Question 1

Holding Cost
Annual Warehousing Cost 100
Financing Cost 2,400
2,500
Ordering Cost
Inspection Charges 20,000
Transportation 25,000
45,000
Demand 3,600
EOQ 360.00 Kgs of Y
Annual Cost
Annual Holding Cost
Average Stock 180
Safety Stock 30
Inventory (Stocked) 210
Holding Cost 525,000
Annual Ordering Cost
Number of orders 10
Per Oreder Cost 45,000
Annual Cost 450,000
Total Cost 975,000
Question 2
Basis Machining
Indirect Wages Specific 46,000
Indirect Material Specific 68,000
Power Machine Hours 413,333
Light and Heat Area Occupied 23,000
Depriciation Book Value of Fixed Assets 61,714
Rent and Rates Area Occupied 57,000
Warehousing Cost Direct Materials 83,380
Total 752,428
Reallocation
80% of cost Machine Hours 211,474 187,977
20% of cost Area Occupied 52,869 31,099
Total Overheads 971,504
Basis Machine Hours
Denomination 40,000
Hourly rate 24.29
Assembly Finishing Maintenance Total
27,000 36,000 137,000 246,000
18,000 36,000 91,000 213,000
20,667 31,000 - 465,000
9,200 6,900 6,900 46,000
24,686 9,257 12,343 108,000
22,800 17,100 17,100 114,000
10,508 4,112 - 98,000
132,861 140,369 264,343 1,290,000
9,399 14,098 (211,474) -
12,440 9,330 (52,869) -
154,699 163,797 - 1,290,000
Labour Hours Labour Hours
8,000 16,000
19.34 10.24
1,000
Question 4
Product Cost Absorption Marginal Absorption Marginal
Direct Material 630 630 600 600
Direct Labour 189 189 180 180
Variable POH 132 132 120 120
Fixed POH 88 - 80 -
1,039 951 980 900
Budgeted FOH 1,320,000 1,200,000
Sales
Opening 4,000
Profuction 12,000
Closing (3,000)
Sales 13,000
Profit and Loss (Absorption Costing) Profit and Loss (Marginal Costing)
Sales 20,800,000 Sales
COGS COGS
Opening Stock 3,920,000 Opening Stock 3,600,000
COGM 12,468,000 COGM 11,412,000
Closing Stock (3,117,000) (13,271,000) Closing Stock (2,853,000)
Gross Profit 7,529,000 Gross CM
Variable Selling and Admin
Under Applied OH (264,000)
Fixed Costs
Selling and Admin Production cost
Variable (858,000) Selling and Admin
Fixed (1,485,000)
Net Profit 4,922,000 Net Profit
Over / under Absorption
Allocated FOH 1,056,000
Actual FOH (1,320,000)
Under Applied (264,000)
Reconciliation
Aprofit as per aabsorption 4,922,000
Less Closing stock loading (264,000)
Current Year Prior Year
Add Opening stock loading 320,000
4,978,000
20,800,000
(12,159,000)
8,641,000
(858,000)
7,783,000
-
(1,320,000)
(1,485,000)
4,978,000
Question No. 5
(Rupees in '000')
A B C
Sales (Rs) 3,120,000 4,680,000 7,800,000
Units 312,000 585,000 1,560,000
SP 10 8 5
VC (5) (5) (3)
CM 5 3 2
Total CM 1,560,000 1,755,000 3,120,000 6,435,000
Projections for 2014
New SP 11.40 9.12 5.70
New VC (5.40) (5.40) (3.24)
New CM 6.00 3.72 2.46
Increased Volume 358,800 655,200 1,716,000
Total CM 2,152,800 2,437,344 4,221,360 8,811,504
Advert Cost (250,000)
Revised Profit 8,561,504
Additional Profit 2,126,504
Question 6
Retail Items Other Items
Sales (Ratio) 40.00% 60.00%
CM ratio 15.00% 31.82%
Weighted Average CM ratio 6.00% 19.09%
WA CM for the Company 25.09%
Option 1
Fixed Cost to be covered Rs 225,000
WA CM Ratio 25.09%
BE Sales in Rupees 896,739
Break up
Sales 358,696 538,043
To Prove Retail Items Other Items Total
Sales (Break Even) 358,696 538,043 896,739
CM ratio 15% 32%
Total CM 53,804 171,196 225,000
Fixed Cost (225,000)
Profit -
Option 2
Revised CM ration due to Commission
Retail Items Other Items
Sales (Ratio) 40.00% 60.00%
CM ratio 10.00% 26.82%
Weighted Average CM ratio 4.00% 16.09%
WA CM for the Company 20.09%
Fixed Cost to be covered Rs 200,000
WA CM Ratio 20.09%
BE Sales in Rupees 995,475
Break up
Sales 398,190 597,285
To Prove Retail Items Other Items Total
Sales (Break Even) 398,190 597,285 995,475
CM ratio 10% 27%
Total CM 39,819 160,181 200,000
Fixed Cost (200,000)
Profit -
Preferance for the options
Option 1 should be opted because breakevn is reached early as compared to option two.
Assuming that Old Increased
Sales price 100 110
Variable Cost (75) (75)
CM 25 35
CM ratio 25.00% 31.82%
Option 1 should be opted because breakevn is reached early as compared to option two.
Question 7
CM for both product
C031 D032
SP 1,965 1,410
Material A (100) (75)
Material B (210) (156)
Skilled Labour (600) (500)
Unskilled Labour (600) (300)
VOH (125) (60)
CM 330 319
Checking for limiting factors
Raw Material B
Required for C031 D032
Export sales 25,000 24,000
Local Sales 40,000 50,000
65,000 74,000
Per unit matr required 3.50 2.60
Total Material Reqquired 227,500 192,400 419,900
Total Material Available (332,400)
Shortage 87,500
Skilled Labour Hours
Required for C031 D032
Export sales 25,000 24,000
Local Sales 40,000 50,000
65,000 74,000
Per unit matr required 2.40 2.00
Total Material Reqquired 156,000 148,000 304,000
Total Material Available (252,000)
Shortage 52,000
Export Order Fulfilling
CM from Export Orders
Units CM / unit Total CM
C031 25,000 465 11,625,000
D032 24,000 409 9,816,000
21,441,000
Material B consumption
Units Kg/ Unit Matr Consumd
C031 25,000 3.50 87,500
D032 24,000 2.60 62,400
149,900
Skilled Labour Consumption
Units Kg/ Unit Matr Consumd
C031 25,000 2.40 60,000
D032 24,000 2.00 48,000
108,000
Material B leftover for local sales 182,500
Skilled Labour leftover for local sales 144,000
Options
Making C031 first and than D032 (Strategy 1)
Products units Matr Consm
Hours
Consmed
Leftovr
Matr
Leftover
Labr
C031 40,000 140,000 96,000 42,500 48,000
D032 16,346 42,500 32,692 - 15,308
Maximum possible production
Using Material 16,346 Real Limiting Factor
Using Labour Hrs 24,000
Making D032 first and than C031 (Strategy 2)
Products units Matr Consm
Hours
Consmed
Leftovr
Matr
Leftover
Labr
D032 50,000 130,000 100,000 52,500 44,000
C031 15,000 52,500 30,000 - 14,000
Maximum possible production
Using Material 15,000 Real Limiting Factor
Using Labour Hrs 18,333
Conclusion
Startegy 2 is better off with higher contribution margin
Total Profit under both strategies
Strategy 1 Strategy 2
CM (Export Sales) C031 11,625,000 11,625,000
CM (Export Sales) D032 9,816,000 9,816,000
CM (Local Sales) C031 13,200,000 15,950,000
CM (Local Sales) D032 5,214,423 4,785,000
Fixed Costs (36,000,000) (36,000,000)
Profit 3,855,423 6,176,000
Better Strategy
CM
13,200,000
5,214,423
18,414,423
CM
15,950,000
4,785,000
20,735,000