Professional Documents
Culture Documents
HARI KRISHNA
MBA,MCOM, M.Phil,(PhD),(ICWAI)
K. HARI KRISHNA
MBA,MCOM, M.Phil,(PhD),(ICWAI)
(iii)
If the company can manufacture 600 buckets or per year with an additional
fixed cost of Rs.2, 000. what should be the selling price to maintain the profit
per bucket as at (ii) above
5. you are given the following data:
Year
sales
profits
2004
Rs.1, 20,000
Rs.8, 000
2005
Rs.1, 40,000
Rs.13, 000
Find out
(i)
P/V ratio
(ii)
B.E. Point
(iii) Profit when sales are Rs.1,80,000
(iv)
Sales required to earn a profit of Rs.12,000
(v)
Margin of safety in year 2005
6. The following figures relating to the performance of a company of the years I and
II are available. Assuming that (i) the ratio of variable cost to sales, and (ii) the
fixed costs are the same for both the years. Ascertain:
(a) the profit volume ratio
(b) the amount of the fixed costs
(c) the break even point, and
(d) The budgeted profit for the year III, if the budgeted sales for that year are Rs.1
crore.
7. A company sold in two successive periods 7,000 units and 9,000 units and has
incurred a loss of Rs.10, 000 and earned Rs.10, 000 as profit respectively. The
selling price per unit can be assumed at Rs.100.
You are required to calculate:
(a) the amount of fixed cost
(b) the number of units to break-even
(c) the number of units to earn a profit of Rs.40,000
8. given below are the sales and profits of the two halves of the year:
I st half
II nd half
Sales
Rs.1, 00,000 1, 20,000
Profit
Rs30, 000
38,000
Fixed cost during the first half is equal to that during the second half. Selling price and
per unit variable cost remain unchanged. Calculate the following:
(i)
P/V ratio for each half and the full year
(ii)
Fixed cost for each half and for the full year
(iii) BEP for each half and for the full year
(iv)
Half-yearly sales to earn half-yearly profit of Rs.40,000
(v)
Annual sales to earn annual profit of Rs.90,000
9. A company has annual fixed costs of Rs.14, 00,000. In 2004 sales amounted to
rs.60, 00,000 as compared to Rs.45, 00,000 in 2003. And profit in 2004 was Rs.4,
20,000 higher than in 2003.
(i)
At what level of sales does the company break-even?
(ii)
determine profit or loss on a precast sales volume of Rs.80,00,000
K. HARI KRISHNA
MBA,MCOM, M.Phil,(PhD),(ICWAI)
(iii)
If there is a reduction in selling price in 2005 by 10% and the company desires
to earn the same profit as in 2004, what would be the required sales volume?
10. A, B and C are three similar plants under the same management who want them to
be merged for better operation. The details are as under:
Plant
A
B
C
Capacity operated
100%
70%
50%
Rs lakhs
Rs. Lakhs
Rs. Lakhs
Turnover
300
280
150
Variable cost
200
210
75
Fixed cost
70
50
62
Find out:
(i)
the capacity of the merged plant for break-even
(ii)
The profit at 75% capacity of the merged plant.
(iii) The turnover from the merged plant to give a profit of Rs.28 lakhs
11. ABC Ltd. Manufacture and sells four types of products under the brand names
A,B,C and D. the sales mix in value comprises 33 %, 41 2/3%, 16 2/3%, 8 1/3%
of A,B,C and D respectively. The total budgeted sales (100%) are Rs.60, 000 per
month. Operating costs are as follows:
Variable costs:
Product
A
60% of selling price B
68% of selling price
C
80% of selling price D
40% of selling price
Fixed cost is Rs.14, 700 per month
Calculate the break event point for the products on an overall basis.
(b) It has been proposed to change the sales mix as follows, the total sales per month
remaining Rs.60, 000.
Product
A
25%
B
40%
C
30%
D
5%
Assuming that proposal is implemented, calculate the break-even point.
12. Company A and Company B, both under the same management, makes and sells
the same type of product. Their budgeted profit and loss account for June are as
under:
Company A
company B
Sales
3,00,000
3,00,000
Less: variable cost
2,40,000
2,00,000
Fixed cost
30,000
2,70,000
70,000
2,70,000
Profit
30,000
30,000
You are required to:
(i)
calculate the break-even point for each
(ii)
calculate the sales volume at which each of the two companies will make a
profit of Rs.10,000
(iii) Assess how their profitability will change with increase or decrease in sales
volume.
K. HARI KRISHNA
MBA,MCOM, M.Phil,(PhD),(ICWAI)
13. Two firms A-limited and X-limited are identical and are under the same
management. Their budgeted profit and loss accounts for the year ending 31st
December 2008 are as follows:
Particulars
A-Limited
X-Limited
Sales
Rs.3, 33,000
Rs.3, 33,000
Less variable Costs Rs.2, 44,000
Rs.2, 00,000
Fixed costs Rs.35, 000 Rs.2, 79,000 Rs.79, 000
Rs.2, 79,000
Profit
Rs.54, 000
Rs.54, 000
you are required to find:
(i)
The BEP for A-Limited and X-Limited.
(ii)
The sales volume at which each of the two firms will make a profit of
Rs.15,000
(iii) Which firm is likely to earn greater profits when the demand for the
product is high and low?
14. The united vision limited is considering expansion. Fixed assets amount to Rs.4,
60,000 and are expected to increase by Rs.1, 40,000 when plant expansion is
completed. The existing plant capacity is 32,000 units a year. Capacity will
increase by 50 per cent with the expansion. Variable costs are currently Rs.17 per
unit and are expected to go down by Re.1 per unit with the expansion. The current
selling price is Rs.40 per unit and is expected to remain same under either
alternative. What are the break-even points under either alternative? Which
alternative is better and why?
15. reprographics Ltd., manufactures a document reproducing machine which has a
variable cost structure as follows:
Rs.
material
40
labour
10
Overhead
4
And a selling price of Rs.90
Sales during the current year are expected to be Rs.13,50,000 and fixed overhead
Rs.1,40,000.
Under a wage agreement, an increase of 10% is payable to all direct workers from the
beginning of the forthcoming year, while material costs are expected to increase by 7
%, variable overhead costs by 5% and fixed overhead costs by 3%.
You are required to calculate:
(i)
The new selling price, if the current profit/volume reatio is to be maintained.
(ii)
The quantity to be sold during the forthcoming year to yield the same amount
of profit as the current year assuming the selling price to remain at Rs.90.
K. HARI KRISHNA
MBA,MCOM, M.Phil,(PhD),(ICWAI)
K. HARI KRISHNA
MBA,MCOM, M.Phil,(PhD),(ICWAI)
Determine the marginal contribution per unit of A, B and C and the profits
resulting from product mixes (i), (ii) and (iii).
2. A multi product company provides the following costs and output data for the last
year.
Products
X
Y
Z
Sales mix
40%
35%
25%
Selling price
20
25
30
Variable cost per unit
10
15
18
Total fixed cost
Rs.1, 50,000
Total sales
Rs.5, 00,000
The company proposes to replace product Z by product S. estimated cost and output data
are:
X
Y
S
Sales mix
50%
30%
20%
Selling price
20
25
28
Variable cost per unit
10
15
14
Total fixed cost
Rs.1, 50,000
Total sales
Rs. 5, 00,000
Analyses the proposed change and suggest what decision the company should take.
3 .A manufacturing company produces and sells three products P, Q and R. it has an
available machine hour capacity of one lakh hours, interchangeable among the three
products. Presently the company produces and sells 20,000 units of P and 15,000 each of
Q and R. the unit selling price of the three products are Rs.25, Rs.32 and Rs.42 for P, Q
and R respectively. With this price structure and the aforesaid sales-mix, the company is
incurring loss. The total expenditure, exclusive of fixed charges (presently Rs.5 per unit),
is Rs.13.75 lakhs. The unit cost ratio amongst the products P, Q and R is 4:6:7. Since the
company desires to improve its profitability without changing its cost and price
structures, it has been considering the following three mixes so as to be within its total
available capacity.
Products
Mix I
Mix II
Mix III
P
25,000
20,000
30,000
Q
15,000
12,000
5,000
R
10,000
18,000
15,000
You are required to compute the quantum of loss now being incurred and advise the most
profitable mix which could be considered by the company.
4. The following particulars are taken from the records of a company engaged in
manufacturing two products A and B, from a certain material:
Product A
product B
Sales
2,500
5,000
Material cost (Rs.50 per kg)
500
1250
Direct labor (Rs.30 hour)
750
1500
Variable overhead
250
500
Total fixed overheads: Rs.10, 00,000
Comment on the profitability of each product when:
(i)
Total sales in value are limited.
K. HARI KRISHNA
MBA,MCOM, M.Phil,(PhD),(ICWAI)
(ii)
(iii)
(iv)
K. HARI KRISHNA
MBA,MCOM, M.Phil,(PhD),(ICWAI)
The company is frequently affected by acute scarcity of raw material and high labor
turnover. During the next period, it is expected to have one of the following situations:
(a) raw materials available will be only 12,100 kg
(b) Direct labor hours available will be only 5000 hrs.
(c) It may be possible to increase sales of any one product by 25% with out any
additional fixed costs but by spending Rs. 20,000 on advertisement. There will be
no shortage of materials or labor.
Suggest the best production plan in each case and the resultant profit that the company
would earn according to your suggestion.
Discontinuance of a product line
1. Pee kay Ltd. Is engaged in three distinct lines of production. Their production cost per
unit and selling prices as under
A
B
C
Production (units)
3000
2000
5000
Material cost
18
26
30
Wages
7
9
10
Variable overhead
2
3
3
Fixed overheads
5
8
9
Total cost
32
46
52
Selling price
40
60
61
Profit
8
14
9
The management wants to discontinue one line and gives you the assurance that
production in two other lines shall rise by 50%. They intend to discontinue the line which
produces article A as it is less profitable.
(a) Do you agree to the scheme in principle? If so, do you think that the line which
produces A should be discontinued.
(b) Offer your comments and show the necessary statements to support your decision.
2. An industrial concern which had no costing system appointed a cost accountant. After
installing a system of collection of cost data, the cost accountant observed that out of the
three products which are produced independent of each other, loss is being incurred in
product B. he immediately decides to advise management to discontinue manufacture of
this product supported by the following tabulation:
Product A
product B
product C
Sales
1,00,000
65,000
4,90,000
Variable manufacturing cost
52000
26000
140000
Fixed manufacturing overhead
(Apportioned)
6500
19000
105000
Variable selling and
Distribution cost
18,000
17,000
18,000
Fixed selling and distribution
Cost
4600
4600
4000
Total cost
81000
66600
267000
Net profit
18900
----223000
Net loss
--1600
-------
K. HARI KRISHNA
MBA,MCOM, M.Phil,(PhD),(ICWAI)
Do you agree with the cost accountants conclusion? Argue with your views on the basis
of data.
Shut down or continue
1.A ltd is experiencing recessionary difficulties and as a result its directors are
considering whether or not the factory should be closed down till the recession has
passed.
A flexible budget is compiled giving the following details
Fixed costs
production capacity
(fixed cost + variable costs)
Close down normal
40% 60% 80% 100%
Factory overhead
6000 8000
10000 11000 12000 13000
Admin overhead
4000 6000
6500 7000 7500 8000
Selling & dist o.h.
4000 6000
7000 8000 9000 10000
Miscellaneous
1000 1000
1500 2000 2500 3000
Direct labor
------10000 15000 20000 25000
Direct material
------12000 18000 24000 32000
The following additional information has been supplied to you.
(i)
present sales at 50% capacity are estimated at Rs30000 per annum
(ii)
Estimated costs of closing down are Rs4500. in addition maintenance of plant
and machinery is expected to amount to Rs800 per annum.
(iii) Costs of reopening after being closed down are estimated to be Rs.2000 for
overhauling of machines and getting ready and Rs1400 for training of
personnel.
(iv)
Market research investigation reveals that sales should take an upward swing
to around 70% capacity at prices which would produce revenue of Rs1,00,000
in approximately twelve months time.
You are required to advise the directors whether to close down for twelve months or
continue operations indefinitely.
K. HARI KRISHNA
MBA,MCOM, M.Phil,(PhD),(ICWAI)
Insurance
Rs.4500
Salaries
Rs.15000
Estimated direct labor hours 186000 hrs.
2. The following data are available in a manufacturing company for a yearly period:
Rs.lakhs
Fixed expenses:
Wages and salaries
9.5
Rent,rates and taxes
6.6
Depreciation
7.4
Sundry administration expenses
6.5
Semi variable expenses (at 50% capacity)
Maintenance and repairs
3.5
Indirect labor
7.9
Sales department salaries
3.8
Sundry admin expenses
2.8
Variable expenses (at 50% capacity)
Materials
21.7
Labor
20.4
Other expenses
7.9
Total cost
98
Assume that the fixed expense remain constant for all levels of production: semi-variable
expenses remain constant between 45% and 65% capacity, increasing by 10% between
65% and 80% capacity and by 20% between 80% and 100% capacity.
Sales at various levels are:
50% capacity
Rs.100 lakhs
75%capacity
Rs. 150 lakhs
60% capacity
Rs.120 lakhs
90%capacity
Rs. 180 lakhs
100%capacity
Rs.200 lakhs
Prepare a flexible budget for the year and forecast the profit at 60%, 75%, 90% and 100%
of capacity.
3. The expenses budgeted for production of 10,000 units in a factory are furnished below:
Rs per unit
Materials
70
Labor
25
Variable overheads
20
Fixed overheads (Rs. 100000)
10
Variable expenses (direct)
5
Selling expenses (10% fixed)
13
Distribution expenses (20% fixed)
7
Administration expenses (Rs50000)
5
Total
155
Prepare a budget for the production of (a) 8000 units and (b) 6000 units.
Assume that administration expenses are rigid for all levels of production.
K. HARI KRISHNA
MBA,MCOM, M.Phil,(PhD),(ICWAI)
4. A department of Alstom India company attains sales of Rs. 6,00,000 at 80% of its
normal capacity. Its expenses are given below:
Office salaries
Rs.90,000
General expenses
2% of sales
Depreciation
7,500
Rent rates
8,750
Selling cost:
Salaries
8% of sales
Travelling expenses
2% of sales
Sales office
1% of sales
General expenses
1% of sales
Distribution cost:
Wages
15,000
Rent
1% of sales
Other expenses
4% of sales
Draw up flexible Administration, selling and distribution costs budget, operating at 90%,
100% and 110% of normal capacity.
5. The budget manager of Jupiter Electricals Limited is preparing flexible budget for the
accounting year starting from 1 July, 2006.
The company produces one product-Detx II. Direct material costs Rs.7 per unit. Direct
labor averages Rs2.5 per hour and requires 1.6 hours to produce one unit of DetxII.
Salesmen are paid a commission of Re 1 per unit sold. Fixed selling and administrative
expenses amount to Rs.85,000 per year.
Manufacturing overhead is estimated in the following amounts under specified volumes:
Volume of production (in units)
1, 20,000
1, 50,000
Expenses:
Indirect material
2, 64,000
3, 30,000
Indirect labor
1, 50,000
1, 87,500
Inspection
90,000
1, 12,500
Maintenance
84,000
1, 02,000
Supervision
1, 98,000
2, 34,000
Depreciation of plant and equipment
90,000
90,000
Engineering services
94,000
94,000
Total manufacturing overhead
9, 70,000
11, 50,000
Prepare a Total Cost Budget for 1,40,000 units of production.
CASH BUDGET
1. Bajaj Co. wishes to arrange overdraft facilities with its bankers during the period from
April to June 2006 when it will be manufacturing mostly for stock. Prepare a Cash
Budget for the above period from the following data, indicating the extent of the band
overdraft facilities the company will require at the end of each month.
(a)
Month
Sales
Purchases
Wages
Rs.
Rs.
Rs.
February
90,000
62,400
6,000
March
96,000
72,000
7,000
K. HARI KRISHNA
MBA,MCOM, M.Phil,(PhD),(ICWAI)
April
54,000
1,21,000
5,500
May
87,000
1,23,000
5,000
June
63,000
1,34,000
7,500
(b) 50% of Credit sales are realized in the month following the sales and the remaining
50% in the second month following.
(c) Creditors are paid in the month following the month of purchase.
(d) Lag in payment of wages one month.
(e) Cash at bank on 1st April, 2006 estimated at Rs. 12,500.
Answer: Closing balance for April Rs. 26,500; May Rs. (25,500) and June Rs. (83,000)
2. Draw up a Cash Budget for January to March 2006 from the following information:
(a). Cash and bank balance on 1st January, 2006 Rs. 2,00,000.
(b). Actual and budgeted sales:
Actual
2005 Rs.
Budgeted
2006 Rs.
September
6,00,000
January
8,00,000
October
6,50,000
February
8,20,000
November
7,00,000
March
8,90,000
December
7,50,000
(c). Purchases actual and budgeted:
Actual
2005 Rs.
Budgeted
2006 Rs.
September
3,60,000
January
4,80,000
October
4,00,000
February
4,00,000
November
4,80,000
March
5,00,000
December
4,50,000
(d). Wages actual and budgeted:
Month
Wages (Rs.)
Expenses (Rs.)
Actual 2005
November
1,50,000
50,000
December
1,50,000
60,000
Budgeted 2006
January
1,80,000
60,000
February
1,80,000
80,000
March
2,00,000
80,000
(e) Special items:
(i) Advance Payment of tax in March 2006 Rs. 50,000
(ii) Plant to be acquired and paid in January 2006 Rs. 1,00,000
(f) Assume 10 % sales and purchases are on cash basis.
(g) Lag in payment of wages month
(h) Lag in payment of expenses month
(i) Period of credit allowed to debtors 2 month
(j) Period of credit allowed by creditors 1 month
(Answer: January Rs.1,32,000; February Rs.1,62,000 and March Rs. 2,41,000)
K. HARI KRISHNA
MBA,MCOM, M.Phil,(PhD),(ICWAI)
3. From the following forecasts of income and expenditure, prepare a cash Budget for the
month January to April, 2006.
Months
Sales
(Credit)
Purchases
(Credit)
Rs.
Rs.
Rs.
Rs.
Rs.
Rs.
Nov. 30,000
15,000
3,000 1,150
1,060
500
Dec. 35,000
20,000
3,200 1,225
1,040
550
2006 Jan. 25,000
15,000
2,500 990
1,100
600
Feb. 30,000
20,000
3,000 1,050
1,150
620
Mar. 35,000
22,500
2,400 1,100
1,220
570
Apr. 40,000
25,000
2,600 1,200
1,180
710
Additional information is as follows:
1. The customers are allowed a credit period of 2 months.
2. A dividend of Rs. 10,000 is payable in April.
3. Capital expenditure to be incurred: Plant purchased on 15th of January for Rs.5,000;
4. A building has been purchased on 1st March and the payments are to be made in
monthly instalments of Rs. 2,000 each.
5. The creditors are allowing a credit of 2 months.
6. Wages are paid on the 1st of the next month.
7. Lag in payment of other expenses is one month.
8. Balance of cash in hand on 1st January, 2006 is Rs. 15,000
(Answer: Closing balance for January Rs. 18,985; February Rs. 28,795; March Rs.
30,975 and April Rs. 23,685)
4. From the following budget date, forecast the cash position at the end of April, May and
June 2006.
Months
Sales (Rs.)
Purchases (Rs.)
Wages (Rs.) Mis. Expenses (Rs.)
February
1,20,000
84,000
10,000
7,000
March
1,30,000
1,00,000
12,000
8,000
April
80,000
1,04,000
8,000
6,000
May
1,16,000
1,06,000
10,000
12,000
June
88,000
80,000
8,000
6,000
Additional information:
1. Sales: 20% realized in the month of sale; discount allowed 2%. Balance realized
equally in two subsequent months.
2. Purchases: These are paid in the month following the month of supply.
3. Wages: 25% paid in arrears following month.
4. Miscellaneous expenses: Paid a month in arrears.
5. Rent: Rs.1,000 per month paid quarterly in advance due in April.
6. Income Tax : First instalment of advance tax Rs. 25,000 due on or before 15th June.
7. Income from investments: Rs. 5,000 received quarterly in April, July, etc.
8. Cash in hand: Rs. 5,000 on 1st April, 2006.
(Answer: April Rs. 5,680; May Rs. (-) 7,084 and June Rs. (-) 62,936
2005
K. HARI KRISHNA
MBA,MCOM, M.Phil,(PhD),(ICWAI)
5. From the following budgeted figures prepare a Cash Budget in respect of three months
to June 30, 2006.
Month
Sales
Materials
Wages
Overheads
Rs.
Rs.
Rs.
Rs.
January
60,000
40,000
11,000
6,200
February
56,000
48,000
11,600
6,600
March
64,000
50,000
12,000
6,800
April
80,000
56,000
12,400
7,200
May
84,000
62,000
13,000
8,600
June
76,000
50,000
14,000
8,000
Additional information:
1. Expected Cash balance on 1st April, 2006 Rs. 20,000
2. Materials and overheads are to be paid during the month following the month of
supply.
3. Wages are to be paid during the month in which they are incurred.
4. All sales are on credit basis.
5. The terms of credits are payment by the end of the month following the month of sales:
Half of credit sales are paid when due the other half to be paid within the month
following actual sales.
6. 5% sales commission is to be paid within in the month following sales
7. Preference Dividends for Rs. 30,000 is to be paid on 1st May.
8. Share call money of Rs. 25,000 is due on 1st April and 1st June.
9. Plant and machinery worth Rs. 10,000 is to be installed in the month of January and
the payment is to be made in the month of June.
PRODUCTION & PURCHASE BUDGET
1.The sales of a concern for the next year is estimated at 50,000 units. Each unit of the
product requires 2 units of Material A and 3 units of Material B. The estimated
opening balances at the commencement of the next year are:
Finished Product : 10,000 units
Raw Material A : 12,000 units
Raw Material B : 15,000 units
The desirable closing balances at the end of the next year are:
Finished Product : 14,000 units
Raw Material A : 13,000 units
Raw Material B : 16,000 units
Prepare the materials purchase budget for the next year.
2. From the following particulars, prepare production cost budget for June,2006.
Particulars
Opening Stock
Closing stock
(1-6-2006)
(30-6-2006)
Finished Goods
1200 units
1600 units
Raw Material A
5,000 kgs.
4,800 kgs.
Raw Material B
2,000 kgs.
3,100 kgs.
Raw Material 4 kgs. @ Rs.8 per kg.
2 kgs. @ Rs.25 per kg.
required (per unit)
K. HARI KRISHNA
MBA,MCOM, M.Phil,(PhD),(ICWAI)
K. HARI KRISHNA
MBA,MCOM, M.Phil,(PhD),(ICWAI)
A standard loss of 10% of input is expected in production. The cost records for a
period showed the following usage:
90 kg material A at a cost of Rs.18 per kg
110 kg material B at a cost of Rs.34 per kg
The quantity produced was 182 kg of good product.
Calculate all material variances.
5. The standard material input required for 1,000 kgs of a finished product are given
below:
Material
Quantity
st. rate per kg.
Kg
Rs.
P
450
20
Q
400
40
R
250
60
1100
Standard loss
100
Standard output
1000
Actual production in a period was 20,000 kg of finished product for which the actual
quantities of material used and the prices paid thereof were as under:
Material
Quantity
purchase price per kg
Kg
Rs
P
10,000
19
Q
8,500
42
R
4,500
65
Calculate material variances.
Labor variance problems
1. Coated India ltd manufactures a particular product, the standard direct labor cost of
which is Rs.120 per unit whose manufacture involves the following:
Grade of
Hours
Rate
Amount
Workers
Rs.
Rs.
A
30
2
60
B
20
3
60
50
120
During a period 100 units of the product were produced, the actual labor cost of
which was as follows:
Grade of
Hours
Rate
Amount
Workers
Rs.
Rs.
A
3200
1.5
4800
4
7600
B
1900
5100
12400
Calculate labor variances.
K. HARI KRISHNA
MBA,MCOM, M.Phil,(PhD),(ICWAI)
2. The standard labor employment and the actual labor hours engaged in a week for a
job are as under:
Skilled
Semi-skilled Unskilled
Standard no of workers in the gang
32
12
6
Actual no of workers employed
28
18
4
Standard wage rate per hour
3
2
1
Actual wage rate per hour
4
3
2
During the 40 hours working week, the gang produced 1,800 standard labor hours of
work.
Calculate labor variances.
3. The details regarding the composition and the weekly wage rates of labor force
engaged on a job scheduled to be completed in 30 weeks are as follows:
Standard
Actual
Category of
no of workers weekly wage no of workers weekly wage rate
Workers
rate per worker
per worker
Skilled
75
Rs.60
70
Rs.70
Semi-skilled
45
Rs.40
30
Rs.50
Unskilled
60
Rs.30
80
Rs.20
The work is actually completed in 32 weeks. Calculate the all labor variances.
4. A group of 10 skilled and 20 unskilled workers were expected to produce 400 kg of
chemical BXT in an 8 hour day. The standard hourly wage rate was fixed at Rs.25
and Rs.15 respectively.
Actually, a group of 15 skilled and 10 un skilled workers was deployed and paid for 8
hours day at an hourly wage rate of Rs.22 and Rs.18 respectively. Two hours were
wasted for the entire group due to power failure and only 300 kg of BXT was
produced.
You are required to compute all labor variances.
5. A gang of workers normally consists of 30 men, 15 women and 10 boys. They are
paid at standard rates per hour as Man-Re0.80, Woman-Re0.60, and Boy-Re0.40.
In a normal working week of 40 hours, the gang is expected to produce 2,000 units of
output.
During the week ended 31 December, the gang consisted of 40 men, 10 women, and 5
boys. The actual wages paid were @ Re0.70, Re0.65, and Re0.30 respectively. 1600
units were produced. Four hours were lost due to abnormal idle time.
Calculate labor variances.
Sales Variances
1. The following data relates two products X and Y.
Product
Budget
Actual
Oty
Price Value
Qty Price
Value
X
1000
5
5000
1200 6
7200
Y
1500
10
15000
1400 9
12600
Total
2500
20000
2600
19800
Calculate sales variances by turnover method.
K. HARI KRISHNA
MBA,MCOM, M.Phil,(PhD),(ICWAI)
Budgeted
Quantity
Actual
Quantity
X
Y
240
160
400
200
45
20
30
15
4. A company used standard costing system. The sales data for a period are as
under:
Product
Budgeted
Budgeted sale
Actual
sale Actual
Sales units price per unit
units
sales
A
1280
B
3200
C
1920
Cost data are as under:
Standard cost per unit (Rs)
Actual cost per unit (Rs)
Calculate sales variances
20
12
16
650
3900
1950
12350
50700
29250
A
16
18
B
10
12
C
13
13
K. HARI KRISHNA
MBA,MCOM, M.Phil,(PhD),(ICWAI)
RESPONSIBILITY ACCOUNTING
1. The operating performance of the three divisions of a Standard Mart for the year
2006-07 is as under.
Details
Division
AX (Rs.)
BY (Rs.)
CZ (Rs.)
Sales
50 00 000
2 40 00 000
2 60 00 000
Operating profit
3 00 000
6 00 000
13 00 000
Investment
25 00 000
80 00 000
1 00 00 000
(i) Using the operating margin percentage as the crieterion, which is the most
profitable division?
(ii) Using the rate of return on investment as the criterion, which is the most
profitable division?
(iii)Which of the two measures do you think gives the better indication of overall
performance?
2. Varsha limited is divided in to three segments X,Y and Z. all the divisions were
formed in the same year. Top management desires to determine which of the
divisions is most profitable. The following data have been furnished for your
analysis.
Details
Division
X (Rs.)
Y (Rs.)
Z (Rs.)
Net income before tax
1 00 000
1 11 000
1 60 000
Investment
2 50 000
3 00 000
5 00 000
Prepare ranking of the three divisions using ROI with a capital charge of 14 per
cent that the manager might use to assert that his is the most profitable division.
3. A company is considering an outlay on new investment projects for its two
divisions X and Y. the details about new investment projects are given below.
Particulars
Divisions
(Amount in 000 Rs.)
X
Y
Investment outlay (Rs.)
75 000
75 000
Expected return on new projects (Rs.)
14 000
10 000
Current ROI
16 %
18 %
The companys cost of capital is 12%. You are required to give your opinion to
the company regarding the investments in the above divisions.
4. ABC ltd operates a number of divisions located in different regions. Division A
incurred losses in the first half of the current year. Relevant revenue and cost data
pertaining to this division are as follows:
Sales revenue
Rs.
6 50 000
K. HARI KRISHNA
MBA,MCOM, M.Phil,(PhD),(ICWAI)
K. HARI KRISHNA
MBA,MCOM, M.Phil,(PhD),(ICWAI)
K. HARI KRISHNA
MBA,MCOM, M.Phil,(PhD),(ICWAI)
Calculate the cost per unit under the traditional costing system and the ABC
system.
3. Zenith super market has decided to increase the size of its store. It wants
information about the profitability of individual product lines. Soft drinks,
fresh produce and package food. Zenith super market provides the
following data for 2006 for each product line:
Soft drink
fresh produce
packaged food
Revenues
Rs. 3 17 000 8 40 240
4 83 960
Cost of goods sold2 40 000
6 00 000
3 60 000
Cost of bottles returned4 800
0
0
Number of purchase orders
Placed
144
336
144
Number of deliveries received120 876
264
Hours of shelf stocking time 216
2160
1080
Items sold
50 400
4 41 600
1 22 400
Zenith also provides the following information:
Activity
description of activity
total cost base
cost allocation
(1)
(2)
(3)
(4)
1. Bottle return
returning of empty Rs. 4 800
Direct tracing
To stores
to soft drink line
2. Ordering
placing of orders for
Purchases
62 400 624 purchase orders
3. Delivery
physical delivery and
Receipt of merchandise1 00 800
1260
deliveries
4. Shelf stocking
stocking of merchandise
on store Shelves and
ongoing restocking
69 120
3456
hours of shelf
stocking time
5. Customer support assistance provided to
Customers including
Checkout and bagging 1 22 880
6 14 400 items
sold
You are required to calculate operating income and operating income as a
percentage of revenues for each product line if Zenith allocates store
support costs (all costs other than cost of goods sold) to product lines
using ABC system.
4. Family store wants information about the profitability of individual
product lines: soft drinks, fresh produce and packaged food. The store
provides the following data for the current year for each product line.
K. HARI KRISHNA
MBA,MCOM, M.Phil,(PhD),(ICWAI)
Revenues
Cost of goods sold
Cost of bottles returned
Number of purchase orders
Placed
360
840
360
Number of deliveries received300
2190
660
Hours of shelf stocking time 540
5400
2700
Items sold
1 26 000
11 04 000
3 06 000
Family store also provides the following information for the current year:
Activity
DescriptionofactivityTotalcostbase Costallocation
Bottle return
returning of empty Rs. 12 000
Direct tracing
bottles
of soft drink line
Ordering
Delivery
Shelf stocking
Customer support
560
150
stocking of merchandise
on store Shelves and
ongoing restocking
assistance provided to
Customers including
Checkout and bagging
1 72 800
8640
hours of shelf
stocking time
3 07 200
1536000 items
sold
K. HARI KRISHNA
MBA,MCOM, M.Phil,(PhD),(ICWAI)
The company has now decided to replace the single indirect cost pool with
five indirect cost pools, representing five activity areas each with its own
supervising and budget responsibility. The relevant data are as follows:
Activity area
cost driver used as an
cost
allocation rate
Allocation base
Material handling
parts
Rs 0.40
Lathe work
Turns
0.20
Milling
Machine-hours
20.00
Grinding
Parts
0.80
Testing
Units tested
15.00
Two representative jobs processed under the new system of the
facility at the most recent period had the following features.
Particulars
Job 101
Job 102
Direct material costs per job
Rs. 9 700
Rs. 59 900
Direct manufacturing labor cost per job
750
11 200
Direct manufacturing labor-hours per job
25
375
Parts per job
500
2 000
Turns per job
20 000
60 000
Machine-hours per job
150
1050
Units per job
10
200
Required:
(a) Compute the per unit manufacturing costs of each job under the
traditional job-cutting system.
(b) Compute the per unit manufacturing costs of each job under the
activity-based costing system.
6. A company manufacturing two products furnishes the following data for a
year:
Product
Annual output
(units)
Total number
of set-ups
A
5 000
20 000
160
20
B
60 000
1 20 000
384
44
The annual overheads are as under:
Volume-related activity costs
Rs 5 50 000
Setup-related costs
8 20 000
Purchase-related costs
6 18 000
You are required to calculate the cost per unit of each product A and B
based on:
(i)
Traditional method of charging overheads
(ii)
Activity based costing method.
K. HARI KRISHNA
MBA,MCOM, M.Phil,(PhD),(ICWAI)
UNIT I
1. What is the scope and strategic importance of management accounting?
2. Discuss in detail nature and characteristics of Management Control System.
3. What Cost Volume Profit (CVP) analysis? What are the managerial applications of
CVP analysis?
One compulsory problem on CVP analysis
UNIT II
1. Explain the concept and purpose of standard costing. What are the different types of
standards?
2. What are the different types of budgets? Explain the components of comprehensive
budgetary program
One compulsory problem on Budgeting or Standard Costing.
UNIT III
1. Explain the different types of Responsibility Centers? What is the need for
divisionalisation?
2. What is Transfer Pricing? Bring out the importance and various types of Transfer
Pricing
One problem may be asked on Transfer Pricing or
Responsibility Centers.
UNIT IV
1. Bring out the importance of Activity Based Costing. What is the difference between
Activity Based Costing and Traditional Costing?
2. Discuss the meaning and need for Customer Account Profitability (CAP) analysis.
How are customer costs managed in Service companies?
One problem on Activity Based Costing can be asked.
K. HARI KRISHNA
MBA,MCOM, M.Phil,(PhD),(ICWAI)
UNIT V
1. What is Product Life Cycle Costing? Discuss the pricing and evaluation criteria for
products at different stages of Product Life Cycle.
2. What is Target Costing? How Target Costing helps in pricing decisions.
SHORT 2 MARK
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
11.
12.
13.
14.
15.
16.
17.
18.
19.
20.
Management Control
Management Accounting
Margin of Safety (MOS)
Break Even Point (BEP)
Make or buy decisions
Zero based budgeting
Flexible vs. operational budgeting
Material vs. Labor variance
Variance analysis Vs Standard setting
Cost centre vs. profit centre
Responsibility Accounting
Performance reports
Segmented performance evaluation
Behavioral aspects
Activity Based Management
Cost Drivers
PLC Assessment vs. Cost Assessment
Competitor Accounting
Competitive Pricing
Bidding