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What should the minimum acceptable selling price per unit be

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Reference no: EM132562668

Naji Company sells its product for Rs.70 per unit. The company's unit product cost based on the full capacity of 600,000 units is as follows:

Direct materials                   Rs.12

Direct labor                               15

Manufacturing overhead                  18

[Two-thirds (2/3) of the manufacturing overhead is fixed and would not be affected by this order. i.e. committed fixed cost]

Evaluate each situation independently:

Question A. A special order offering to buy 60,000 units has been received from a foreign distributor. The only selling costs that would be incurred on this order would be Rs.9 per unit for shipping. The company has sufficient idle capacity to manufacture the additional units. In negotiating a price for the special order. What should the minimum acceptable selling price per unit be, If it wants to earn Rs.120,000?

Question B. Assume that the company's current production level is 560,000 units, an importer has offered to buy 50,000 units at Rs.40 each. Should it be accepted or not?

Reference no: EM132562668

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