Kanchan Machine Works has received an export order for surface finishing of 1,000 castings at the ra

Kanchan Machine Works has received an export order for surface finishing of 1,000 castings at the rate of Rs. 60 per casting, as against Rs. 70 per casting that is normally charged. The direct materials cost for the job is estimated to be Rs. 10 per casting. The machine hour rate is Rs. 14, calculated as follows :

Cost Item

Rate

Remark

Power

Rs. 4

Fully variable with output

Supplies

Rs. 3

80% variable with output

Indirect labour

Rs. 2

50% variable with output

General factory overhead

Rs. 5

Not variable with output

Each casting requires four hours of machining. The business has an annual capacity of 10,000 castings; 75 per cent of the capacity has been utilized and the business has committed orders for 500 castings.

  1. Estimate the incremental profit or loss from the order.   
  2. Mention two non-financial factors that the business should consider while deciding on the order.