Question 1: Power Drive generates a hard disk drive which sells for $ 140 per unit. The costs of generating 10,000 drives in the preceding year were as shown below:
At the beginning of the present year, the company received an order for 2,000 drives from a computer company in China. Power Drive has mixed feelings regarding the order. On the one hand they welcome the order as they presently have excess capacity.
As well, this is the company’s first international order. On other hand the company in China is only willing to pay $ 100 per unit.
Required:
a) Find out the total benefit (loss) to the company if the special order is accepted, stating any suppositions.
b) State and describe in brief some of the qualitative factors which require to be considered before finalizing the decision.
Question 2: Rayor Electronic generates a high-end compact disc player which sells for Rs 1,200. Total operating expenses for the past six months are as shown below:
Required:
a) Use the high-low technique to estimate the fixed and variable costs.
b) Based on such estimates, compute the break-even level of sales in units
c) Compute the margin of safety for the coming August supposing estimated sales of 150 units and in brief comment thereon.
d) Estimate total profit supposing production and sales of 150 units.