Question

Question 2: Case study on GRT Ltd.
GRT Ltd wants to determine long term selling prices for their products Alpha and Beta which
they are newly introducing in the market. Both these products will be manufactured in
department D which is considered as a profit centre.
The estimated data are as follows:
Particulars Alpha Beta
Annual production (units) 100,000 200,000
Direct materials cost per unit $15 $14
Direct labour cost per unit (Direct labour hour rate: $18) $9 $6
The proportion of overheads other than interest, chargeable to the two products are as follows:
Factory overheads (50% fixed): 100% of direct wages
Administration overheads (100% fixed): 10% of factory cost
Selling and distribution overheads (50% variable): $4 and $4 respectively per unit of products
Alpha and Beta.
The fixed capital investment in the department is $5,000,000. The working capital requirement
is $5,225,000. The department is expected to give a return of 20% on its capital employed.
Required:
(a) Determine the selling prices of products Alpha and Beta such that the contribution per
direct labour hour is the same for both the products.
(b) Prepare an income statement showing in detail the required sales, variable costs,
required contribution, fixed costs, and over-all profit required for department D in order
to achieve its target target rate of return of 20% on its capital employed.
(c) Determine the full cost per unit (including production, selling, and admin costs) and
mark up as a % of full cost per unit.

Answer 1