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Assignment for Cost and Management Accounting – Total Marks = 25 (10+5+10) This assignment should be submitted by tuesday (11/9/12), it should be submitted

in printed form, hand written copies will not be accepted.

Q.1

A Company manufacturing a highly successful line of cosmetics intends to diversify the product to achieve fuller utilisation of its plant capacity. As a result of considerable research made, the Company has been able to develop a new product called “EMO”. EMO is packed in tubes of 50 gram capacity and is sold to the wholesalers in cartons of 24 tubes at Rs.240 per carton. Since the Company uses its spare capacity for the manufacture of EMO, no additional fixed expenses will be incurred. However, the cost accountant has allocated a share of Rs. 4,50,000 per month as fixed expenses to be absorbed by EMO as a fair share of the company’s present fixed costs to the new product for costing purposes. The company estimates the production and sale of EMO at 3,00,000 tubes per month and on this basis, the following cost estimates have been developed: Rs. Per carton Direct Materials 108 Direct Wages 72 All overheads 54 234 After a detailed market survey, the Company is confident that the production and sales of EMO can be increased to 3,50,000 tubes per month and ultimately to 4,50,000 tubes per month. The Company at present has a capacity for the manufacture of 3,00,000 empty tubes and the cost of the empty tubes if purchased from outside will result in a saving of 20% in material and 10% in direct ages and variable overhead costs of EMO. The price at which the outside firm is willing to supply the empty tubes is Rs.1.35 per empty tube. If the company desires to manufacture empty tubes in excess of 3,00,000 tubes, a new machine involving additional fixed overheads of Rs.30,000 will have to be installed. Required: (i) State by showing your working whether the company should make or buy the empty tubes at each of three volumes of production of EMO namely, 3,00,000, 3,50,000 and 4,50,000 tubes. (ii) At what volumes of sales will it be economical for the company to install the additional equipment for the manufacture of empty tubes. (iii) Evaluate the profitability on the sale of EMO at each of the aforesaid three levels of output based on your decision and showing the cost of empty tubes as a separate element of cost.

Q.2

A Company sells its product at Rs.15 per unit. In a period, if it produces 8,000 units, it incurs a loss of Rs.5 per unit. If the volume is raised to 20,000 units,

or (3) increase capacity so as to accept the export order and maintain the present domestic sales by: (a) buying an equipment that will increase capacity by 10% and fixed costs by Rs. Prepare comparative statements of profitability and suggest the best alternative.000 and (b) work overtime at one and half to meet balance of required capacity.000 ======= An export order has been received that would utilise half the capacity of the factory.4 per unit. split capacity between overseas and domestic sales and turn away excess domestic sales.20.60. The order has either to be taken in full and executed at 10% below the normal domestic market price or rejected totally.3 A Company currently operating profitability particulars: Rs. Sales Costs: Direct Materials Direct Labour Variable Overheads Fixed Overheads Profits at 80% capacity has the following Rs.000 4.it earns a profit of Rs.80.00. The alternatives available to the management are given below: (1) reject the order and continue with the domestic sales only as at present (2) accept order.000 60.000 1. 12.000 11.00.000 6. Calculate break – even point in terms of rupees as well as in units.000 1.40. Q.00. .