A garment manufacturer has been producing and selling T-shirts exclusively for Indian market. His T-shirts are made of a specific material which is…

A garment manufacturer has been producing and selling T-shirts exclusively for Indian market. His T-shirts are made of a specific material which is eco-friendly. It means that T-shirts are bio-degradable in soil after it becomes unsuitable for use. This invention has been applauded throughout the country. Owner, Vikas, registered for the patent rights for his invention so that no one else could use it. Vikas feels that this invention will also be liked in foreign markets, and thus plans to expand his business outside India. He feels that US market is the first foreign market he should tap into. Current cost structure (each T-shirt): Direct material 90 Direct labour 60 Special service 80 (Used in T-shirt making, 50% fixed) Fixed overhead 50 Administration overhead (fixed) 20 Total cost per T-shirt 300 (+) Profit margin 200 Selling price in India 500 There is no limitation of any resources in India. Vikas is able to sell 80,000 T-shirts each year. He is currently working at 80% of his total capacity. After searching for potential customers in US, Vikas received an inquiry for 30,000 units from a wholesale distributor in California. As per the inquiry, order will be placed if price per T-shirt is reasonable and the order has to be satisfied in full. Vikas decided to send a quote and the order was placed by the foreign client, on the same day. Vikas, without a second thought accepted the order, but did not feel the need to extend the manufacturing capacity; therefore he decided forgo a few Indian clients. This foreign order also required special packaging. It is spent at 20% of the total prime cost per T-shirt. The production was done quickly and foreign consignment was transported to custom port via services from a carriage agency. It charged - 80,000 for 1 truck, whose capacity was 500 kg, to transport whole of the consignment. Truck was 20% vacant after loading the consignment. Bill of lading was filed and a professional fee of 25,000 for filing this was paid to a Chartered accountant. Custom port also charged 80 per kg per day to handle the material, storing it in warehouse, and for loading the goods on ship. The shipping company, which was booked by Vikas for taking the consignment to US, got delayed due to bad weather. Stock was held at port for 5 days and on 6th day it was loaded on ship. Shipping company charged - 2,800/ 10 kg of goods. Insurance was charged flat at 1,11,000. There is no custom duty on such exports. Answer the following questions (MCQs 6 to 10):