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Financial & Cost Accounting

Financial & Cost Accounting

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Published by: robby_sparton29 on May 12, 2012
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11/01/2013

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Q1)ABC Ltd. Produces room coolers. The company is considering whether it shouldcontinue to manufacture air circulating fans itself or purchase them from outside. Itsannual requirement is 25000 units. An outsider vendor is prepared to supply fans for Rs285 each. In addition, ABC Ltd will have to incur costs of Rs 1.50 per unit for freight andRs 10,000 per year for quality inspection, storing etc of the product.In the most recent year ABC Ltd. Produced 25000 fans at the following total cost :MaterialRs.50,00,000LabourRs.20,00,000Supervision & other indirect labourRs. 2,00,000Power and LightRs. 50,000DepreciationRs. 20,000Factory RentRs. 5,000SuppliesRs. 75,000Power and light includes Rs 20,000 for general heating and lighting, which is an allocation based on the light points. Indirect labour is attributed mainly to the manufacturing of fans.About 75% of it can be dispensed with along with direct labour if manufacturing isdiscontinued. However, the supervisor who receives annual salary of Rs 75,000 will haveto be retained. The machines used for manufacturing fans which have a book value of Rs3,00,000 can be sold for Rs 1,25,000 and the amount realized can be invested at 15%return. Factory rent is allocated on the basis of area, and the company is not able to see analternative use for the space which would be released. Should ABC Ltd. Manufacture thefans or buy them?Q2)Usha Company produces three consumer products : P, Q and R. The managementof the company wants to determine the most profitable mix. The cost accountant hassupplied the following data.Usha Company : Sales and Cost DataDescriptionProductTotalPQMaterial Cost per unitQuantity (Kg)1.01.21.4Rate per Kg (Rs)505050Cost per unit (Rs)506070Labour Cost per unit309090Variable Overheads per unit151025

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