XYZ Ltd. is a company involved in production and construction specialised equipment and machines on the demand of customers. The company received an…

XYZ Ltd. is a company involved in production and construction specialised equipment and machines on the demand of customers. The company received an order for construction of a specialised machine, it had nearly completed this job relating to construction of a specialised machine, when it discovered that the customer had gone out of business. At this stage, the position of the job was as under: (₹) Original cost estimate 27,50,000 Costs incurred so far 24,80,000 Costs to be incurred 3,70,000 Progress payment received from original customer 15,50,000 After searches, a new customer for the machine has been found. He is interested to take the machine, if certain modifications are carried out. The new customer wanted the machine in its original condition, but without its AI device and with certain other modifications. The costs of these additions and modifications are estimated as under: (₹) Direct Materials (at cost) 1,05,000 Direct Wages Dept.: X 35 men days Dept.: Y 55 men days Variable Overheads 30% of Direct Wages in each Dept. Delivery Costs 15,500 Fixed overheads will be absorbed at 50% of direct wages in each department. The following additional information is available: (1) The direct materials required for the modification are in stock and if not used for modification of this order, they will be used in another job in place of materials that will now cost - 1,50,000. (2) Department X is working normally and hence any engagement of labour will have to be paid at the direct wage rate of 1,000 per man day. (3) Department Y is extremely busy. Its direct wages rate is 1,200 per man day and it is currently yielding a contribution of 3 per rupee of direct wages. (4) Additional supervisory required for the modification cost - 80,000. (5) The cost of the AI device that the new customer does not require is 1,35,000. If it is taken out, it can be used in another job in place of a different mechanism. The latter mechanism has otherwise to be bought for 1,05,000. The dismantling and removal of the control mechanism will take 5 man day in department X. (6) If the conversion is not carried out, some of the materials in the original machine can be used in another contract in place of materials that would have cost - 2,00,000. It would have taken 5 men days of work in department X to make them suitable for this purpose. The remaining materials will realize - 1,50,000 as scrap. The drawings, which are included as part for the job can be sold for 45,000. You are required to CALCULATE the minimum price, which the company can afford to quote for the new customer as stated above.