pass journal entries

pls help me as soon as possible...............

a company produces 400000 components of machinery anually at 80% full capacity. regular selling price is rs33. budgeted annuual production cost and other expenses for the year as follows......

raw material cost per unit        rs 4.25

direct labour cost per unit        rs 5.75

variable factory overhead per unit    rs 7.75

variable selling costs    5% of selling price

fix factory and admininstrative overheads   rs 3950000

during the year company received a one time order to sell 25000 components for which no selling expenses will b incurred. wat shud b the minimum price qouted by the company if it wants to earn minimum of re 1 per component on this order?

asnwer at my mail gunjan_jain22 @ yahoo.co.in

Replies (1)

Costs per unit Relevant to the offer:

Material: Rs. 4.25 + Labour Rs. 5.75 + Variable OH Rs. 7.75 = Rs. 17.75

Since Fixed costs remains same irrespective of the production volume and as given in question, Selling OH will not be occuring for the order, both these costs are irrelevant in this decision making.

Our Marginal Cost is Rs. 17.75 and in the present scenario, if we could generate any contribution on these 25000 units, it will add to our profit.

Expected Profit is Re.1/- p.u. Thus our SP must be atleast Rs. 18.75 to generate the profit of Re 1. p.u.

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