order, split capacity between overseas and domestic sales and turn away excess domestic demand, or (3) Increase capacity to accept the export order and maintain the present domestic sales by: (a) buying an equipment that will increase capacity by 10%. This will result in an increase of 1,00,000 in fixed costs, and (b) work overtime to meet balance of required capacity. In that case, labour will be paid at one and a half times the normal wage rate. Prepare a comparative statement of profitability and suggest the best alternative.

Cornerstones of Cost Management (Cornerstones Series)

4th Edition

ISBN:9781305970663

Author:Don R. Hansen, Maryanne M. Mowen

Publisher:Don R. Hansen, Maryanne M. Mowen

Chapter20: Inventory Management: Economic Order Quantity, Jit, And The Theory Of Constraints

Section: Chapter Questions

Problem 1CE: Thomas Corporation produces heating units. The following values apply for a part used in their...

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