JC Ltd. has a production capacity of 80,000 units per year. Presently a company produces 60,000 units. Its cost structure is as under: Material Cost…

(i) Statement Showing “Cost and Profit under Both Situation" Particulars Existing Production (60,000 units) After Offer (80,000 units) (₹) (₹) Sales Existing (60,000 x 20) 12,00,000 12,00,000 Offer (20,000 x 14) 2,80,000 Total Sales 12,00,000 14,80,000 Less: Direct Materials @6 3,60,000 4,80,000 Direct Labour @4 2,40,000 3,20,000 Variable Overheads @2 1,20,000 1,60,000 Contribution 4,80,000 5,20,000 Less: Additional Shipping cost - 8,000 Less: Fixed Cost 3,00,000 3,00,000 Profit 1,80,000 2,12,000 Since the Profit has increased by - 32,000, the proposal of the Japanese client should be accepted (ii) Yes, the advice will be different, if the customer is local one since the company is currently selling at 20 in local market and therefore, selling at discounted price of 14may impact its local market. (iii) Statement Showing “Cost and Profit" Particulars After Offer (80,000 units) (₹) Sales Existing (50,000 x 20) 10,00,000 Offer (30,000 x 14) 4,20,000 Total Sales 14,20,000 Less: Direct Materials @6 4,80,000 Direct Labour @4 3,20,000 Variable Overheads @2 1,60,000 Additional Shipping cost 12,000 (₹ 8,000/20,000 units) x 30,000 units Contribution 4,48,000 Less: Fixed Cost 3,00,000 Profit 1,48,000 If offer of Japanese client to supply 30,000 units at a price of 14is accepted, the Profit will decrease by - 32,000 from the current level.