1. Problem on Product Pricing:
As ancillary industry has received an Order from a large industry for the
manufacture of 100,000 numbers components [@Rs.600 for 1,000 numbers] for
which there is a rising demand. The Raw Material required are Mild Steel Strips
and Spring Steel Strips which will be drawn in press for making components by
using tools and dies.
Calculate the estimated Cost of Production and Margin of Profit, if any, from the
following data and submit your recommendations as to whether the Order
should be accepted or not. If so, under what conditions? If not, why not?
1. 0.30 Metric Tons and 0.20 Metric Tons of Mild Steel Strip and Spring Steel
Strip respectively are required to complete the Order. These Strips are
available in the form of Coils.
2. Raw Materials:
(a) Mild Steel [i] Rs.2,000 Per Metric Tons if purchased in Quantities of
more than 1 Ton, [ii] Rs.2,200 Per Ton if purchased in Quantities of
less than 1 Metric Ton.
(b) Spring Steel [i] Rs.4,000 Per Metric Ton if purchased in Quantities of
more than 1 Metric Ton. [ii] Rs.4,500 Per Metric Ton if purchased in
Quantities of less than 1 Metric Ton.
3. Material Wastage – 10%
4. Manufacturing Period – 2 Months for 100,000 numbers of Components
5. Wages – Rs.4,500 Per Month
6. Capital Cost of existing Press [Capacity exists]. [Assume depreciation at
10%] – Rs.1.20 Lakhs
7. Additional Special Equipments required – Rs2,000
8. Estimated Cost of Manufacture of Special Tools and Dies Rs.30,000 [Life
Estimated to cover manufacture of 1,000,000 Components.
9. Recurring Expenses for grinding of Tools and Dies to complete the Order
– Rs.1,000.
10. Cleaning and Phosphating Cost – 5 Paise for each Component.
11. Supervision and other Overhead Expenses of the Shop - Rs.1,000 Per
Month.
12. Share of other Service and Administrative Action – Rs.1,500 Per Month.
13. Selling and Distribution Expenses - 5% if the Total Cost.
14. Provision for Rejection by Customer – 10%
![Problem on Product Pricing:
As ancillary industry has received an Order from a large industry for the
manufacture of 100,000 numbers components [@Rs.600 for 1,000 numbers] for
which there is a rising demand. The Raw Material required are Mild Steel Strips
and Spring Steel Strips which will be drawn in press for making components by
using tools and dies.
Calculate the estimated Cost of Production and Margin of Profit, if any, from the
following data and submit your recommendations as to whether the Order
should be accepted or not. If so, under what conditions? If not, why not?
1. 0.30 Metric Tons and 0.20 Metric Tons of Mild Steel Strip and Spring Steel
Strip respectively are required to complete the Order. These Strips are
available in the form of Coils.
2. Raw Materials:
(a) Mild Steel [i] Rs.2,000 Per Metric Tons if purchased in Quantities of
more than 1 Ton, [ii] Rs.2,200 Per Ton if purchased in Quantities of
less than 1 Metric Ton.
(b) Spring Steel [i] Rs.4,000 Per Metric Ton if purchased in Quantities of
more than 1 Metric Ton. [ii] Rs.4,500 Per Metric Ton if purchased in
Quantities of less than 1 Metric Ton.
3. Material Wastage – 10%
4. Manufacturing Period – 2 Months for 100,000 numbers of Components
5. Wages – Rs.4,500 Per Month
6. Capital Cost of existing Press [Capacity exists]. [Assume depreciation at
10%] – Rs.1.20 Lakhs
7. Additional Special Equipments required – Rs2,000
8. Estimated Cost of Manufacture of Special Tools and Dies Rs.30,000 [Life
Estimated to cover manufacture of 1,000,000 Components.
9. Recurring Expenses for grinding of Tools and Dies to complete the Order
– Rs.1,000.
10. Cleaning and Phosphating Cost – 5 Paise for each Component.
11. Supervision and other Overhead Expenses of the Shop - Rs.1,000 Per
Month.
12. Share of other Service and Administrative Action – Rs.1,500 Per Month.
13. Selling and Distribution Expenses - 5% if the Total Cost.
14. Provision for Rejection by Customer – 10%](https://image.slidesharecdn.com/sfmproductpricingproblem-130319105719-phpapp02/85/Sfm-product-pricing-problem-1-320.jpg)
