Management Control System Responsibility Centres

Q.1. Atul Ltd. has two production departments X and Y and two service departments, P and Q. X produces product Z while department Y produces product B. the following are the details of costs incurred during January, 2012: Direct Materials Dept X Dept Y Rs. 21000 9000 Direct Labour Dept X Dept Y Rs. 12000 9000

Supplies: Supervisors Salary: Dept X 750 Dept X 1950 Dept Y 600 Dept Y 2550 Dept P 450 Dept P 4500 Dept Q 300 Dept Q 6000 The output of product Z is 3000 units while that of product B is 1500 units. Supplies of service departments are charged to production departments as a percentage of direct materials while supervisory salary is charged as a percentage of direct labour. You are required to calculate: (a) Total costs taking product Z and B as separate cost centres. (b) Responsibility cost taking each department as a responsibility centre.

Q.2. Sun Pharma Ltd. has five plants A, B, C, D and E. Each plant has a Forming, Cleaning and Packaging Department. Each level of management at Sun Pharma has responsibility over costs incurred at its level. The budget for the current year has been set up as follows: Budget Cost (Rs.Lakhs) A 1,35,000 B 1,22,500 C 1,08,400 D 1,35,000 E 1,35,000 Budgeted information for Plant C is as follows: Plant Managers office Forming Department Rs. 2,350 Rs. 30,000 Plant

Cleaning Department Packing Department

Rs. 55,450 Rs. 20,600

Budgeted information for plant C: forming department is as follows: Direct materials Direct labour Factory Overheads Rs. 8,333 Rs. 15,000 Rs. 6,667

The following additional budget costs are available: Presidents office Vice- President marketing Vice- President mfg office Rs. 16,250 Rs. 20,000 Rs. 6,35,900

The following actual costs were incurred during the current year: Cost (Rs. Lakhs) A 1,27,650 B 1,24,300 C 1,08,475 D 1,31,000 E 1,36,800 Actual costs for plant Cs forming department were as follows: Plant Direct materials Direct labour Factory Overheads Actual costs for Plant Cs were: Plant Managers office Forming Department Cleaning Department Packing Department Actual Costs for presidents level were: Presidents office Vice- President marketing Vice- President mfg office Rs. 16,375 Rs. 29,800 Rs. 6,28,225 Rs. 2,475 Rs. 26,000 Rs. 57,500 Rs. 22,500 Rs. 333 Rs.4,000 Rs. 333 under budget under budget over budget

You are required to prepare a responsibility report for the year showing in detail the budgeted, actual, and variance amounts for level 1 to 4 for the following areas: Level 1: Forming Department Plant C Level 2: Plant Manager Plant C Level 3: Vice President Manufacturing Level 4: President

Q.3. The following is the profit plan prepared for Zee Ltd. for the year ending 31st March, 2012: Performance Evaluation Report Particulars Product Line A Total Rs.Lakhs 2000 1140

Sales Revenue 1000 600 400 Controllable variable 500 360 280 Cost to make sale controllable contribution Margin 500 240 120 860 Common Firm wide costs (fixed) 660 Profit 200 st The income statement for the year ended 31 March, 2012 showed the following : Particulars Sales - Special discounts Product Line A 660 20 640 332 308 Total Rs.Lakhs 2200 20 2180 1352 828 670 158

B 660 660 400 260

C 880 880 620 260

Controllable variable Costs to make and sell Controllable contribution margin Common firm wide Costs (fixed) Profit

Special discounts were granted on large orders and additional appreciation of Rs. 6 lakhs was approved for advertising and sales promotion. There was no change in the selling prices. You are required to prepare an analysis of the changes in net income that would be helpful in fixing responsibility using the contribution approach.

Q.4. A production department of a large manufacturing company has furnished the following data for May, 2011. Particulars Budgeted Rs. 5,00,000 2,50,000 75,000 2,00,000 1,00,000 50,000 1,00,000 25,000 1,50,000 2,50,000 Actual Rs. 5,10,000 3,25,000 95,000 2,20,000 1,10,000 50,000 1,00,000 30,000 1,80,000 2,65,000

Direct materials Direct labour Consumable stores (fixed) Repairs and maintainance (Rs. 1,00,000 fixed) Supervision (fixed) Factory Rent (fixed) Depreciation (fixed) Tools (variable) Power and Fuel (variable) Administration (fixed) The department has 50 identical machines. During May, 2011, the budgeted and actual productions of the department are 10,000 and 12,500 units respectively. However, if

the department is closed and the machine production services are hired from outside, the cost of hiring the services of similar machine would be Rs.150 per unit. You are requested to present a report showing the evaluation of the performance of the department based on the concept of responsibility centre.

Q.5. The operating results of a manufacturing company for the current year are given below: Particulars Rs. 480 24 456 Rs.

Sales (40000 units) Less: Trade discount Net sales Less: Cost of Sales Materials 144 Labour 126 Factory overheads 63 Administrative overheads 36 Selling & Distribution overheads 45 414 Profit 42 The following changes are anticipated during the next year: (a) (b) (c) (d) Units to be sold to increase by 25% Material price to increase by 15% Labour charges to increase by 12% Overheads factory overheads will be limited to Rs. 65 Lakhs, Administrative and Selling and Distribution overheads are estimated to increase by 10% and 15% respectively. (e) Profit target for the year is Rs. 60 Lakhs. Calculate the selling price and present the budgeted operating results, for the next year.