Working notes: (I) Variable cost per unit of products A, B, C

Products Cost of parts Frame E F G Wages of skilled labour Wages of unskilled labour Variable overheads Total A Rs. 45 150 30 40 36 40 9 350 B Rs. 45 30 210 50 24 30 11 400 C Rs. 45 90 150 10 18 30 7 350

(II) Sales quantity of products A, B, C:

Products Sale price per unit Less: Variable cost Total A Rs. 450 350 100 B Rs. 550 400 150 C Rs. 650 350 300

The current ratio of sales in quantity of A, B and C is 1: 2: 4. Suppose number of units sold of A=x, B=2x, C=4x. Fixed overhead per month = Rs. 15, 75,000 + Rs. 5, 80,000 + Rs. 8, 45,000 = Rs. 30, 00,000 Total profit per month = Rs. 1, 20, 00,000 / 12 = Rs. 10, 00,000 Therefore100x + 150 (2x) + 300 (4x) = Rs. 30, 00, 000 + Rs. 10, 00,000 Or x =Rs. 40, 00,000 / 1,600 = 2500 units Therefore sales quantity of products are A = 2500 units; B = 5000 units and C =10,000 units 1)

Sales budget in quantity as well as in value for A, B and C

A 2,500 450 1,125,000 B 5,000 550 2,750,000 C 10,000 650 6,500,000

Products Sales (in units) Sale price per unit (Rs.) Sales value

2)

Production budget
A 2,500 450 2,950 500 2,450 B 5,000 900 5,900 1,000 4,900 C 10,000 2,700 12,700 3,000 9,700

Products Sales (in units) Add: Closing stock (units) - 90% of opening stock Less: Opening stock Total

Parts usage budget

Units to be Parts of material required produced Frame E F G 2,450 2,450 24,500 4,900 19,600 4,900 4,900 9,800 68,600 49,000 9,700 9,700 58,200 97,000 19,400 ######### 92,500 ########## 88,000

Products A B C Total

Purchase budget in quantity as well as in value.

Frame 17,050 1,350 1,500 16,900 45 760,500 E 92,500 900 1,000 92,400 15 1,386,000 F 170,500 18,000 20,000 168,500 15 2,527,500 G 88,000 9,000 10,000 87,000 5 435,000

Name of parts Part usage (in units) Refer to Add: Closing stock Less: Opening stock Quantity (in units) Price per part (Rs.) Purchase value (Rs.)

5
Products

Manpower budget showing labour hours and wages payable for both types of workers.
Units to be produced Labour hours Per part Total Skilled Unskilled Skilled Unskilled 2,450 6 8 14,700 19,600 4,900 4 6 19,600 29,400 9,700 3 6 29,100 58,200 63,400 107,200 6 5 380,400 536,000

A B C Total Wages per hour Total (Rs.)

1 Campbell company Income Stattment For the year ended 31st December 2011 Value in Rs. 13600000

Revenues Cost of Goods Sold Finished Goods inventory Inventory 1st Jan 2011 Cost of Manufactured Cost of Goods Available for Sale Less: Finished Goods inventory Inventory 31st Dec 2011 Gross Margin/ Gross Profit Operating Costs Marketing promotions Marketing Salaries Distribution Cost Customer-service Costs Operating Income Campbell company Schedule of cost of goods Manufactured For the year ended 31st December 2011 Direct Materila Direct material Inventory 1st Jan 2011 Direct Material purchases Cost of direct materilas available for use Direct material Inventory 31st Dec 2011 Direct Mateial Used Direct Mfg labor Indrect Manufacturing Cost Sandpaper Material handling Cost Lubricant & coolants Mis. Indirect manufacturing labor Plant leasing Cost Depreciation - Plant equipment Property tax on plant equipment Fire insurance on Plant Equipment Total Manufacturing Cost incurred during 2011 WIP inventory Inventory 1st Jan 2011 Total manufacturing cost to account For WIP inventory Inventory 31st Dec 2011 Cost of goods manufactured

1000000 9600000 10600000 1500000 9100000 4500000

600000 1000000 700000 1000000

3300000 1200000

Value in Rs. 400000 4600000 5000000 500000 4500000 V 3000000 V

4500000 3000000

20000 700000 50000 400000 540000 360000 40000 30000

V V V V F F F F 2140000 9640000 100000 9740000 140000 9600000

2 Direct Material unit cost = Direct materila used / unit produced Direct Material Used 4500000 Unit produced 900000 Direct material unit cost Rs/unit 5 Plant Leasing Cost Unit produced Leasing Cost Rs/Unit 540000 900000 0.6

ABC Ltd Cost Sheet Materila Consumed Material Purchased Less: Purchases returns Materila Purchased Net Add: Freight on material Cost of Materila at works Add: Opening Inventory Less: Closing Inventory Material Consumed Direct Labour Accrued Direct Labour Direct Expenses PRIME COST Factory Overhead Indirect Labour Add: Accrued Indirec Labour Factory supervision Factory repairs and upkeep Heat, light & Power =65000/10*8 Rates & Taxes =6300/3*2 Mis Exp ( Factory) Depreciation Plant( 0.01 x 4,46,500) Building ( 0.04 x 2,00,000 x 8/10) Works Cost before Adj for Inventory Opening WIP Closing WIP Works Cost ( Net) Rs. Rs. 320000 4800 315200 16000 331200 140000 180000 291200 160000 8000 168000 50000 509200

Stattement of P& L for Year ended 31st March 2011

Less: Less:

Sales 768000 Sales return & Rebates 14000 NetSales Cost of Sales Loss as per Cost Accounts Dividend Income Bad Debts Interest on borrowed funds Profit as per Accounts

754000 764020 -10020 20000 2000 5000 2980

Add: Less

Add:

18000 1200

19200 10000 14000

65000 52000 6300 4200 18700

46050 6400 200000 192000

52450 679750 8000 687750

Add: Less:

Admin Overheads Heat , Light & Power (65000 x 1/10) Rates & Taxes ( 6300 x 1/3) Office Salary Exp Depreciation Building ( 8000 x 1/10) Office Appliance ( 17400 x 0.05) Cost of Production Add: Opening Stock FG Less: Closing Stock FG Cost of production Available for Sale Selling & distribution overhead Heat , Light & Power (65000 x 1/10) Sales Commission Sales Traveling Sales Promotion Distribution Dept. Salaries & Expenses Depreciation Building ( 8000 x 1/10) Cost of Sales

6500 2100 8600 800 870

18870 706620

80000 115000 -35000 671620

6500 33600 11000 22500 18000 800 92400 764020

Sol Case II: National receives a 10% commission on each ticket : Rs 9000 x 10% = Rs 900. Thus Selling Price Variable cost Contribution ( S-V) Fixed Cost 1 a) BEP Rs /per ticket Rs /per ticket Rs /per ticket Rs / PM Fixed cost/Cont per unit 900 200 700 140000 200 Ticket

b) When target operating income = Rs 70,000 per month Quantity of Tickets requried to be sold = Fixed Cost +Req Profit / Cont. Per unit Fixed Csot Target Profit Req Contribution 140000 70000 210000 =210000/700 =300 ticket

2 Under the new system, National would receive only Rs 500 on the Rs 9000 ticket. Thus, Selling Price Variable cost Contribution ( S-V) Fixed Cost 1 a) BEP Rs /per ticket Rs /per ticket Rs /per ticket Rs / PM Fixed cost/Cont per unit 500 200 300 140000 467 Ticket

b) When target operating income = Rs 70,000 per month Quantity of Tickets requried to be sold = Fixed Cost +Req Profit / Cont. Per unit Fixed Csot Target Profit Req Contribution 140000 70000 210000 =210000/300 =700 ticket

Sol Case I Statement Showing Profit /Loss under Marginal Costing Particulars A. Sales @ Rs 8 B. Marginal Cost Opening Stock @ Rs 4 Production @ Rs 4 Opening Stock +Production Less: Closing Stock Cost of Goods Sold C. Contribution ( A-B) D. Fixed Cost E.Profit ii Statement Showing Profit /Loss under Absorption Costing Particulars A. Sales @ Rs 8 B. Opening Stock @ Rs 6 C. Production @ Rs 6 D.Opening Stock +Production E. Less: Closing Stock F. Cost of Goods Sold G. Profit before Adj of under or Over absorbed fixed cost Add: Over Absorbed fixed cost Less:Under absorbed fixed cost E.Profit iii Reconciliation of Profit Particulars Profit as per absorption costing Less: higher FC in closing stock Add: Higher FC in Opening Stock Profit as per marginal costing UOM Rs Rs Rs Rs Q1 52000 0 0 52000 Q2 56000 12000 0 44000 Q3 52000 4000 12000 60000 Q4 72000 0 4000 76000 Total 232000 16000 16000 232000 UOM Rs Rs Rs Rs Rs Rs Rs Rs Q1 208000 0 156000 156000 0 156000 Q2 192000 0 180000 180000 36000 144000 Q3 224000 36000 144000 180000 12000 168000 Q4 256000 12000 180000 192000 0 192000 Total 880000 0 660000 660000 0 660000 UOM Rs Q1 208000 Q2 192000 Q3 224000 Q4 256000 Total 880000

Rs Rs Rs Rs Rs Rs

0 104000 104000 0 104000 104000 52000 52000

0 120000 120000 24000 96000 96000 52000 44000

24000 96000 120000 8000 112000 112000 52000 60000

8000 120000 128000 0 128000 128000 52000 76000

0 440000 440000 0 440000 440000 208000 232000

52000

48000 8000

56000

64000 8000

220000 16000 4000 232000

52000

56000

4000 52000

72000

Case III Sol Statement showing the contribution per unit and per kg of raw materila Patriculars Selling price Variable cost Contribution RM requirement Contribution Priority Product -A Product -B Product -C 100 140 90 75 110 65 25 30 25 5 8 6 5.00 3.75 4.17 I III II

Rs/ per unit Rs/ per unit Rs/ per unit Kg/ per Rs/ Kg RM

Product - In order of priority A C B

Raw Number of Materila Total Raw Units to be requirement Material Contribution Total produced per unit consumption per unit contribution 5000 5 25000 25 125000 4000 6 24000 25 100000 1500 8 12000 30 45000 61000 270000

Sol

Differential Cost Analysis Output in Unit 10000 10000 2000 Sales SP in Rs. Value 5 5 3 50000 50000 6000 Variable Total Cost Inc. Revenue Cost Fixed Cost ( F + V) Differential Cost 25000 25000 5500 20000 20000 45000 50500 5500 ( 50500-45000)

6000 (56000-50000)

From the above statement it is clear that incremental revenue of Rs 6,000 is more then differential cost of Rs 5500, so order of 2000 units at price of rs 3 per unit from a large mail order house should be accepted . The acceptance of the order will increase profit by Rs 500.

Sol

Statement showing the minimum price , which the company can afford the quote for the new customer Cost to be incurred ( to complete the job) Direct material ( Opportunity cost) Direct Wages Dept A: 15 mandays x 120 Dept B: 25 mandays x 100 Opportunity cost of cont. Lost by Dept B ( 2500 x 3.2) Variable overhead 25% of ( 1800+2500) Delivery Cost Supervisory cost for modification Income form disposal of Control Device - Note i Opportunity costs of material - Note ii Opportunity costs of remaining material Opportunity costs of drawings Total minimum Price to be quoted Working Note: I Alternative disposal of control device Less: One Man days of Dept A Less: Variable @ 25% 29700 2250 1800 2500 8000 1075 1350 1050 -10350 11700 11400 1500 61975

10500 120 30 10350 12000 240 60 11700

ii Opportunity costs of Material in original Equipment Less: Two Man Days of Dept A ( 120 x 2) Less: Variable cost @ 25%

Sol For new system Fixed cost will go up by 900000 PA & Variable will come down by Rs 800 per job Saving In Variable Annual Saving cost @ Rs (Loss) due to 800 leasing 720000 -180000 960000 60000 1200000 300000

Additional Jobs for Fixed Cost 900 900000 1200 900000 1500 900000

Probabilistic saving (Loss) and expected values Annual Saving No of Jobs (Loss) Probability Expected Value 900 -180000 0.25 -45000 1200 60000 0.45 27000 1500 300000 0.3 90000 72000 If the company does not opt for the leased equipment. The expected saving ( Loss) would be zero in all three cases, there will neither be profit nor loss by using the existing equipment. As the expected value of leasing equipment is positive , the company should opt for getting leased equipment.

ased equipment.

Sol Present Operation of PP Ltd Contribution per piston Rs Total contribution Rs Less: Fixed Cost Loss

=200-180 = 60000 x 20

20 1200000 1500000 -300000

The increase in capacity utilisation and export should enable recover of this loss. a) Determination of bare minimum price to break-even when import licence is sold in the market. Variable cost per Piston Add:Amount req. for recovery of present Loss ( Rs 300000 /30000 unit) Cost Per Piston Less: Relisation from export benefit Cash assistance 10% of FOB Duty Drawback 5% of FOB Premium on licence 10% of FOB So total benefit is 25% of FOB or 20% benefit on Cost Bare minimum proce to be quoted 180 10 190

38 152

b) Determination of bare minimum price to break-even when import licence is sused to import auto components and Sell them for profit Variable cost per Piston 180 Add:Amount req. for recovery of present Loss 10 ( Rs 300000 /30000 unit) Cost Per Piston 190 Less: Relisation from export benefit Cash assistance 10% of FOB Duty Drawback 5% of FOB Profit on sale of import 3% of FOB So total benefit is 18% of FOB or 15.25% benefit on Cost 38 Bare minimum proce to be quoted 152 Note: 1 Suppose Cost Rs 100 & FOB price which can be arrived at , in this case after reducing export benefit = X There fore export benefit = 25% on FOB = 100 -0. 25 X X 100= X +0.25 X 100 = 1.25 X X = 100/1.25 X= 80 = 100-80= 20 Rs

There for export benefit

Note: 2 Suppose Cost Rs 100 & FOB price which can be arrived at , in this case after reducing export benefit = X There fore export benefit = 25% on FOB = 100 -0. 18 X X 100= X +0.18 X 100 = 1.18 X X = 100/1.18 X= 84.75 = 100-84.75= 15.25 Rs

There for export benefit

Sol Case I

Sales

Mumbai Rs. 450000

112500

Kolkata Rs. 400000

100000

Chennai Rs. 700000

175000

Total
1550000 387500

Gross Profit ( 25% of Sales)

Branch Expenses: Salaries , Commission & traveling expenses Advertisement Other Expenses Contribution
Central Office Exp. Branch P & L

41000 9000 10000

60000 52500 45000 7500

40000 10000 11000

61000 39000 40000 -1000

60000 11000 12000

83000 92000 70000 22000

141000 30000 33000 204000 183500 155000 28500

Since Kolkata Branch is showing a loss of Rs 1000. It is proposed to close down this branch. This proposal should be evaluated in the context of two alternative situation, viz., (a) No reduction in central office expenses and (b) reduction in central office expenses by Rs 46,500 ( i.e. 30% of Rs. 155000)
a) Contribution form Mumbai & Chenni 144500 Less: Central office Exp. 155000 Net Loss -10500 Thus , Kolkata branch should not be closed down. b) Contribution form Mumbai & Chenni 144500 Less: Central office Exp. ( 155000-46500) 108500 Net Profit 36000 Thus, Closing Down the kolkata branch would be more profitable.