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14 and xed cost per unit is Rs.2 per unit. The com pany xes the selling price to fetch a pro t of 15% on cost. Required, A. What is th e break- even point? B] What is the pro t/volume ratio? C] If the selling price is reduced by 5%, how does the revised selling price affects the Break Even Point and the Pro t/Volume Ratio? D] If pro t increase of 10% is desired more than the bud get, what should be the sales at the reduced price? Solution: A] Break Even Poin t = Fixed Cost /Contribution Per unit = Rs.2 1 50 000 units = Rs.3, 00, 000 /Rs. 18.40 – Rs.14.00 = Rs.3, 00, 000 / Rs.4.40 = 68, 182 units. Note: Contribution per unit is comput ed as shown below. Selling Price per unit = Total Cost + 15% Pro t on cost = Rs.16 [Rs.14 variable cost + Rs.2 xed cost] + Rs.2.40 [15% of Rs.16] = Rs.18.40 Contri bution = Selling Price – Variable Cost = Rs.18.40 – Rs.14 = Rs.4.40 B] Pro t/Volume Ra tio: Contribution Per Unit/Selling Price Per Unit Rs.4.40 /Rs.18.40 100 = 23.91% 100 C] Reduction in selling price by 5%: Reduced selling price = Rs.18.40 – 5% of Rs.1 8.40 = Rs.17.48, revised contribution = Rs.17.48 – Rs.14.00 = Rs.3.48 Break Even P oint = Fixed Cost /Contribution Per Unit = Rs.3, 00, 000 /Rs.3.48 = 86, 207 unit s D] Desired pro t = Rs.2.40 + 10% of Rs.2.40 = Rs.2.64 per unit Total Pro ts = Rs.2 .64 1 50 000 units = Rs.3, 96, 000 + Total Fixed Costs = Rs.3, 00, 000 Total Contribution = Rs.6, 96, 000 Quantity to be sold = Total Contribution + Revised Contribution Per Unit Rs.6, 96, 000 / Rs.3.48 = 2, 00, 000 units Sales Value = 2 00 000 units Rs.17.48 = Rs.34, 96, 00 0 271

2. From the following gures, nd the Break Even Volume Selling price per ton Rs.69.50 Variable cost per ton Rs.35.50 Fixed Cost Rs.18.02 lakhs If this volume represen ts 40% capacity, what is the additional pro t for an added production of 40% capac ity, the selling price of which is 10% lower for 20% production and 15% lower th an the existing price, for the other 20% capacity? Solution: Existing Break Even Sales = Fixed Cost/Contribution per unit Rs.18.02 lakhs/Rs.69.50 – Rs.35.50 Rs.18.02 lakhs/Rs.34 = 53 000 units Sales Value = 53, 00 0 Rs.69.50 = Rs.36, 83, 500 It is given in the problem that 40% capacity represents 53, 000 units Hence 80% capacity will represent 1 06 000 units For additional 20% capacity, selling pric e falls by 10% Revised Selling Price = Rs.69.50 – Rs.6.95 = Rs.62.55 Less: Variabl e Cost = Rs.35.50 Contribution = Rs.27.05 20% capacity = 53, 000 units/2 = 26, 5 00 units Pro t if sale price is Rs.62.55 = Contribution per unit Rs.27.05 Sales un its 26, 500 units = Rs.7, 16, 825 Contribution by 20% capacity for which selling price falls by 15% Revised Sellin g Price = Rs.69.50 – Rs.10.425 = Rs.59.075 Less: Variable Cost = Rs.35.50 Contribu tion = Rs.23.575 Pro t is sale price is Rs.59.075 = Contribution per unit Rs.23.57 5 Sales units 26, 500 units = Rs.6, 24, 737 Additional pro t by 40% sales = Rs.7, 16, 825 + Rs.6, 24, 737 = Rs.13, 41, 562 3. A retail dealer in garments is currently selling 24, 000 shirts annually. He sup plies the following details for the year ended 31st March 2007. Selling price pe r shirt: Rs.800 Variable cost per shirt: Rs.600 Fixed Cost: Staff salaries: Rs.2 4, 00, 000

General Of ce Cost: Rs.8, 00, 000 Advertising Cost: Rs.8, 00, 000 As a Cost Accoun tant, you are required to answer the following each part independently: 1. 2. 3. Calculate Break Even Point and margin of safety in sales revenue and number of shirts sold. Assume that 30, 000 shirts were sold during the year, nd out the net pro t of the rm. Assuming that in the coming year, an additional staff salary of R s.10, 00, 000 is anticipated, and price of shirt is likely to be increased by 15 %, what should be the break even point in number of shirts and sales? Solution: 1. Break Even Point: [units] = Fixed Cost / Contribution Per Unit = Rs .40, 00, 000/Rs.200 = 20 000 number of shirts Note: Contribution per units is se lling price – variable cost per unit Rs.800 – Rs.600 = Rs.200 Break Even Point [sale s value] = 20000 units Rs.800 = Rs.1, 60, 00, 000 Margin of safety = Actual Sales – Break Even Sales 24, 000 shirts Rs.800 = Rs.1, 9 2, 00, 000 – Rs.1, 60, 00, 000 = Rs.32, 00, 000 Margin of safety [units] = 24, 000 shirts – 20, 000 shirts = 4000 shirts 2. Amount of pro t if 30, 000 shirts are sold: Sales [units] = Fixed Cost + Pro t / Contribut ion Per Unit 30, 000 = Rs.40, 00, 000 + Pro t /Rs.200 = Pro t = Rs.20, 00, 000 3. Re vised Break Even Point if xed cost rise by Rs.10, 00, 000 and selling price incre ase by 15% New selling price = Rs.800 + 15% = Rs.920, new xed cost = Rs.40, 00, 0 00 + Rs.10, 00, 000 = Rs.50, 00, 000 Revised Break Even Point [number of shirts] = Rs.50, 00, 000 / Rs.920 – Rs.600 Break Even Point = 15, 625 shirts and 15, 625 4. Rs.920 = Rs.1, 43, 75, 000 The following gures are available from the records of Venus Traders as on 31st Ma rch Figures: In Lakhs of Rs. Particulars 2006 150 30 2007 200 50 Sales Pro ts Calculate: a) b) Pro t/Volume ratio and total les 273 xed expenses Break Even Sa

150 lakhs The pro t/volume ratio is 40% which means that contribution is 40% of sales i. Sales = Fixed Cost + Pr o t /P/V Ratio Rs. ABC Ltd. if the Break even sales are Rs. The following formula will have to be used for the computation of this ratio. 4. Contribution – Fixed Cost = Pro t. The amount of pro t is Rs.300 lakhs d) Pro t / loss if sales are Rs.280 lakhs = Rs. 000 i. Its xed costs amount to Rs.50 X 100 = 40% Fixed Expenses: We can take th e sales of any one year. 00. the amount is Rs. Break Even Sales = Fixed Cost / Pro t/Volume Ratio Total Sales = B reak Even Sales + Margin of Safety Margin of Safety = Actual Sales – Break-Even Sa les Let the actual sales be 100.280 lakhs. therefore xed cost is Rs. Margin of Safety is 37. hence if Break even sales are = Rs. 100.280 lakhs Solution: The rst ste p in the problem is to work out the pro t/volume ratio.e.5% 100 Solution: 1.c) Sales required to earn a pro t of Rs.60 l akhs – Fixed Cost = Rs. Rs. 5. mai ntains a margin of safety of 37. Calculate the following: 1.12.30 lakhs.5.60 lakh s. 00.5% Hence Break even sale s will be Rs.e.120 lakhs/40% = Rs.30 lakhs + Pro t /40% = Rs. 50.20/Rs. e. 2.5. 00. 2.5 Now. Break Even Sales Total Sales Total Variable Sales Current Pro ts New ‘Margin of Safety’ if the sales volume is increased by 7.30 lakhs b) c) Break Even Sales = Fixed Cost / Pro t/Volume Ratio = Rs.30 lakhs. i. actual sales are Rs.000.5. suppose we take the sales of the year ended on 31st Mar ch 2006.90 lakhs: Sales = Fixed Cost + Pro t /P/V Ratio = Sales = Rs.75 lakhs Sales req uired to earn a pro t of Rs.5% with an overall contribution to sales ratio o f 40%.3.000/40% = Rs. a) Pro t / Volume Ratio = Chan ge in pro t/Change in sales Rs.82 lakhs 5. 40% of Rs. 3.62.90 lakhs /40% Sales = Rs.30 lakhs + Rs. Rs. 000 .150 lakhs which comes to Rs.30 lakhs/40% = Rs. 00.90 lakhs d) Pro t/Loss that would arise if the sales were Rs.62.

000] = Rs.e. Accordingly the gures at 75% are converted into gures at 100 %. The statement prepared on the next page is on the basis o f 100% capacity utilization of plants at both the locations.000 – BEP Sales Rs. Fixed cost is the exception for this. Sales required if the merged plant is required to earn an overall pro t of Rs. 00. New Margin of Safe ty = Rs. The pro t of t he merged plant working at 80% capacity III.5 lakhs. 00. 4.000 + Rs.000 Hence.20 lakhs Contribution = Sales – Variable Cost. Solution: Comparati ve Performance of Plant at 100% Capacity Rs.in lakhs] Variable Costs [Rs.Rs.in lakhs Particulars Capacity Levels [%] Sales Less: Variable Cost 100 200 140 Plant Location I 100 100 72 Plant Loc ation II Total Merged Plant 100 300 212 275 . I.000 – [Rs. New Margin of Safety is the sales volume is increased by 7. 00. in lakhs] For decision-making purposes.000 = Rs. the total of sales.5% New Sales Volume = Rs.20. Particulars Location I 200 140 30 Location II 75 54 14 Sales [Rs.000 6. 50.5. i. as it will remain the same at 100% capa city utilization also. 12. Rs. actual sales will be 100/62. The company is considering a proposal to merge the t wo plants at one location to optimize available capacity. the capacity utilization of plant at Location II will have to be made 100%. The following details are available in respect of the two plants.3.20 lakhs.12.5 3. Current Pro ts = Sales – [Fixed Cost + Variable Cost] = Rs. in lakhs] Fixed Cost [Rs. the var iable cost is 60% of sales and so variable cost will be 60% of Rs. operating at 100% and 75% of the ir capacities respectively.000 Solution: After merging the plants. 50. variable costs and xed costs will have to be taken.9.12.12.20.22. you are required to work out the following informa tion. 00. regarding their present performance/ operation. 00. 00.21. 00.12 lakhs. As the contribution is 40% of sales. The capacity at which the merged plan will break even. 00. 00.000 5. A Company has two Plants at Locations I and II.000 = Rs. H owever before doing that.20. II.5% of Rs.5 = Rs.21.000 + 7.

000 – 20. 20.000 Pro t Volume Ratio = Contribution/Sales X 100 = Rs.40 III] Computation of sales required to earn desired pro t of Rs. We can form the following simultaneous equations under various s ituations.15 X 100 = 66. 20.5/Rs.1. If the volume is raised to 20 000 units. if it produces and sells 8000 units.33% = Rs. F = Fixed Cost and P = Pro t.300 Less: Variable Cost = 70. Rs.Particulars Contribution Less: Fixed Costs Pro t Pro t/Volume Ratio: Contribution/Sa les Break Even Sales: Fixed Cost/Pro t/ Volume Ratio I] 60 30 30 Plant Location I 28 14 14 Plant Location II Total Merged Plant 88 44 44 88/300 = 29.67% of sales Contribution Less: Fi xed Cost Pro t Amount [Rs. 000 (4) By solving both the equations. where S = Sales. 000x = y + 80.40 44.in lakhs] 240.33% 150 60/200 = 30% 28/100 = 28% Capacity of the merged plant at break even = 150/300 100 = 50% II] Computation of the pro tability of the merged plan at 80% capacity Particulars Sales 80% of Rs.44 lakhs + Rs.67% Break Even Point = Fixed Cost/P/V Ratio = Rs. 000 – Situation II Or. In a period.33% 44/29.000 Break Even Point [Units] = Fixed Cost/Contribution p er unit = Rs. 000 x = y + 80.1.000/Rs. 000 [loss of Rs.60 70. Calculate Break Even Point both in terms of rupees as well as units.5 per unit. xed cost Rs. 000 – 20. .1. 000 / 66.15 per unit. 000 (3) And 3. 20. 1. Let us assume that variable cost = x a nd xed cost = y.1.15 X 20.4 per unit.1.5 i.5 and y = Rs.000 i. it incurs a loss of Rs.67% = Rs. Solution: The basic marginal cost equation is S –V = F + P.15 X 8000 – 8000x = y – 40. 225 lakhs 7.22 lakhs/29. V = V ariable Cost. it earns a pro t of Rs.5 per unit X 8000 units] S ituation I Rs.00 26. A company sells its products at Rs.22 lakhs Sales = Fi xed Cost + Desired Pro t/Pro t/Volume Ratio = Rs.10 = 12000 units. variable cost per unit is Rs. 20. 15 – Rs. 20 .00 169. we get x = Rs.000 – 800 0x = y – 40. 80. 00.e.e.

40.0 00 M2 10. 1. 000 6. Computation of Break Even Level for both the machines Machine M1: F ixed cost Rs. 60. 000 10. 40. 0 00 1. 000 4. 3. 00. a Working Note 2 will have to be prepared to compu te.] 277 .000 Rs. M1 and M2. 000 60 40 40% Amount [Rs.000 Break Even Sales = 6000 units Break Even Sales: M 2: Similar to Working Note 1. M1 or M2.100 Variable co st [Sales – Contribution] Variable cost per unit Contribution per unit Pro t/Volume ratio: Contribution/Sales X 100 Break Even Sales = Fixed Cost / P/V Ratio = Rs. 2. 00. 00.2 . 000 Rs. 60.1. 40. Further details regarding these two models are given below Particulars M1 10.6. 000 / 40% = Rs. You are required to determine. For working out the variable cost and contribution.100 per unit. is sold at Rs. 000 Rs.000 Rs.2.1. 40. the variable cost and contribution as well as the pro t volume ratio. 2. Working Note No. 00.8.000 Installed Capacity [Units] Fixed overheads per annum Estimated pro t at the above capacity The product manufactured using this type of machine. The model suitable for different levels of demand for the product. the following statement is prepared as working note. Solution: 1. 00. A company wants to buy a new machine to replace one.1. which is having frequent br eakdown. The level of sales at which both the models will earn the same pro t. 00.000. Break Even level of sales for each model.1 Particulars I nstalled capacity – 10000 units Fixed overheads Estimated pro ts Total contribution [Fixed overheads + Estimated pro ts] Sales value: 10000 units X Rs. It received offers for two models.2.

2 Particulars Installed capacity – 10000 units Fixed overheads Est imated pro ts Total contribution [Fixed overheads + Estimated pro ts] Sales value: 1 0000 units X Rs.] 9.000 /Rs . 00.000 /Rs. The level of sales at which both the machines will earn the same pr o t For computation of the above. A factory engaged in manufacturing plastic buckets is working to 40% capacity an d produces 10. Material Rs.1. and so this machine will be suitable in case of lower demand s.100 Variable cost [Sales – Contribution] Variable cost per unit Co ntribution per unit Pro t/Volume ratio: Contribution/Sales X 100 Break Even Sales: Fixed Cost/Pro t/Volume Ratio = Rs. 00.5. 3. If it is decided to work the factory at 50% capacity. 1. 000 2. 40. 00. Model suitable for different levels of demand of the product: If the cost structure of both the mac hines is observed. 000 80 20 20% Amount [Rs. the following formula can be used. the total costs of both the machines will be same and hence they will earn the same amount of pro ts. it can be seen that the machine M2 has lower break even point and lower xed cost. machine M2 will be more suitable in case of higher demand because of higher pro t volume ratio.60 = Rs. 40.10 Labour Rs. 00. 00.000 – Rs.000 /20% = Rs. 00. the selling price falls by 5% accomp anied by a similar fall in the price of material.1. 000 10.2.000 2.3 Overheads Rs.Working Note No. At 90% capacity.20 = 7000 units Thus. 00.1. On the other hand. The present cost break up for one bucket i s as under. 000 8 . You are required to calculate the pro t at 50% and 90% capacities and also show break even points for the same c apacity production .000 1. Level of sale s at which both machines will earn the same pro t = Difference in xed cost/ differe nce in variable cost = Rs.20 per bucket.5 [60% xed] The selling price is Rs. 000 buckets per annum. the selling price falls by 3%. at 7000 units.80 – Rs. 00.000 Break Even Units = 5.

i.units A] Sale Price per Unit B] Variable Cost per Unit Mat erial Labour Variable Overheads C] Total Variable Cost Per Unit D] Contribution per Unit [A – C] E] Total Contribution [Units X D] F] Fixed Costs Rs.40 55.000 2. 250 50% Capacity 12. 000 25.50 = 6 667 units: Rs. 000 /Rs.30. 000 30. 000 units 10.270 (approx) Break Even Sales at 90% capacity = Fixed Cost/Contribution per unit = Rs. 50.50 4. 500 Rs.00. 00. 000 9.6 73 10.00 15.1.000 12. 50.40 = 6 818 units: Rs. 15.40 90% Capacity 22.3 per unit at 40% capacity.00 2. 26.4. 10.000 1. A company manufactures a single product with a capacity of 1 50 000 units per annum. 000 71. 500 Rs .000 279 . 32.1.00 14.e.19. 01. 00.00 4.000 3.000 2.19.000 60.250 30.4.50 1.000 3.15 per unit Less: Cost of Sales Direct materials Direct labor Production overheads – variable Production overheads – xed Administrativ e overheads – xed Selling and distribution overheads – variable Selling and distribut ion overheads xed Total cost of sales Pro t Amount Rs.000 90.00 2. 00. Amount Rs.Solution: Statement showing Pro t and Break Even Point at 50% and 90% Capacity Par ticulars Production .00 3. 50.50 3. 50. 000 1. The summarized pro tability statement for a year is as under: Particul ars Sales: 1 00 000 units @ Rs. 000/Rs.00 G] Pro ts [E – F] Break Even Sales at 50% capacity = Fixed Cost/Contribution per unit = Rs.30.

00. Working Note No.1 per unit? There is an offer from a large retailer for pur chasing 30 000 units per annum subject to providing a packing with a different b rand name at a cost of Rs.You are required to evaluate the following options: 1) 2) What will be the amoun t of sales required to earn a target pro t of 25% on sales. 00. in this case there will be no sel ling and distribution expenses.6. 50. if the packing is impr oved at a cost of Re. 2 Total Fixe d Cost: Production overheads: Administration overheads: S & D Overheads: Total xe d costs: Rs.3.1.000 = Rs.000 is made on advertising. 00. the sales would incre ase from the present level of 1 00 000 units to 1 20 000 units at a price of Rs.000 /1.1. 50. 50.2 per unit. 50. 00.000 /1. Will that expenditure be justi ed? If the selling price is reduced by Rs.6.000 Rs. Will the reduction in s elling price be justi ed? 3) 4) Solution: The following working notes are prepared for working out the solution of various questions.000 .000 2.15 per unit Less : Variable Costs: Direct materials: Direct Labour: Variable overheads [prod.000 8.2 per unit.] Va riable overheads [S & D] Total Variable Cost Contribution [Sales – Total Variable Cost] Variable Cost Per Unit Contribution Per Unit Working Note No.8. Also this will not in any way affect the company’s existing business. 00.000 6.] 15. However.000 3.000 units @ Rs.000 = Rs. 00.000 90.000 Rs. 1 Statement Showing Total Contribution an d Contribution Per Unit Particulars Sales: 1.3.000 60.50 8. 00.000 Rs. 18 per unit. What will be the break even price for this additional offer? If an expenditure of Rs. 00. 00.50 Amount [Rs. there will be 100% capacity utilization.000 6. 50. 50.

3. 00.1) Amount of sales required to earn a target pro t of 25% on sales after improving th e packing: Present variable cost per unit [Working Note No.00 = Rs.000 which will the additional pro t and hence the offer can be accepted.6.1.7. 3) Evaluation of pr oposal of incurring additional advertising expenses of Rs.000 Note: Total xed cost is given in Working Note No.24.50 13. which is equal to the variable cost per unit.90 Add: Packing expenses: Rs.15 per unit and after considering the r evised variable cost.7..50 = Rs.2. = Rs. there will be additional contri bution of 30 000 units Rs.000 Rs.50/Rs.50 11.00 [25% of sales] 2) Evaluation of purchase offer by a large retailer: 30 000 units.7.000 9.7.000 4. The break even price for this offer will be Rs.15 10 0 = 50% Let be the amount of sales to earn desired pro t. the contribution per unit works out Rs. 20.7.00 6.2 per unit Present variable cost per unit: Rs. 00.1] = Rs. 7.60 per unit. 80.6. the amount of sales will be comp uted with the help of the following formula S = Fixed Cost + Desired Pro t /Pro t/Vo lume Ratio Therefore.2 Amount of sales required to ea rn the pro t is Rs.000 Particulars Revised Selling Price per unit Less: variable cost [working note no.000 Less: Fixed cost : Current Addl.000 and the amount of pro t is Rs.000 + . 00.3.60 The current selling price is Rs.15 – Rs.2. 00.6.] 18.1] per unit Contribution per unit Total contribution : 1. 00.6.40 = Rs.7. 80.4 0.50 Less: S & D Overheads: Rs. Since the xed costs are not going to increase.7.000 Amount [Rs. 00. 00.00 Revised variable cost per unit: Rs.50 Addition al cost of improvement in packing Revised variable cost per unit Revised contrib ution per unit Pro t/volume ratio = Re. additional pa cking cost of Rs.24.11. Expenditure on Advertising Pro t Rs. 22.50 = Rs.25 /50% = Rs.000 281 .6.60 = Rs.50 R s. 00.

the expenditure on advertising is justi ed. 50. 50. . availability of which is 10.120 3 kg Rs. Key Factor Analysis 11] A] The following particulars are extracted from the records of a company. 4) Reduction in selling price for increasing capacity utilization to 100% Particulars New selling price per unit Less: variable cost per unit Contribution per unit Total Contribution 1. 000 3. B] Assuming raw mat erial as the key factor.13 per unit and thus increasing the capacity utilization to 100% and he nce the proposal is justi ed.5.00 6.50 9.6. 80.10 20 Direct labour per hour is Rs.50 Amount Rs. nd out the product mix which will yield maximum pro ts.15 10 6 2 Rs. 000 6. 000.100 2 kg Rs.10 15 5 3 Rs. 75. 00. I] total sales potential in units is limited II] to tal sales potential in value is limited III] raw material is in short supply IV} production capacity [in terms of machine hours] is limited. 75. Comment on the pro tability of each product [both use same raw material] when.Since the amount of pro t has increased from the present Rs.50 6.000 units Less: Fixed cost Pro t Rs. 13.000 kg and maximum sales po tential of each product being 3500 units.000 to Rs. Particulars Sale price per unit Co nsumption of material Material cost Direct labour cost Direct expenses Machine h ours used Fixed overheads per unit Variable overheads per unit Product A Rs.4.5 15 Product B Rs. 000 It can be seen that the existing pro t can increase by reducing the selling price up to Rs.2.

45 Rs.6 Rs.34.5 Rs.5 Rs.15 Rs.15 Rs .23 Pro tability of each product in each of the following situations: I] Total sales p otential in units is limited: In this situation.55 Rs. Product B will be more pro table than Product A. in such situation.69/3 kg = Rs. Product B earns higher contribution per unit than product B as shown in the tab le and hence it will be more pro table in such situation.120 100 = 55% 69/120 100 = 57.27.55/3 = 18.5 Rs.10 Rs.15 Rs. II] Total sales potential in value is limited: Product with higher pro t/volume ra tio will be more pro table in such situation. The following statement is prepared to show the optimum product mix. product B will be more pro table as it earns higher contribution per machine hour.Solution: The following statement is prepared in order to answer various questio ns.55/2 kg = Rs.20 Rs.69 Product A Rs.5% Contribution per machine hour: Contribution/ Machine hours per unit Contribution per kg of direct material = Contribution/kg of material per unit Rs.10 Rs. B] Optimum product mix if raw material is in short supply: Raw Ma terial availability is 10 000 kg.51 Rs.33 Rs. III] Raw material is in short suppl y: Product A will be more pro table in such situation as it earns higher contribut ion per kg of raw material IV] Production capacity in machine hours is limited: In such case.100 Product B Rs.69/2 = Rs. 283 . Particulars Selling price per unit Less: Variable cost per unit Direct mater ials Direct labour Direct expenses Variable overheads Total variable cost per un it Contribution [Selling price per unit – total variable cost per unit Pro t/volume ratio: Contribution/Sales 100 55/100 Rs. Product B will be more pro table as it s pro t volume ratio is higher than that of A. As mentioned in III above. it will be necessary to dec ide the priority between Product A and Product B. the product with higher contrib ution per unit will be preferred as it will be more pro table to promote the same. if raw material is in short supply.

2. 500 Less: Fixed Cost A: B: Rs. 1000 units of B are possib le as the requirement is 3 kg per unit.5 for pr oduct A. 500 Total Contribution: Rs. 500 Rs. 70 92 95 110 180 A B C D E Variable overheads costs amount to 50% of the direct labor cost. 61. 10 12 12 16 20 Fixed Overheads Per Unit Rs. 92. 000 # 69 69. 61. 500 1. estimated cost and unit selling prices are given below: Product [Toy] Production Planned [Units] 30 00 4000 4000 3000 2400 Direct Materials Per Unit Rs.52. 000 55 1.0 00 12. 500 ** Rs. Fixed cost per unit is given Rs.15 per hour.500 *** Fixed cost per units is Rs.17.10 for B and hence total xed cost for B is Rs. hence total xed cost for A is Rs. 000 * 3 kg 3. 000 Total Fixed Cost: Pro t: # * ** Total raw material availability is 10 000 kg out of which 7000 are used for A as it has the priority due to higher contribution per kg. P Ltd.35. of Raw Material 3. Rs. 15 18 18 24 30 Sellin g Price Per Unit Rs.35. Particula rs Maximum – Units Minimum . 00 0 *** Rs.Units A 5000 1000 B 6000 1000 C 6000 1000 D 4000 500 E 4000 500 . Balance 3000 kg is avail able for producing product B.17. 09.2.Product In Order Of Priority A B Total Contribution Number of Units Total Contribution Raw Material Total Contribution Per Unit Per Unit Requirement Rs. 000 2. The company has estimated the following maximum and minimum demands for each product. The total number of skilled hours available in a year i s only 14000. In the balance 3000 kg. 500 2 kg 7. manufactures and sells children’s toys of high quality over an exten sive market utilizing the services of skilled artists who are paid at an average rate of Rs. 20 24 32 40 60 Direct Labou r Per Unit Rs. The details of planned production for 2008-09.

8 . The availability of the sa me is only 14000 labour hours and hence the priority of the products will have t o be decided as all the product cannot be produced equal to the maximum quantity .You are required to work out pro t as per the production plan of the company and a lso compute the optimum pro t in the given situation. 180 II] Variable cost per unit Direct materials Direct labour Variable overheads [50 % of direct labour] III] Total variable cost IV] Contribution per unit [I – III] V ] Direct labour hours per unit * VI] Contribution per direct labour hour [V / VI ] VII] Priority * IV II III V I 20 10 24 12 32 12 40 16 60 20 05 35 35 06 42 50 06 50 45 08 64 46 10 90 90 .15 The next step in the problem is to work out the amount of pro t as per the product ion plan prepared by the company. Solution: In the example.67. 92 Product C Rs.23 Rs.33 Rs. 1] Statement showing Contribution per Direct Labour Hour and Prio rity of Production Particulars I] Selling price per unit Product A Rs. 285 . In the following table the contribution per unit and per direct labour hour is shown. which is Rs. 110 Product E Rs.52.62. th e direct labour hour is the key factor or constraint.8 1. The contribution per direct labour hour will be criteria for determining the p riority.06 1.5 Rs. 70 Produc t B Rs.56.67 .39 Rs.66 Direct labour hours for each product is computed by dividing the direct labor co st per unit of each product by direct labor rate per hour.43.25 Rs. This computation is shown in the next statemen t. 95 Product D Rs.

90 Rs. B and C and selling them in a competi tive market.50 Rs. 000 1. Details of current demand.46 Total Contribution Rs. 67. 895 E B C A D Total 4000 Max 6000 Max 3331 [Balance] 1000 Min 500 Min Amount of maximum pro t = Total Contribution – Total Fixed Cost Rs.35 Product B 4000 Rs. 000 Rs. A.45 Rs. 000 Contri bution Per Unit Rs. 000 66.000 72.1. 08.000 3.4 2 1.46 Product E 2400 Rs. 28.1.3. Particulars Expected Demand [units] Selling price per unit Rs. 06.5. 60. XY Ltd.3.895 – Rs.000 72.23. 000 2. 49. 000 10 . 00.35. 38.2] Statement showing amount of Pro ts as per the Production Plan of the Company Parti culars Product A 3000 Rs. 00. 000 20 B 12. 000 2.10 per kg Direct labour Rs.000 = Rs. 80.2 A 10.5 4 3 1 Rs. 000 3] Statement Showing Production Plan For Optimizing Pro ts Product in order of priori ty Sales Units Number of hours required ** 5334 4800 2665 667 534 14. is manufacturing three household products. 33. 000 60.000 72.8. Variabl e cost per unit Direct materials Rs.90 Total I] Number of units to be sold II] Contribution per unit [As per statement number 1] III] Total Rs contribution [ I X II] IV] Total xed cost V] Pro t [III –IV] 1.45 Product D 3000 Rs. 000 1. 000 16 C 20.895 Rs.0 Rs. 44. 000 1.000 5. 000 8. 05.000 Rs.35 Rs. 67. 3 3. selling price and cost structure are giv en below. 39. 000 1. 000 Rs.50 1.000 72. 000 1.5 per hour Vari able overheads Fixed overheads per unit 6 3 2 Rs.000 45.8. 16.50 Product C 4000 Rs. 34. 895 ** Number of units X labour hours per unit 13.000 Rs .3.

50 .15 Product B Rs.5. 6 = Rs. Suggest the best production plan in each case and the resultant pro t t hat the company would earn according to your suggestion.2 Rs. 100 kg Statement Showing Contribution per kg. 10.The company is frequently affected by acute scarcity of raw material and high la bor turnover. 20 Product C Rs.0 2. it is expected to have one of the followin g situations: I] Raw material available will be only 12 100 kg II] Direct labour hours available will be only 5000 hrs.0 4.20. 16 4 3 1 8 8 . During the next period. priority of the products will have to be decided by computing the contribution per unit of the key factor . 20 6 3 2 11 9 . For deciding the best production plan. I] Raw Material availabilit y is 12.50 5.of Raw Material Particular s I] Selling price per unit II] Variable cost per unit Direct materials Direct l abour Variable overheads III] Total variable cost per unit IV] Contribution per unit [I – III] V] Raw material requirement per unit VI] Contribution per kg of raw material: Contribution / Raw material requirement per kg Priority III II Produc t A Rs.4 8/ . Solution: The following statement is prepared to compute the contribution per unit and for deciding bes t production plan in each case.4 = Rs.50 I 287 .50 / . There are limiting factors like raw material and direct labour. III] It may be possible to increase sales of any one product by 25% without any additional xed costs but by spending Rs.50 1.6 9/. Accordingly the following statements are prepared. 000 on advertisement.0 1.2 Rs.27. There will be no shortage of materials or labor.

000 10. 40.000 96. 5.000 * Balance labour hours after producing C and A to the maximum possible extent . 2. 500 2. 000 0.55 I Contribution per unit as per statement I Labor hrs per unit Contribution per labour hour [Contribution 9/0. 8 0.1 5.II] Statement Showing Best Production Plan: Raw Material Availability Constraint Products Order of Priority C B A Total Less: Fixed Cost Pro t * Production Units 20 000 12 000 5 500 Total Total Raw Contribution Raw Contribution Per Unit Mater ials per Materials kg Rs. III] Statement Showing Contribution Per Direct Labour Hour: Particulars Product A Rs.45 per unit/ labour hour p er unit] Priority II IV] Statement Showing Best Production Plan: Direct Labor Hour Constraint Product as per Priority Production Units Labour Hours Total Labour Contribution Per Uni t Hours Per Unit Total Contribution C A B Total Less: Fixed Cost Pro t 20.40 III Product C Rs.2 2000 2000 1000 * 5000 Rs. unit kg 0.00 1. 55.000 Rs.500 1. Rs. 000 5.000 Rs.4 0. 38.9.00 Rs.50 Rs.000 Rs. Total 8 800 kg are consumed for producing the maximum production of C and B and hence th e balance quantity of 3300 kg is used to produce 5500 kg of product A.00 Rs.02 = Rs.50/0.000 Rs.50 0. 1.2 Product B Rs. 000 49.8.00 9.5.6 4000 4800 3300 * 12 100 5.10. 9 0.02.2 0.500 Total availability of raw material is 12 100 kg as given in the problem. 1 = Rs.2 8/.2 0.40. 90.1 0.000 1.2 = Rs. 1. 1.38.000 Rs.50 8 . 10. 17.

9. i.1. 000 96. 500 * Sales of any one product can be increased by 25% by spending additional amount on advertising Rs. 000 * Contribution Per Unit ribution Rs. the product with highest pro t/volu me ratio can be promoted and hence production and sales of product C should be i ncreased by 25% as the pro t/volume ratio for the same is highest.48 per unit Product C 6.20. 50.units Selling Price Direct Materials Direct Labour: Department 1 Rs. 500 3.3 per unit 10 4 Rs.100 per u nit Rs.000 on Advertising Product A B C Total Less: ts 10. 58.5 per hour Department 2 Rs. 23.8 8/16 X 100 = 50% I Product C Rs. 90. 14.80 per unit Rs.20 per u nit Product B 4.16 Rs.V] Statement Showing Pro t /Volume Ratio: Particulars I] Selling price per unit II ] Contribution per unit [As shown in earlier statements] III] Pro t/Volume Ratio: Contribution / Sales X 100 IV] Priority III Product A Rs. 000 12.20 Rs.7 per unit Product A 8.50 Total Cont 1. 000 Rs. 000 Rs. 65. 000 per month 5 8 Rs.40 per unit Rs. 000 25.00 8. 000 1.20.40 per unit 289 .00 5. In such situation. 000 Rs.3 per unit 20 12 Rs. Thus the produc tion and sale units will be 25% higher. 500 Can Be Increased By Spending Fixed Cost Pro t Production Uni Rs.5. 000 1. 20 000 + 25% of 20 000 = 25 000 uni ts. A company has compiled the following data for the preparation of its bud get for the year 2008-09 Particulars Sale per month .9 9/20 X 100 = 45 % II Product B Rs.50 5.4 per hour Variable Overheads Fixed Overheads: Rs.10 Rs. 000. 37.50/10 X 1 00 = 55% VI] Best Production Plan When Sales of One Product Rs.e.

75 %. B: 6.80 Product C 6000 Rs. C: 10.10 Rs. 10. In case the requirement of direct labour hour of department 2 in excess of 40.5 Rs. 50.4 Rs. the following action plan was approved for impro ving the pro tability of the company. 000 units. 000 Rs.3 Rs. III] The selling price should be reduced by: A: 2. 000 units.1. what will b e the effect of so working overtime on the optimum pro t as computed in 2 above? Solution: The original budget for the year 2008-09 is prepared as shown below.60.4 Rs. O riginal Monthly Budget for the Year 2008-09 Particulars I] Sales for the month units Product A 8000 Rs. 000 per month.65 Rs.40 Product B 4000 Rs. Present the original budget for the year 2008-09 Set an optimal product mix after takin g into the action plan into consideration and determine the monthly pro t. 000 . 000 units Required: 1. an advertisement program should be launched at a cost of Rs.7 Rs.32.20 Rs.2.5%.After the budget was discussed.48 Rs. 68.3 Rs. B: 8.1. 000 Rs. 2.40 Rs. 000 Rs. 000 Rs.12 Rs.8 Rs. A: 12.20 Rs. 3.21 Rs. I] Direct labour in department 1.79 Rs. 000 hours by spending xed overheads of Rs. C: 1% IV] The sales target have been increased and the sales department has c on rmed that the company will be able to achieve the following quantities of sales . 26. 000 hour s is to be met by overtime working involving double the normal rate. 18. II] To boost sales. 000 per month. which is i n short supply should be increased by 15.8.15 Rs. 000 Rs.100 Total II] Selling price per unit III] Variable cost per unit Direct material Direct la bour [Dept 1] Direct labour [Dept 2] Variable overheads IV] Total variable cost per unit V] Contribution per unit [II – IV] VI] Total contribution [I X V] VII] Fi xed cost VIII] Pro t [VI – VII] Rs.36 Rs.

1 [1%] Rs.39 Rs.40 Rs.5%] Rs.79 Rs.7 [8. 000 Rs. the following working is done.3 Product B 6.73 Rs. 000 Rs.36 Rs.65 Rs.1 [2.75%] Rs. 1 80 00 8000 24000 40000 15000 55000 After producing product C and B to the maximum possible extent as per the market demand.20 Prod uct C Rs.99 Rs.20 4 Rs. balance hours available for A are 3000 in which. 000 Rs. 291 .2] I] Optimum product mix after taking the action plan into consideration: For determi ning the optimum product mix.3 1 Rs. 000 * 55.8 Product B Rs. 000 12.5 Quantities of sales [units] Original selling price Less: Discount Revised sellin g price Less: Variable cost per unit Contribution per unit Particulars Contribut ion per unit [As shown in the above table] Direct labour hours in Dept 1 Contrib ution per hour in Dept 1 Contribution per unit/labour hrs per unit in Dept 1] Ra nking III II I II] Direct labour hour capacity of Department 1 Product A B C Total hours Additi onal hours Total revised capacity hrs III] Statement of Optimal Product Mix Prod uct [in order of priority] C B A Total * Units 10000 6000 3000 Hours in Dept 1 4 2 1 Hours utilized 40. 000 3.3 Product A Rs.4 Product C 10. 000 Original monthly sales in u nits 8000 4000 6000 Direct labour hours per unit 1 2 4 Total hours in Dept. Ranking of products as per revised gures Particulars Product A 12.8 2 Rs.80 Rs.100 Re. 3000 units of A can be produced.

2 = 38. 8.8 [double rate] = Rs. 000 = Rs.1. 000 units 3 hrs per unit in dept 2 = 30. 000 48. 000 hours Rs.IV] Statement showing Optimum Monthly Pro t Product [in Order of priority] C B A T otal Total Contribution: Less: Fixed Costs Original: Additional Advertisement To tal Pro t: 3] Impact of Overtime Working: I] Total hours in department 2 as per or iginal budget Product A: 8000 units Product B: 4000 units Product C: 6000 units 2 hrs in dept. 2 = 4. 000 hours Overtime working w ill be required for hours beyond 40 000 hours. If the optimal product mix is worked out as shown in Statement III in answer to que stion 2 above. 000 Number of units as per statement III Contribution per unit – Rs. 2 = 18.2. for 2000 hours The overtime premium will be 2000 hours Rs. 000 Thus the amount of pro t will be reduced to Rs. 000 hours 1 hr in dept. 000 Rs.16. 000 . 000 3.1. 000 units Product B: 6. Total contributio n Rs. 50. 00. 000 hours 2 hrs per unit in dept 2 = 6. 68. 000 Total hours available in dept. 2 = 16. 000 Rs. 000 Rs. 000 – Rs. 000 20 8 3 2. 000 units Product A: 3. 10. 000 hours as per the original budget. 89.16. 000 Rs. 57. the required hours in department 2 will be as follows: Product C: 10. 10. 000 Rs. 000 6. 57. 000 2.89. i. 000 9. 000 hours Thus total number of hours required in dept 2 = 42. 000 hours 3 hrs in dept.73.e. 000 hours 1 hr per unit in dept 2 = 6.

00 Product B 400 Rs.5.4. the company has another offer from the Middle East for the pur chase of product B at a price of Rs.00 Rs.00 Rs.2 per hour. The company can accept either of the two export orders and in either case the company can suppl y such quantities as may be possible to be produced by utilizing the balance of 25% of its capacity. is operating at 75% level of activity produces a nd sells two products A and B.00 Rs .4.00 Rs. II] A statement showing the overall pro tability of the company after incorporatin g the export proposal recommended by you. a special packing charge of 50 p per unit has to be borne by the company.5. You are required to prepare.3.8. Particulars Units produced and sold Direct materials Direct labour Factory ove rheads [40% xed] Selling and administration overheads 60% xed Total cost per unit Selling price per unit Product A 600 Rs.00 Factory overheads are absorbed on the basis of machine hours.00 Rs.00 Rs. The following statement is prepared for this purpose: 293 .16.50 per unit.50 per uni t.17.23. The machine hour rate is Rs. which is the limit ing [key] factor. will have to be worked out.00 Rs. Vinak Ltd.00 Rs.19. will have to be promoted for maximizing the pr o ts.00 Rs.15. The cost sheet of the two products is given below . which is a limiting factor. The product. which will yield high er contribution per machine hour. The company receives a n offer from Canada for the purchase of product A at a price of Rs. the contribution per machine hour. I] A statement showing the eco nomics of the two export proposals giving your recommendations as to which propo sal should be accepted. Alternatively.19. In both the cases.4. Solution: I] In order to decide about which proposal should be accepted.Decision-Making: 15.2.00 Rs.

5.5 hrs 3.80 3.2.50 Offer from Middle East for Product B Rs . Statement showing Overall Pro tability Particulars I] Sales units II] Sales value Product A – Rs. 23.00 4.20 . Produc t A: Factory overheads per unit Rs.5 Product B: Factory overheads per unit Rs.50 12. 239 ** Product B – Rs. 839 . machine hour rate Rs. hence the machine hours per unit of B are Rs.15.50 = Rs.30 3.14.2. 600 467 units Rs.50 = 28.50 12. * Machine hours per unit are computed as under.5 = 2.Statement showing Comparative Analysis of the two Export Proposals Particulars O ffer from Canada For Product A Rs.80 2. 600 600 Rs.20/1.13. factory overheads are absorbed on the basis of machine hours and hence the machine hours per unit of A are Rs.00 = 400 units Rs.1. 639 Total – Rs.2.00 .13 It is clear from the above statement that product B yields higher contribution p er machine hour and hence offer from Middle East should be accepted as compared to the offer from Canada. Total Rs.5 = Rs.7. 867 * Rs. 17. machine hou r rate Rs. The following statement is prepared to show the overall pro tability.20 1. 3/2 = 1.00 4.5 hrs 4.70 4.5 hrs II] Ove rall Pro tability: For showing overall pro tability units of product A sold in domes tic market and units of product B sold in domestic market as well as in the expo rt market of Middle East will have to be taken into consideration.00 4. 15.80/2.00 1.7.3. 800 Rs.50 I] Export price per unit II] Variable cost per unit: Materials Labour Variable factory overheads Variable selling & administration overheads Special packing charges III] Total variable cost per unit IV] Contribution per unit [I – III] V] Machine hours per unit * VI] Contribution per machine hour [IV/V] 2. 5/2.19 = Rs.00 3.92 2.

15. 480 4. The components are made in a machine shop using three identical machines each of which can make any of t he three components.60 Rs.5 [as shown above] 600 units = 1500 hrs 400 units = 600 hrs Thus total machine hrs used = 1500 + 600 = 2100 hrs. 800 1.75 Rs. 868 3. 854 5. 920 7. Thus additional 700 hrs will be availa ble for the export offer in which 467 units of B will be produced. 1. L abour for assembling is available according to requirements. 561 1. these hours represent 75% c apacity as given in the example and so for 100% capacity the number of machine h ours used will be 2100/75 100 = 2800 hrs. 000 machine hours per month and is just suf cient to meet the current demand.64 Rs. However. B and C. 200 2. 080 2. Component A B C Assembling [per unit of Z] 4 5 6 Machine Hours Per Unit Variable Cost Per Unit Rs.50 per unit. 760 5.80 Rs. 3. Further details are given below.110 — 295 . 400 1. # Fixed overheads for both the products consist of factory overheads and selling a nd administration overheads.48 Rs. the total capacity of the three machines is only 1 2. 465 4. Sterling Industries Ltd.30 — Market Price at which the C omponent can be purchased Rs. 320 6. 654 234 17. 468 1. 785 10. 094 * Units of product B are computed in the following manner: Machine hrs per unit of A = 2. 16.5 [as shown above] Machine hrs per unit of B = 1. 734 234 10. manufactures product Z by making and assembling three components. 361 3. [1. 680 2. 4. 668 5.Particulars III] Variable Costs Materials Labour Factory overheadsvariable S & A overheads Special packing IV] Total variable costs V] Contribution [II –IV] VI] F ixed overheads # VII] Pro t [V – VI] Product A – Rs. A. 400 Product B – Rs. 694 Total – Rs. 468 3. 374 1.5 hrs for 1 unit] ** The selling price for B in the export market is Rs.

From next month onwards the company expects the demand for Z to rise by 25%. .e. 12.110 Rs.60 Rs. 600 50. 0 00 and so.48 Rs. Total 15]. II] Statement showing the utilization of Machine Hou rs: Component C: Component A: Maximum units 1000: Machine hours required: 6000 M aximum units 1000: Machine hours required: 4000 Component B: Units to be manufactured 400: Machine hours: 2000 * Balance units o f B i. 600 Statement of Additional Cost per Hour if Components are Purchased from Market Pa rticulars Market price per unit Less: Variable cost of making per unit Additiona l cost of purchasing per unit Hours saved by purchasing Additional cost per hour saved Component A Rs.15/5 = Rs. 000.30/6 = Rs.5 It can be seen from the above statement that additional cost per unit if the com ponent is purchased from outside is Rs. 600 [1000 – 400] can be purchased from the market. The utilization of machine hour s will be planned in such a manner that A and C can be produced to the maximum p ossible extent from the available machine hours and B can be partially produced and partially purchased from the open market. 000 15. A s the machine capacity is limited.300 per unit . II] Which component and how many units of the same should be bought from the mar ket to meet the increase in demand? III] Pro t made by the company is suggestion i n I is accepted? Solution: The machine hours required for one unit of Z are 15 [ for A.64 Rs. Total availability of machine hours is 12.16/4 = 4 Component B Rs. Product Z is sold at Rs. B or C which is more pro table. 6. I] Statement Showing the Current Pro t Output and sales of Product Z = 800 units Particulars Selling price per unit Less: Variable cost including assembling per unit Contribution per unit Total contribution 800 units X Rs. The dema nd is expected to be 25% more in the next month. the company wants to meet the increase in dem and by buying such numbers of A. B. 000/15 = 800 units of Z can be produced from these hours.Fixed cost per month amounts to Rs. 5 and C.75 Rs.50. The fol lowing statements are prepared. The following statement is prepare d to show this computation.82 Less: Fixed costs Pro t Amount [Rs.30 6 Rs.15 5 Rs.3 Component C Rs. 4. You are asked to n d out the following: I] Current demand and pro ts made by the company.] 300 218 82 65.80 Rs.3 for B which is the least cost.16 4 Rs.

000 23. 000 45. A company produces 30. The facto ry overheads are charged in the ratio of direct labour and administrative and se lling overheads are recovered at a at rate of Rs. 1000 units @ Rs.300 Cost of making 1000 units of C @ Rs.20 per unit for B. Other variable costs will be the same as applicable to the product A. For both the products. 000 units of product B per annum.] Amount [Rs. 90.30 Total variable cost Contribution [Sales value – total variable cost] Less: Fixed cost Pro t 80. C and A are prod uced to the maximum possible extent as permitted by the demand as the additional cost of purchase per unit is the highest for C and followed by A. The direct material and labour ratio for product A is 2:3 and for B is 4 :5. the company has a plan t o diversify and make product C using 40% capacity. 00. 297 . 000 50.48 Cost of making 400 units of B @ Rs. 000 5 0% of the factory overheads are variable and 50% of the administrative and selli ng overheads are xed. the selling price is 400% of direct labour.1. The selling price of product C is Rs. calculate. 000 units of product A and 20. 000 73.60 Cost of buying 600 units of B @ Rs.80 Cost of making 1000 units of A @ Rs . 000 30. 27.3 per un it for B.75 Assembling cost of Z. I] Presen t cost and pro t Factory overheads: Rs.7. 000 24. 000 Direct labour: Rs1. 000 2.* 2000 are the balance of machine hours available to produce B. 000 II] Cost and pro t after diversi cation III] Give your recommendations as to whether to diversify or not.] 3. of the above products. The sales value and costs of the two products are as follows: Sales value Rs. 000 Amount [Rs.2. The selling price of A is Rs. It has been estimated that fo r C direct material and direct labour will be Rs. 000 Administrative and selling overh eads: Rs. 60. Due to fall in demand.1.3 per unit respecti vely. 000 48.2 per unit for A and Rs. 40. 000 Direct material: Rs. 90. Assuming 60% capacity is used for manufacture of A and B.12 per unit and Rs. III] Statemen t of Pro t as per suggestion given in II Particulars Sales value of 1000 units @ R s. 000 17. 20.50 and Rs.14 per unit and production will be 30 000 units .1.

00 0 60. II] Production and sales [units] III] Sales value IV] Varia ble costs Direct materials Direct labor Factory overheads 36. 40. 000 95. 000 18. 000 48. 55. Rs. 80. 000 1. 000 2. 000 84. 000 Product B 20. Rs. 90. 60.84. 000 45. 000 Product C 40% 30. 000 81. 000 30. 75. Rs. Rs. 000 1.81. 000 2. 85. 000 4. . 000 2. 60. 000 4. 000 1. 000 7. 40. Rs. 000 27. 000 Total contribution 3. 000 1. 000 2. 000 60. 35. 00. 000 30. 000 54. 00 0 18. 00. 000 90. 60. 000 75. Rs. 000 1. 000 1. 16.0 00 80. 000 30. 80. 25. 000 1. 35. 56. II] Statement showing Cost and Pro t after Diversi cation Particulars I] Capacity le vels Rs. 40. Rs. 000 Product A 60% 18. 000 45. Rs. 000 Pro duct B: Rs. 000 Product C: Rs. 000 Product B 60% 12. 000 Particulars I] Production and Sales [units] II] Sales value III] Variable Costs Direct material Direct labor Factory overheads Administrative & selling overhead s IV] Total variable costs V] Contribution [II – IV] VI] Fixed Costs VII] Pro t [V – V I] Rs. 000 50. 000 2. 000 4. 000 1. 000 3. 2 0. 40. 000 Particulars Contribution: Product A: Rs. Rs. Rs. 45. 000 1. 000 Administrative & selling overheads V] Total variable costs VI] Contribution [III – IV] Amount Rs. 000 Total 50. 000 60. Rs. 000 1.1. 000 2. 000 30.Solution: I] Statement showing Present Cost and Pro t Product A 30. 20. 000 90.

1. 90. 000 Recommendation: The Company should implement the proposed diversi cation as it has resulted into increase in the pro t from Rs. the expend iture connected with reopening after shut down would amount to Rs. 90.95. 000 1.00 .2. it is estimated that. 1) 2) 3) 4) The present xed cost could be reduced to Rs. If the manufacturing and other operations of the com pany are suspended for a year. 000. 000 18] The a nnual budget of ABC Ltd.18. The settlement cost of personn el not required would amount to Rs. The directors are seriously considering suspending operations till the mar ket picks up. 000.00. based on purely nancial co nsiderations. at 60% and 80% level of performance is as under. Submit a report to the directors and indicate therein.20. 50.60.000 in that year. 676 The company is experiencing dif culties in selling its products and is presently o perating at 50% capacity. 20. 000 to Rs. whether it would be advisable to suspend the company’s operations in the current year. 000 per annum On resuming operations. The maintenance of plant has to g o on and that would cost Rs. 299 . 352 80% capacity 480 640 276 132 148 1. [Rs. 000 Total xed overheads Pro t Amount Rs.80. the sales will pick up and the company can comfortably operate at 75% level of performance and earn a sales income of Rs. 000 per annum. 55.000. 20.1.9. Market research undertaken by the company reveals that in about 12 months time. i n thousands] Particulars Direct material Direct labour Production overheads Admi nistrative overheads Selling and distribution overheads Total 60% capacity 360 4 80 252 124 136 1. 000 Administration & Sel ling overheads Rs. T he sales personnel of the company do not want to suspend operations for fear of adverse reactions in the market but the directors want to decide the issue purel y on nancial considerations.1. 1.Particulars Less: Fixed cost: Factory overheads: Rs. The sales revenue for the year is estimated at Rs.

80. 000 80. 20. 000] *** 2. . 000 30. 000 3. 00. 80. 1 0. 00. 000 1.Solution: Statement Showing Comparative Pro ts Particulars Continuing Operations a t 50% capacity Rs. Note: Please see the working notes on the next page. 000 20. 000] Shut-down the factory Rs. 000 4. 000 8. 000 — — — [2. 00. 70. 90. 50. 000 1. 000 60. 000 3. 9. 000 20. 000 [4. — I] Sales Direct material Direct labuor Production overheads * Administration overhe ads * Selling & distribution overheads * II] Variable costs III] Total variable costs IV] Contribution [I – III] V] Fixed costs ** VI] Settlem ent costs VII] Maintenance of plant VIII] Overhauling costs IX] Net income [loss ] Recommendation: It is not advisable for the company to suspend operations as shu t down loss is higher than the loss associated with continued operations.

1.60. 000 1. 000 1.20. 000 1. 000 Capacity Difference At 1% Fixed Total variable Overheads overheads 60% capacity Production Administration Selling and Distribution Note: 1. *** Net income = Contribution – Fixed cost 301 . 200 400 600 72. In the example it is given that the company is operating at 50% capacity and hence it is necessar y to compute the variable overheads at 50% capacity. Types of Overheads Difference Budgeted Budgeted At 20% expen diture Expenditure 60% capacity 80% capacity capacity showing variable expenses 2. 80. 000 12. 000 1. 32.30. 36. 000 = Rs. 52. 000 as shown in the last column of the above table . 80. 24. 76.3. 000 24. 000 = Rs. This computation is shown b elow. 000 36. 0 00 ** Fixed overheads: Rs. Amount in Rs. The working required for division of the same is shown b elow. 48. 10. 000 The variable overheads shown in the table are at 60% capacity. It is essential to divid e them xed and variable. 000 1. 00.* The overheads given in the example are semi variable. 00. 000 1. 000 36. 000 1. Production overheads: 50/60 Administration: 50/60 72. 000 24. 000 2. 000 8. 000 = Rs. 000 Selling and distribution overheads: 50/60 Total variable overheads = Rs. 000 24.

311 .000 units and E ast Nil Sale price: A Rs.000 units.000 units.00.4 and B Rs.000 units. Arrangements are also made to adv ertise and distribute product in Eastern area in the second half of the year 200 6-07 when sales are expected to be 5.00. Prepare a revised sales budge t for the year ended 31st March after taking into consideration the above mentio ned adjustments. Preliminary sales budgets fo r the year ending 31st March 2007. North.Illustration I: A company manufactures two products.000 units and East 1. South 5. Product A: North 2. South 4.00. East and South.00.50.000 units.00.00. Its sales departme nt has three area divisions.000 units Product B: North 3. A and B.3 in all areas. Arrangements are made for th e extensive advertising of Products A and B and it is estimated that the North d ivision sales will increase by 1. based on the assessment of the divisional man agers were as follows.

000 units @ Rs. 00. 50.000 units @ Rs. Rs. 50. south 5. A and B and sells them throu gh two divisions. 4 4 4 Value Rs.00. manufactures two products. 000 1. 40.9 each 2. 00. B is overpriced to customers and the market could absor b more if sales price of B is reduced by Re.21 each South 7. 000 12. Particulars Product A Product B N orth 5. the following estimates have been prepared by d ivisional managers. the following additional s ales over the estimated sales of divisional managers are possible.1 it will still nd a ready ma rket. Additional sa les above the estimated sales of divisional managers Particulars Product A Produ ct B North 600 400 South 700 500 . 3 3 3 Val ue 12. 000 13. 40.000 South 4. south 6. It is observed that if the price of A is increased by Re.00. 20. Product A: north 4.21 each.000 units @ Rs.000 East 38.2 1 each Actual sales for the current year were.000 @ Rs. Particu lars Product A Product B North + 10% + 20% South + 5% + 10% With the help of an intensive advertisement campaign. From the information based on these price ch anges and reports from salesmen. 000 15.9 each.000 Total Illustration II: AB Ltd. 20.000 North 22. 000 9.000 units @ Rs. 000 4. 000 5. Percentage increase in sales over current budget is.Product A Division North South East Total Quantity 3.00.9 each Product B: north 3. Budgeted Sales for the current year were.21 each Adequate market studies reveal that Product A is popular but under priced. On the other hand. 000 40.000 units @ Rs. north and south. 000 Price. 000 5. The management has agreed to give effect to the above price changes.1.000 units @ Rs. For the purpose of submission of Sales Budget to the budget committee the following information is available. 00. 00.9 e ach 4. 000 13.000 units @ Rs.00. 000 Price. Division Product B Quantity 4. 00. 00.

1.21 =Rs.000 10000 units @ Rs.1.1.70000 6.1.20 8000 units @ Rs.42000 7000 units Rs.63000 7.30. 26.1.99000 6.54000 5000 units @ Rs.21 = Rs. 34.84000 11000 units Rs.9 4.87000 4. 05.9 = Rs.2. 20.2.000 units Rs.9 = 7000 units @ Rs.1.9 = Rs. 00. 59.1.000 6000 un its @Rs.21 = Rs.000 units @Rs.21 = Rs.0 00 12000 units@Rs.500 00 Product B Total South Quantity Amount Product A Product B Total Total Quantit y Product A Product B = Rs.000 units @ Rs .You are required to prepare a budget for sales incorporating the above estimates and also show the budgeted sales and actual sales for the current year.10 Rs.000 units @ Rs.000 units @ Rs.000 units @ Rs.3.10 = Rs.000 13.36000 Actual Sales For Current Period 5000 units @ Rs . 58. 68.10 4000 units @ Rs.1.000 313 .90000 10000 units @Rs.21 = Rs.000 2 2000 units 18000 units Rs.000 = Rs.20 3000 units @ Rs.000 18000 units Rs.9 = Rs63000 Rs.21 = Rs. 90.000 11000 units Rs.20 = Rs.000 Rs.2. 20.000 12000 units @Rs.000 Total = Rs.80000 9000 units Rs.1. Solutio n: Sales Budget AB Co Ltd Division North Product Product A Budgeted For Budgeted For Future Period Current Period 5.45000 2000 units @ Rs.000 units Rs.9 = Rs. 47.1.000 7000 un its @ Rs. 08.000 = Rs. 20.

the following budgets from the information gi ven below. You are required to prep are for the month of January 2008. Material Utilization Budget iv. Production.120 Rs. A.Units 20000 4000 24000 3500 20500 Illustration IV: [Sales. i. manufactures three products. Year 2008-09 Product A . 140 . Sales Budget in quantity and value Production Budget iii.500 units 3. B and C.5 00 units Estimated Inventory 31st March 2009 3.000 units 4. Purchase Budget in quantity and value Sales Forecast Product A B C Quantity 1000 2000 1500 Price Per Unit Rs.000 units Sales Forec ast as per Sales Budget 15000 units 20000 units Particulars Sales Forecast Add: Estimated Closing Stock Total Requirements Less: Opening Stock Net Requirement Product B .Unit s 15000 3000 18000 2500 15500 Estimated Inventory 1st April 2008 2.Illustration III Prepare Production Budget from the following details for XYZ Lt d. ii. Product X Y Solution Production Budget XYZ Ltd. Material Utilization and Material Purchase Budget] R Ltd.100 Rs.

Material M1 Rs.000 Total M1 26000 31200 M2 200 00 24000 M3 12000 14400 C 500 550 M3 – 2 1 Production Budget. 50.000 Product B 2000 120 2.4 per unit Material M2 Rs .9 per unit Quantities used in Product Product A B C M 1 4 3 2 M2 2 3 1 Finished Stocks: Product Opening Inventory.000 Product C 1500 140 2.000 5.6 per unit Material M3 Rs. 00.] Sales Value [Rs] Product A 1000 100 1.units Closing Inven tory. 40.Materials Used in Company’s Products Are. 10.in Units Particulars Sales Forecast Add: Expected Closing Sto ck Gross Requirement Less: Opening Stock Net Production Requirement Product A 10 00 1100 2100 1000 1100 Product B 2000 1650 3650 1500 2150 Product C 1500 550 205 0 500 1550 315 .units A 1000 1100 B 1500 1650 Material Stocks: Particulars Opening Stock [ Units] Closing Stock [Units] Solution: Sales Budget Particulars Units Selling Pr ice Per Unit [Rs.

74. 68. 08. 0 00 15. 000 10.12. 000 14.000 Purchases Rs. 24. 26. 000 11.1.1. 36.000 1.Material Utilization Budget Budgeted Production A: 1100 units B: 2150 units C: 1 550 units M1 Units 1100 4 = 4400 2150 1550 3 = 6450 2 = 3100 M2 Units 1100 2 = 2 200 2150 1550 3 = 6450 1 = 1550 M3 Units — 2150 X 2 = 4300 1550 X 1 = 1550 Material Purchase Budget Particulars Requirement as per Material Utilization Bud get [units] Add: Closing Stock [units] Total Requirements Less: Opening Stock [u nits] Required Purchases [units] Unit Cost [Rs] Purchase Cost [Rs] M1 13950 3120 0 45150 26000 19150 4 76.000 1. 44.200 M3 5850 1 4400 20250 12000 8250 9 74. 43. Prepare a Cash Budget for the above period from the following data.050 Total Illustration VI: [Cash Budget] ABC Co. 000 .000 Wages Rs. wished to arrange overdraft facilities wi th its bankers during the period April 2008 to June 2008 when it will be manufac turing mostly for the stock. 46. indicating the extent of the bank facilities the company will r equire at the end of each month. 80.000 2.000 1.000 2. 92. Particulars February 2008 March April May June Sales Rs.250 2.000 2.600 M2 10200 24000 34200 20000 14200 6 85.000 1.80 0 1.

000 50% of sales of March Rs.8 7. Creditors are paid in the month following the month of purchases.000 50% of sales of April Rs.000 June Rs. 000 56.000 1. 53. 11.1. 000] 1.000 15. 41.1.1. 06. 41.54.000 1. 46.25.000 50% of sales of May Rs.000 2.000 [47.54. 000 1.000 2.000 [1.000 11. [47. 25.000] 317 . 61.96. 000} May 50% of sa les of March Rs. There are no cash sales or c ash purchases Cash at bank [overdraft] estimated on 1st April 2008 is Rs. 000} Total Rs. 44. 86.000 2.000 94. 50. 67.90. 000} Total Rs. Wages E] Total Payments F] Closing Balance [C – E] Cas h Budget April – June 2008 April Rs. 000} Solution: Particulars A] Opening Balance [Overdraft] B] Expected Receipt s Collections from debtors C] Total Cash Available [A + B] D] Expected Payments i. Payment to creditors ii.000 56. 86. 000 2. 43. 000} Total Rs. Solution: Working Notes: Collection from debtors: April: 50% of sales of Februar y Rs. May Rs.Additional Information: 1.000 1 .96. 50% of the credit sales are realized in the month fol lowing the sales and remaining 50% in the second month following.000 10. 55.000 2.000] 2. 50.000 2. 000} Ju ne 50% of sales of April Rs.

20.45. 50. 50% and 90% c apacity utilizations.70 per unit = Rs. At 90% capacity. 500 units X Rs.2. 13. 500 Rs. 000 Rs. 250 40% Capacity Utilization 10.9. 13. the selling price falls by 3%.20 Rs. 000 Rs. the selling price falls by 5% accompanied by a similar fall in the price of material.71. 000 Rs.30. 50% and 90% Capacity Uti lization Particulars Production . 14.Illustration VI: [Flexible Budget] A factory engaged in manufacturing plastic to ys is working at 40% capacity and produces 10. 000 Rs. 500 Rs. 500 units X Rs.3.3 7. If it is decided to work the fact ory at 50% capacity.3 p er unit Overheads Rs.000 50% Capacity Utilization 12. 500 * 12. 5 [60% xed] The selling price is Rs.27.2. 21. 250 Rs.Units Selling Price Per Unit Sales Value [unit s X selling price per unit] Variable Costs: Material Rs. 42. 80. 000 R s. 250 Rs. 00.3 Overheads: Rs.1.10 Labor: Rs. You a re required to prepare a statement showing the pro ts/losses at 40%.1. 500 90% Capacity Utilization 22.1. 750 . 26.1. 500 ** 22. 500 Rs. 000 toys per month.3. Solution: Flexible Budget At 40%.2.40 Rs.2. Material: Rs. 21. 00. The present c ost break up for one toy is as under.25.67. 000 Rs.50 pe r unit = Rs. 500 * Rs. 000 Rs. 000 Rs.19.20.1. 000 Rs. 50 0 Rs.10 per unit Labor Rs. 75 0 ** Rs.19 Rs.20 per toy. 56. 500 Rs.30.30. 000 Rs.1.000 Rs.4. 84.30.2.2 per unit Total Variable Costs Fixed Costs Total Costs [Va riable Cost + Fixed Cost] Pro t/Loss [Sales – Total Costs] Rs. 27. 000 Rs. 000 Rs. 000 Rs.9.

X and Y. Partic ulars January February March April May Other information is given below.00 7.00 4. 600 There will be no opening and closing work in progress [WIP] at the end of any mo nth and nished product [in units] equal to half of the budgeted sale of the next month should be in stock at the end of each 323 . 0 00 1.00 Product X [units] 1. 000 2.00 Product YRs. 800 2.50 4. 800 2. A forec ast of units to be sold in the rst four months of the year is given below. Particu lars Direct material Direct labor Factory overheads per unit Product X – Rs. Per U nit 12. 400 Product Y [units] 2. 400 2. A company manufactures two products. Per Unit 19.50 3. 600 2. 000 1. 200 1.Problems and Solutions: 1.

800 1. 200 6. 000 3. A] Produc tion budget for January to April and B] Summarized production cost budget [ ICWA I. Management Accounting – Performance Management] Solution: Production Budget – [Units] Product X January – April Particulars A] Sales Forecast B] Expected Closing Stock [50% of budgeted sales of next month] C] Total Require ments [A + B] D] Opening Stock E] Net Requirements [C – D] Production Budget – [Unit s] Product Y January . 600 1. 400 April 2.Inter December 2006. 000 1. 800 Februa ry 2. 800 9. 200 3. 600 800 1. 400 of next month] C] Total Requirements [A + B] D] Opening Stock E] Net Requirements [C – D] 4. 200 2.400 . 800 1. 100 800 2. 400 1. 000 February 1. 200 4. 000 2.April Particulars A] Sales Forecast January 2. 000 2. [including previous year December] You are required to prepare. 200 1. 400 1. 800 March 2. 200 March 1 .month. 000 600 1. 000 Total 600 1. 400 2. 600 500 1.500 B] Expected Closing Stock [50% of budgeted sales 1. 000 1. 800 1. 200 800 2. 200 1. 400 2. 600 April 2. 000 Total January 1.

250 19.00 7. Prepare the following budgets for the quarter ending on 31st March 2008 I] Production Budget – Quantity Wise II] Materials Purchase Budget – Quantity Wise.9400 units Per U nit [Rs.50 3.600 65.700 units of pr oduct on hand. Every unit of product requires two types of materials in the following quantities.800 January February March April May Inventory of nished goods at the end of every month is to be equal to 25% of sale s estimate for the next month. There is no work in progress at the end of any month.00 Total Amt [Rs.] 19.600 12.500 1. 000 Product Y.00 4. On 1st January 2008. Material A: 4 kg Material B: 5 kg Materials equal to one half of the requirements of the next month’s production are to be in hand at the end of every month.] 81. This require ment was met on 1st January 2008.] Direct Material Direct Labor Factory Overheads Total 2. 12.00 30.78.500 units Per Unit [Rs.800 15. 325 . 30.800 37. 250 29.00 Total Amt.200 10. has prepared the following Sales Budget for the rst ve months of 2008 Month Sales Budget [units] 10. there were 2.50 4. [Rs.400 9.00 20 .000 Zenith Ltd.82.] 1.600 2.Production Cost Budget January – April Particulars Product X – 6.

600 14.500 77.700 12.900 14.03.750 58.200 2.900 14.800 3.750 II] Estimated Closing Stock III] Gross Requirements [I + II] IV] Opening Stock V ] Net Requirements [III-IV] Materials Requirement Budget [Quantitative] Material A – January – March 2008 Partic ulars Production [As per Production Budget – units] Requirements for Production: 4 kg per unit Add: Desired Closing Stock Gross Requirements Less: Opening Stock N et Requirements January 12.500 24.500 82.050 18.000 66.600 3.75 0 59.000 60.800 3.650 3.000 .250 March 11.375 29.000 53.750 25.125 36.000 48.500 February 14.500 53.875 30.Solution: Zenith Ltd.375 55.875 96.500 23.000 20.050 11.500 29.000 February 15.75 0 73.500 67.875 February 14.700 2.375 1.000 29.000 March 11.500 44 .000 36. Production Budget [In Units] January – March 2008 Particular s I] Sales January 10.000 23.875 66.750 29.750 March 12.750 47.000 Materials Requirement Budget [Quantitative] Material B – January – March 2008 Partic ulars Production [As per Production Budget – units] Requirements for Production: 5 kg per unit Add: Desired Closing Stock Gross Requirements Less: Opening Stock N et Requirements January 12.625 84.

250 3.850 [units] – Opening Stock 2600 [units] = 10.400 [units] + Closing Stock 2. Production Budget April – June 2008 Particulars I] Sales Forecast II] Estimated Closing Stock III] Gross Requirements [I + II] IV] Opening Stock V] Net Production Requirements [III –IV] Good Production VI] Wastage [10% of total production – assumed] VII] Total Production Requirement [V + VI] Number of Units 1.400 units Opening nished units: 100 units Closing nished units: 140 units The goods are imported only when production work is complete an d it is budgeted that 10% of nished work will be scrapped. I] Production Budget II] Direct Labor Budget and III] Comment on the problem that y our direct labor budget reveals and suggest how this problem might be overcome. Materi al required for Production in April: A: 10.450 [units] = 12. Sales: 1. You are required to prepa re. 2.000 kg 5 = 51 .250 units. The company employs 36 direct operatives who are expected to average 144 working hours each in the 1st quarter. The budgeted productivity ratio for dir ect labor is 80% only.250 kg A Ltd. Production for April: Sales 10.250 B: 10.400 140 1. The standard direct la bor content of the product P is 3 hours. manufactures a single product P with a single grade of labor. 4 = 41. The sales b udget and nished goods stock budget for the 1st Quarter ending on 30th June 2008 are as follows.540 100 1.Working Notes: 1.600 327 . Solution: A Ltd.440 160 1.

583 64.000 1.90. 4. From the following data.800/ .22.000 Normal Loss in Production [%] 4 2 6 A B C Solution: Particulars I] Sales Forecast A Units 60.000 Sales F orecast Units 60.000 12.93.000 58.000 94.000 14.000 49.000 8.Direct Labor Budget Particulars Total Standard Hours Required: 1.000 70.583 B Units 50.000 80.000 12.234 87.000 82. as well as improvement in the ef ciency.000 8.000 C Units 80. prepare a Production Budget for XYZ Ltd for a period of 6 months ending 30th June.000 62.000 5. 000 9.000 50.600 units Produ ctivity Ratio: 80% Actual Hours Required: 4.800 Comments: From the Direct Labor Budget it can be seen that the direct labor hour s available are not suf cient and hence there is a shortage of 816 hours.000 5.000 50.000 9.000 8.000 29.000 14.01. Therefor e it will be necessary to work overtime.000 2.000 32.000 2.000 50.units 8.817 II] Estimated Closing Stock III] Gross Requirements [I + II] IV] Opening Stock V ] Required Good Units [III – IV] VI] Loss in Production VII] Units to be Produced .000 10.000 Closing Stock 30th June 2008 Units 10.184 816 3 Number of Hours 4.234 Total Units 1.817 2.80 Budgeted Hours Available 36 men Shortfall 144 hours 6. Product Opening Stock 1st January 2008 .000 1.

500 3.000 12.000 2.100 June 8.000 May 6.000 22.800 4.000 12.800 April 20. Particulars A] Opening Balance B] Expected Receipts I] Cash Sales [50% of total sales] 10.000 26. delay in payment of overheads is 1 month. Share premium amounting to Rs. C redit allowed by suppliers is 2 months.2.000 10. Cash Budget January – June 2008 Rs.000 14. Assume cash sales to be 50% of total sales.600 4. Sales commission @ 5% on total sales is to be paid within the month following ac tual sales. credit allowed to customers is 1 month. 000 on credit to be repaid by two equal installments in March and April.000 30.000 12.000 11. 000 Jan.400 4.10.000 329 .000 14. 000 being the amount of 2nd call on shares may be received in March. 10.600 Selling & Distribution Overheads Rs.000 4.10. A new machine is to be installed at Rs.5.000 4.000 13. Rs.800 II] Collections from Debtors [1 month credit] III] Share 2nd Call IV] Share Prem ium 10. Materials Rs.000 15.800 Cash balance on 1st January was Rs.200 3. A newly started company wishes to prepare Cash Budget from January 2008. 800 900 800 900 900 1. 000. 000 is also receivable with 2nd call.300 3.000 March 29.600 4. and delay in payment in wages is ½ month .000 14.000 11.000 16. Month Total Sales Rs.000 13.000 12.000 Feb 18. Wages Rs.000 28.400 3. Production Overheads Rs. Prepare a Cash Budget for the rst six months from the following estimated receipts and e xpenditures.300 3.000 14.000 20.000 24.30.000 January February March April May June 20. 3.

000 14.000 3.000 33. Balance [D –F] * There is a delay in payment of wages by ½ month.300 800 4.000 2.000 25.000 27.000 21.800 44.000 39.200 G] Cl.000 20.700 1.600 1.300 900 4.800 20.800 20.000 3.000 18.100 15.400 9.900 6.000 II] Production overheads [1 month delay] IV] S & D overheads 1 month delay] V] W ages * VI] Sales Commission VII] Machine Purchase F] Total Payments 2.100 37.000 29.800 45.000 38.000 24.000 64.300 8.300 3.500 900 4.800 1.100 3.000 35.200 800 4.600 15.800 22.C] Total Expected Receipts [I+II+III+IV] D] Total Cash Available [A + C] E] Expe cted Payments I] Payment for Purchases [2 months credit] 10.400 900 4.000 14.500 1. hence 50% of current month and .000 12.200 1.000 3.200 15.200 29.

500 4.500 3.200 (Total) March 2.500 9.400 J 4.500 2.200 Feb 2.000 3.700 (Total) June 2.400 M 4.000 35.000 64.000 Mfg.500 March April May June July August .00 0 5. 60.500 2.800 (Total) 4.00 0 Of ce Expenses Rs.200 Feb 4 .000 33.000 58.000 Jan 2.000 39. 4. 36.500 3.000 62. 4.000 1.500 (Total) 4.000 February 2. Summarized below are the Income and Expenditure forecasts for the month March to August 2008 Month Credit Sales Rs. 9.0 00 10.000 4. 2.000 60.000 1.000 3. Particulars Wages January 2.600 (Total) 6. Expenses Rs.000 38.000 56.000 1.300 A May 2. The payment made in each mon th is show below.500 4.000 34.000 4.000 Cr edit Purchases Rs.300 A 2.500 Selling Expenses Rs.50% of previous month is paid in the current month.000 Wages Rs.000 8.300 M 2.000 8.500 4.000 8.300 Mar April 2.400 M 2.

000 G] Advance Tax VI] Total Payments [A + B + C + D + E + F + G] VII] Closing Balan ce [IV – VI] 15.000 79.8.600 36. 500 5.000 64.400 331 .750 38.000 52.750 12.750 62.350 8.750 58.16.750 18.000 70.500 4. 10% on delivery and balance after three months.000 58.000 64.500 2. 000 is payable in March and June Period of credit allowed.000 3.000 3 3.000 2.8 .750 July 12. Advance tax R s. Suppliers 2 mont hs and customers 1 month Lag in payment of manufacturing expenses half month Lag in payment of all other expenses one month Cash balance on 1st May 2008 is Rs. 000 due for delivery in June.750 Rs.500 8.000 4.You are given the following further information Plant costing Rs.500 1.250 67.750 62.000 June 1 5.000 1.000 3.000 10.000 3. 000 Prepare Cash Budget for three months starting from 1st May 2008 Solution: Cash Budget May – August 2008 Particulars I] Opening Cash Balance May 8.000 70.000 54. II] Expected Cash Receipts: A] Collections from Debtors [Credit 1 month] III] To tal Expected Receipts IV] Total Cash Available [I + III] V] Expected Payments A] Purchases [2 months credit] B] Manufacturing Expenses [Half month credit] * C] Wages [Half month credit] * D] Of ce Expenses [one month credit] E] Selling Expens es [one month credit] F] Purchase of Machine 8.

000 per month from the date of completion.8 6.9 00 2.000 Product ion O/H Rs.000 1.000 2.000 2. 00. 50. Period of credit allowed by supplier s 3 months.1.400 1. 3.30. O/H Rs 800 900 700 900 1.6 The cash balance as on 1st July was expected Rs.600 1.2 8.2. No commission is payable.6 5. Month Sales Rs.* There is a delay of half a month for payment of Manufacturing Expenses and wag es and hence current month’s 50% and previous month’s 50% are paid in the current mo nth. 000 is due to be paid on October 1st. delay in payment of overheads 1 month. An income ta x of Rs.4 9.8 5.120 3.2. 000 is expected on November 1st.350 1.000 Mat.0 11.400 1.4 5.140 3.960 3.000 1. Under a hire purchase agreement Rs.050 2. 00. 10% calls on the ordinary s hare capital of Rs. delay in payment of wages 1st week of the following month. 000 is due on July 1st and September 1st. .500 R&D O/H Rs 1.000 Wages Rs.04 0 2.700 1.080 3. 000 w ill be payable on September 1st.200 1. 000 will be completed on August 1st.0 10. Sept Oct Nov Dec 100 120 80 100 120 140 160 180 200 40 60 40 60 70 80 90 100 110 10. 7.200 1.150 2.40.1.0 6.600 April May June July Aug.8 11.700 1. The extension to the Research and Development D epartment amounting to Rs.300 Dist.0 8.4 4. The Cash Sales of Rs.500 1. credit allowed to customers 2 months.020 3.600 1. 000 Expected Capital Expe nditure: Plant and Machinery to be installed in August to a cost of Rs. However a commission of 5% on credit sales is to b e paid within the month following the sale.250 1.4 .600 1.100 1. 000 per month are expect ed. Rs.200 1.000 4.900 3. A preference share dividend of 10% on Rs. 000 is payable on November 1st.200 Selling O/H Rs 1. Prepare a Cash Budget in respect of six months from July to December fro m the following information.4 Admn O/H Rs.2.10.2 5. 000 is to be paid each month.4 10.2 10. The dividend from investments amounting to Rs.0 4. 00. payable Rs.4.

6 0.50. 000 1. II] Collections from Debtors III] Calls on Ordinary Shares IV] Dividend on Inves tments C] Total Expected Receipts [I + II + III + IV] D] Total Cash Available [A + C] E] Expected Payments I] Purchase of Materials The problem is purposely left incomplete so that students can attempt the soluti on. 000 2.] 10. 000 1. 150 August Rs.] III rd Quarter [Rs. 000 IInd Quarter [Rs. 200 17. Particu lars Opening Cash Collections from customers Payments: Purchase of Materials Oth er expenses Salaries and wages 1st Quarter [Rs. 000 1. Particulars A] Op ening Balance B] Expected Receipts: I] Cash Sales 2 98 40 2 118 2 78 40 30 140 2 90 120 120 100 150 140 2 98 2 118 2 138 July Rs. 000 95. 000 25.Solution: Cash Budget July – December Amount in Thousands of Rs. 000 20. 000 95. 8. September Rs. Oc tober Rs. Prepare a Cash Budget from the following information for ABC Ltd.] IVth Quarter [Rs.] 20. 000 35. 000 20. 000 35. Rs. 200 333 .09.25. 000 90. 000 54. 000 1. November December Rs.21.

] III rd Quarter [Rs.] 20. 000 20. 000 1.15. 000 The company desires to maintain a cash balance of Rs. 000 – – 35. 000 1.55. 000 20. 000 5. Management does not want to borrow cash more than what is necessa ry and wants to repay as early as possible.50. 000 90.09. 000 at the end of each quarter.] 15.] 15. In any event.21. 000 20. 000 – 35.500 at an interest ra te of 10% p. loans cannot be extend ed beyond a quarter.75. 000 15.] 10. 925 G] Total Cash Required [E + F] H] Excess/De cit [C – G] .15. 000 1. Cash can be borrowed or repaid in multiples of Rs.35. 000 2. 000 1. [ ICWAI Intermediate] Solution: ABC Ltd. 000 – – 54. 000 1. 000 1. 000 Quart er III [Rs.Particulars Income tax Machinery Purchase 1st Quarter [Rs. 000 Quarter IV [Rs. 000 1. 000 1. 200 – 20. 000 2.200 17. Ass ume that borrowing takes place at the beginning and repayments are made at the e nd of the quarter. 000 2.50.50. 000 2. 000 10. Cash Budget Period I – IV Quarter Particulars A] Opening Cash Balance B] Cash Receipts • From Debtors C] Total Cash Available [A + B] D] Expected Payments • • • • • Materials Other Expenses Sala ries and Wages Income Tax Quarter I [Rs. 000 25.] IVth Quarter [Rs.65.65.40. 000 1. 400 15.00. 000 95.60. 000 – 15.25. 000 1. 000 1. 000 15. 325 1. 325 20.a. 000 95.65. 000 Machinery Purchase E] Total Payments F] Minimum Cash Balance Required 1.] 5. 000 15. 000 IInd Quarter [Rs. 400 20. Interest is computed and paid when principal is repaid.] Quarter II [Rs.36.

335 .a.] – 9. 100 9.11.9.200. Similarly. i. A manufacturing company is currently working at 50% capacity an d produces 10. 675 15. 000 675 * Quarter IV [Rs.100 Rs.900. At 80% working. 000 15. 000 = Rs. 000 9.900. Since the amount is repaid in the third quarter.] 20. on Rs. 100 12. 100 23.1.30 Factory Overheads: Rs. 000 – Quarter III [Rs.Particulars I] J] Borrowing Repayment Quarter I [Rs. material cost per unit increases by 5% and selling price per unit falls by 5%. At 60% w orking. 325 10% p. Prepare a Flexible Budget to show the pro ts/losses at 50%. 825 K] Interest L] Total Effect of Financing M] Closing Cash Balance [ C + L – E] * In terest is calculated as follows.] – 11.30 [40% xed] Administrative Overheads: Rs. 00 0 = Rs.e. 60% and 80% capacity utilization. 000 units at a cost of Rs. for 9 months = Rs.180 per unit as per the following detai ls.675. interest is calculated for 9 months.] Quarter II [Rs. material cost per unit increases by 2% and selling price per unit falls by 2%. 000 1.20 [50% xed] Total Cost Per Unit: Rs. in the last quarter interest is calculated @ 10% on Rs. for 12 months Rs. Materials: Labor: Rs.180 The selling price per unit at present is Rs. 20. 000 – 15.

23. 000 units. 2. 18 Rs.5 Rs. 20. 80. 52. 10 Rs. 20.19. 000 10.12 + Rs. 000 Rs.30. 000 Rs. 18 Rs.100 Rs.22 per unit at existing level of 10. 28. 000 Rs.8 9.163 Rs.28. 10 Rs. 12.102 Rs.] G] Total Cost [E + F] H] Sales Revenue [A X B] I] Pro ts/Losses [H – G] Rs. 20. 000 Rs. 000 Rs. 000 Rs.15. The following data are available for a manufacturing company for a yearly pe riod.196 Capacity Utilization 80% 16. 12. 000 Rs. 000 Rs. 40. 08. 000 Rs. Rates and Taxes Deprec iation Sundry Administrative Expenses SEMI-VARIABLE EXPENSES Maintenance and Rep airs Indirect Labor Sales Department’s Salaries 3.160 Rs.2. 20.18.158 Rs.4 6.6 7. 000 Rs. 000 Rs.190 A] Number of Units B] Selling Price Per Unit C] Variable Cost Per Unit • • • • Direct Ma terial Direct Labor Factory Overheads [60%] Administrative Overheads [50%] Rs. 000 Rs. 000 D] Total Variable Cost Per Unit E] Total Variable Cost [A X D] F] Fixed Costs [R s.21.26. 000 Rs. 2.105 Rs. 40. Particulars FIXED EXPENSES Wages and Salaries Rent. 18 Rs. 10 Rs. 2. 30 Rs.2. in Lakhs . 000 Rs. 00.200 Ca pacity Utilization 60% 12.10 = Rs. 30 Rs.5 7.9 3. 00.20.Solution: Flexible Budget Particulars Capacity Utilization 50% 10. 000 Rs.5 6. 30 Rs. 000 Rs.2. 00.

increasing by 10% between 65% and 80% capacity and by 20% between 80% and 100% capacity.4 7.8 21.0 Assume that the xed expenses remain constant at all levels of production.7 20.4 7. Sales at various levels are.00 Capacity Utilization 50% 100.7 20.9 50.48 9.9 98.72 14.00 337 . At 50% Rs.Particulars Sundry Administrative Expenses VARIABLE EXPENSES [ AT 50% CAPACITY] Materials Labor Other Expenses Total Rs.04 2 4.150 lakhs At 90% Rs.48 60.00 Capacity Utilization 90% 180.22 90.100 lakhs At 60% Rs.00 Capacity Utilization 60% 120. Semi va riable expenses remain constant between 45% and 65% capacity.200 lakhs Prepare a exible budget for the year at 60% and 90% capacity utilizations and calculate the pro ts/losses at those levels Solution: Flexible Budget Rs.00 39. in Lakhs 2.180 lakhs At 100% Rs.06 36.00 26. in Lakhs Particulars A] Sales B] Variable Costs Ma terials Labor Other Expenses C] Total Variable Costs 21.120 lakhs At 75% Rs.

8 2. Rates and Taxes Depreciation Sundry Administrative Expen ses G] Total Fixed Costs H] Total Costs [C + E + F] I] Pro t/Loss [A – H] Capacity Utilization 50% 3.0 98.8 2.5 30.60 9.5 7. both xed and variable per unit of output at 60%. The monthly budget for manufacturing overheads of a manufacturing company is given below. Indicate whic h of the items are xed.1200 900 1100 1600 4000 1000 98 00 Capacity 100% 800 units Rs.9 3.2000 1500 1500 2000 4000 1000 12. Capacity 60% 600 units Rs.6 7.6 7.5 6.00 2.4 6.0 141.0 9.5 7.36 21. variable and semi variable Prepare a budget for 80% capac ity Show the total cost.60 38.5 6.0 Capacity Utilization 90% 4.5 6.5 30. 000 . Particulars Budgeted Production Wages Consumable Stores Maintenanc e Power and Fuel Depreciation Insurance Total You are required to.0 108.5 30.00 12.9 3.8 18. 80% and 100% capacity levels.Particulars D] Semi-variable Costs Maintenance and Repairs Indirect Labor Sales Dept Salaries Sundry Admn Expenses E] Total Semi variable Costs F] Fixed Costs W ages and Salaries Rent.00 9.40 11.20 9.48 4.0 Capacity Utilization 60% 3.56 3.8 18.4 6.6 7.4 6.

1 339 . 000 10. 000 1. as they have not increased in the same proportion of the product ion.400 for a difference of 40 0 units Variable element is thus: Rs.N . 000 5. Maintenance and Power and Fuel are semi var iable expenses. 000 9. 200 2. 000 1. 100 1.400/400 units = Re.5 6. 000 5. 600 1 . it is clear that depreciation and ins urance are xed expenses. 700 1. 500 4. as they have increased i n the same proportion of production. 500 2.Maintenance 60% lev el = Rs. 600 2. 100 Capacity Utilization 80% 800 Rs.N. 100 100% level = Rs. 800 3.5 5 Notes: From the data given in the example.Solutions: Flexible Budget Different Levels of Capacity Particulars Capacity Uti lization 60% 600 Rs. 000 3. 000 12. 000 1. 500 A] Budgeted Production . 000 5. Wages and Consumable Stores are variable. 000 3. • Working Note No. 2. 900 3. as they have remained constant at all levels of capacity utilization.2] E] Total Semi Variable Costs F] Fixed Costs Depreciation Insurance G] Total Fixed Costs H] Total Costs [C + E + F] I] J] Variable Cost Per Unit [C/A] Fixed Cost Per Unit 1.1. 100 1. 1.Units B] Variable Costs: Wages Consumable Stores C] Tot al Variable Costs D] Semi Variable Costs Maintenance [W. 000 1. 200 900 2. Their calculations are shown below.1] Power and Fuel [W. 500 Difference = Rs. 800 3. 1. 1.33 4. 300 1.800 Capacity Utilization 100% 1000 Rs.5 8.1. 500 3.25 4.

50 per unit Fixed cost: Rs.1 per unit] Fixed Element Total Amount as given in the problem * 60% Capacity 600 units Rs.500 Rs. 300 * 100% Capacity 1000 units Rs.2000 These amounts are worked out by computing variable element at Re.Thus.400 for a differenc e of 400 units Variable element is thus Rs. ABC Ltd.400/400 units = Re.800 Rs.2. 000 at 80% output You are required to. Present sales of Rs. • • Prepare a statement showing the operating pro t at 60%.1800 * 100% Capacity 1000 units Rs.10 per unit Variable cost: Rs.1000 Rs. 000 xed plus Rs.6. 00 0 at present level estimated to be Rs. manufactures a single product for which market demand exists for ad ditional quantity.1000 Rs.20.24. .1 Thus the amount at different levels of capacity utilization is computed as shown below.1. the amount at different levels of capacity is computed as shown below Part iculars Variable Element [Re 1 per unit] Fixed Element Total Amount as given in the problem • 60% Capacity 600 units Rs. The follo wing data are available. 000 per month utilize only 60% capaci ty of the plant. Sales Manager assures that with a reduction of 10% in the price . Particulars Variable Element [Re. Selling price: Rs.1.1600 80% Capa city 800 units Rs. 500 Working Note No.600 Rs. he would be in a position to increase the sales by about 25% to 30%. 2: Power and Fuel 60% level = Rs. 70% and 80% levels of cap acity utilization at current selling price and at proposed selling price The per centage increase in the present output which will be required to maintain the pr esent pro t margin at the proposed selling price. 12.600 Rs.1000 Rs.1000 Rs.1.500 Rs. 500 Rs.1000 Rs.3 per u nit Semi variable cost: Rs. 000 Difference = Rs.1.0.1 per unit and the balance as xed element.60. 600 100% level = Rs.800 Rs. 100 80% Capacity 800 units Rs.

000 10 .Solution: A] Comparative Statement of Operating Pro t at Current Selling Price Par ticulars I] Output . 000 10 60. 000] Rs.Units 60% Capacity 6.6.IV C] Percentage Increase in the Present Output Required to maintain the Present Pr o t Margin At The Proposed Selling Price: Proposed Selling Price: Variable Cost : Contribution: Present Pro t: Fixed Cost Required Contribution: Rs. 000 II] Selling Price Per Unit Rs. 000/5. 000 + Rs. 000 7. 000 13.5 = 709 1 units % Increase in output required = 1091/6000 X 100 = 18. 000 9 72. 500 80% Capacity 8. 000 58. 000 21.20.50 per unit VI] Fixed Cost VII] Total Cost [IV + V + VI] VIII] Pro ts/ Losses [III – VII] 20. 000 10 80. 000 58. 000 70% Cap acity 7. 500 80% Capacity 8.50 Rs. 000 9 63.6. 000 9. 000 II] Selling Price Per Unit Rs III] Sales Value [I X II] IV] Total Cost [Same as shown in Statement A] V] Pro t/Loss III . 000 Rs. 500 19.13. 000 20. 000 9.18% 341 . 500 12. 000 14. 5. 000 47. 000 24.50 Rs. 500 24. 000 18. 000 B] Comparative Statement of Operating Pro t at Proposed Selling Price Particulars I] Output – Units 60% Capacity 6. IV] Variable Cost Rs.26.0. 000 10 70. 000 50. 000 [Pro t + Fixed Cost ] Required output: Required Contribution/Contribution Per Unit = 39.3.9.39. 000 70% Capacity 7. 00 0 xed + Rs. 000 [Rs.00 Rs. 000 9 54. III] Sales Value [I II] Rs.3 per unit X Number of units V] Semi Variable Cost Rs. 000 22. 000 50. 000 47.

[ICWAI Intermediate] Solution: 1) Statement showing the original Budget and the Revised Budget and Pro t/Loss Particulars % of Sales Value 100 Original Budget Rs.00 64.in 00. 000] At this stage.00 16.00 12.in 00. 00. 000 160. it is felt that the budgeted volume of sales would not be achieved. Overheads C] Total Variable Costs .00* % of Sale s Value 80 Revised Budget Rs. 000 respectively.160.Variable Factory Overheads .13. has been prepa red for the year 2007-08. The estimat ed prime cost and special export expenses for ful lling the export order are Rs.40.00 20. the company has received an export order for its usual line of products. 1) 2) 3) Present the original budget and the revised budget based on 80% achievement of the target s ales.13 . a manufacturing organization.00 50. But the company expects to achieve 80% of the b udgeted sales [equivalent to sales value of Rs.60 Adm and S. 00.00 9.00 162.00 A] Sales B] Variable Costs • • • • Raw Materials Direct Wages Factory Overheads [V] 40 25 10 6 81 80. The following budget of PQ Ltd. 000 and Rs. You are required to. showing the quantum of pro t/loss Prepare a statement of budgeted costs for working out the overhead recovery rates in percentages Work out the lowest quota tion for the export order. & D. 000 200.Variable Administration and Selling and Distribution Overheads Fixed Pro t Sales Value % of Sales Value 40 25 10 5 6 12 2 100 After considering the quarterly performance.00 40.Fixed Administration and Selling and Distribut ion Overheads .60 129. Particulars Raw Materials Direct Wages Factory Overhea ds .

125 Quotation for Export Offer is shown on the next page. xed and variable are based on direct wages while administrative and selling and distribution over heads are based on works cost. Raw Materials Rs. 000 Fixed Factory Overheads = 10. 000 10. 000/160. 00.000 100 = 7.00 24.000 1.13. 000/ 50.00 4 % of Sales Value Revised Budget Rs. 000 40/65 ** 25/65 *** Prime Cost [Raw Materials + Direct Wages] Variable Factory Overheads [40% of Dir ect Wages] Works Cost [Prime Cost + Variable Factory Overheads] Variable Adminis tration and Selling and Distribution Overheads [7.00 163. 100 = 20% of D.160. 000 10.13.00 24.W. 000 12.in 00. 000/160.000 13. hence sales at 100% level= 160/80 X100 = Rs.000 5.00 34. 00 .W. 000 Direct Wages Rs. 00.5% of Works Cost * 100 = 15% of Works Cost * 100 = 40% of D. 000/50.00 196. Variab le Factory Overheads = 20.525 343 . Statement Showing Overhead Recovery Rates Based On Original Budget • • • • • 3.Particulars % of Sales Value Original Budget Rs. 00. Variable Administrative and Selling & Distribution Overheads Fixed Administrativ e and Selling & Distribution Overheads Note: Factory overheads.00 34.5% of Works Cost] Special Expo rt Expenses Total Cost of Export Order 0. 00. 00.200 2.in 00. Statement showing Quotation for Export Order Part iculars Amount Rs.000 15.000 2. 8. 00. & D.60 3.60 D] Fixed Costs • • Factory Overheads 5 12 17 98 2 Adm and S. 00. Overheads E] Total Fixed Costs F] Total Costs [C + E] G] Pro t/Los s [A – F] * Sales at 80% level are Rs.400 16.000 24. 00. 00.

Fixed expenses remain constant whatever the level of activity may be. at 80% capacity Rs. 000 7 . 500 65.22. 2006.75.16.42. 00. 000 13.47. 000 62. prepare a Flexible Budget at 60%.Note: Export order can be priced at any price above Rs. .35.13. 000 6. 500 * ** Works Co st = Total Variable Cost – Variable Administration and Selling & Distribution Over heads + Fixed Factory Overheads Prime Cost is given as Rs. Prime Cost is 65% of total sales and material content is 40%. Accordingly a mount of material is computed *** Similarly the amount of direct wages is computed. 000 72. 000 Amount in Rupees It is further noted that semi-variable expenses remain constant between 40% and 70% capacity. 00.40. 000 1.10. The following informat ion relates to the production activities of Goodwish Ltd for 3 months ending on 31st December. 5 00 2. Sales at 60% capacity ar e Rs.34. 50.25. 80% and 100% productive capacity. Particulars Fixed Expenses: Management Salaries Rent and Ta xes Depreciation of Machinery Sundry Of ce Expenses Total Fixed Expenses Semi – Vari able Expenses at 50% capacity Plant Maintenance Labor Salesmen’s salaries Sundry E xpenses Total Semi-Variable Expenses Variable Expenses Materials Labour Salesmen’s commission Total Variable Expenses 6. 000 95.47. 000 2. 14. 000. 52.000 [Export Ord er]. 000. 000 and at 100% capacity Rs. Assuming that all items of produced are sold. 000 4.00. 000 1.47.50.40. 000 2. increase by 10% of the above gures between 70% and 85% capacity and increase by 15% of the above gures between 85% and 100% capacity.

6.50 Rs.80. 000 1. 500 27.00 4.1.75. 000 1. 000 16. 000 1.50 Rs.7. 000 1. 500 7.17. 000 12.M.250 2.47. 000 12.47.00 Rs.000 Product B Rs.90.52.00. 000 2.40. 875 15.Flexible Budget for Three Months Ending 31st December 2006 Particulars 60% Capac ity Level 80% Capacity Level Amount Rupees Amount Rupees 25.40.22.3. 625 83. 250 79.24. 000 2.22. 000 1. 000 7. 47. S. 375 74. Par ticulars Raw Material Per Unit Direct Labor Per Unit Variable Overheads Per Unit Fixed Overheads Per Unit Selling Price Per Unit Production and Sales [Units] Pr oduct A Rs. 000 34. 000 10.36.4. 750 24.47.00 Rs.70.10. 000 2.75. 500 72. 000 1 00% Capacity Level Amount Rupees 42. 000 Sales A] Variable Expenses Material Labor Salesmen’s Commission Total [A] B] Semivariable Expenses Plant Maintenance Indirect Labor Salesmen’s salaries Sundry Expe nses Total [B] C] Fixed Expenses Management Salaries Rent and Taxes Depreciation on Machinery Sundry Of ce Expenses Total [C] Total Costs [A+B+C] Pro t/Loss 7. 000 21.50 Rs. 000 1. A and B.14.28.10.50. 000 62.02. produces two products.97. 500 2.40. 000 1. 750 31.68.47.20.625 2.22.20. 500 33.2.00 Rs. 500 7. 750 2. Ltd. 000 26.250 71.4.10.75. 125 3. 500 26. 875 2. 000 9.00 6.84. 000 2.49.60. 750 71.3.72. 000 1. The budget for these products [at 60% level of activity] for the year 2008-09 gives the following information.32.84.00. 000 [-] 2. 000 1. 000 20.75.000 345 .50 Rs.15.50. 500 68. 500 7.00 Rs. 500 39. 500 65.

referred the budget to the Marketing Director for his observations regardin g performance improvement. Th e price reduction should be made applicable to the entire sales [in quantity] of both the products A and B. 000 2. 000 7 5. 05. 000 21. 000 48.50 1. 000 24. 000 54. 000 27.50 and for Product B Rs. 14. not being satis ed. 000 45. 000 8. 000 24. 000 24. 19. 000 13. 000 Product B 6000 Units Rs. 20.3. 000 Product B 9000 Units Rs. 000 16.F] * Raw Material per unit for Product A is Rs. 500 72. Solution: I] S tatement showing the Overall Pro tability – Original Budget Particulars Product A 40 00 Units Rs. 000 9. The Marketing Director suggested that the sales [ in quantity] of both the products A and B could be increased by 50% provided the se lling price were reduced by 5% and 10% for the products A and B respectively. 21.50 ** Di rect Labor per unit for Product A Rs. 000 1. A] Selling Price Per Unit B] Sales Value [A X Number of Units] C] Variable Costs • • D] E] F] G] Raw Materials * Direct Labor ** • Variable Overheads *** Total Variable Costs Fixed Overheads **** Total Costs [D + E] Pro t [B. 000 15. 000 99. 000 78.4.00 80. 500 27. with the projected results presented ab ove. 000 81.F] 17.7. 000 9.00 . 13. 000 22.00 and for B Rs.00 1. A] Selling Price Per Unit B] Sales Value [A X Number of Units] C] Variable Costs • • Raw Materials * Direct Labor ** • Variable Overheads *** D] Total Variable Costs E] Fixed Overheads **** F] Total Costs [D + E] G] Pro t [B.3. 000 II] Statement showing the Overall Pro tability – Revised Budget Particulars Product A 6000 Units Rs. 000 12. 15.The Managing Director.00 90. 000 27. 500 31. You are required to prepare a statement of overall p ro tability on the basis of original budget and the revised budget. 000 18. 000 30. 500 31. 500 Total Rs. 000 Total Rs.

50 per unit **** Fix ed Overheads at present level for A and B Rs.00 and Rs.1.2.6.00 and for B Rs.50 per unit 347 .4.*** Variable Overheads for Product A Rs.

The normal loss is always anticipated and taken into cons ideration while determining the standard quantity. when the actual production begins. output may be 95.16. the actual proportion of mix may have to be changed due to several reasons like non-availability of a particular material etc. 200 [ A] Reconciliation Material Cost Variance = Material Price Variance + Material Qu antity Variance.standard price is Rs. For example.6 – Rs. 5 units being norma l or unavoidable loss. The mix variance is c omputed in the following manner.1. • Material Yield Variance = SYR [Actual Yield – Standard Yi eld] SYR = Standard Yield Rate. This is called as a standard m ix. standard proportion of mixture is decided in a dvance. However.1.16. The computation of yield var iance is as given below. material A and B may have to be mixed in a standard proportion of 3:2.16. two or more types of raw materials are mixed to produ ce the nal product. in manufacturing one unit of product ‘P’. Rs. 700 [Rs. Solution: I ] Material Cost Variance = Standard Cost of Materials – Actual Cost 500 units 5 kg Rs. 200.1.6 – Rs.e. some unavoidable loss alw ays takes place.1200 [A] = Rs. 200 = Rs. i. 200 [A] Material Mix Variance: In case of several products. 200 [A] II] Material Price Variance = Actual Quant ity [Standard Price – Actual Price] 2. Nil + Rs.6 [2500 – 2700] = Rs. • Material Mix Variance = Standard Cost of Standa rd Mix – Standard Cost of Actual Mix Material Yield Variance: In any manufacturing process. standard cost per unit of standard output. In such cases. Thus if the input is 100. 200 Rs.6 per kg. 500 units of ‘P’ were pro duced. During a particular period.6] = Nil III] Material Quantit y Variance = Standard Price [Std. Yield variance arises when th e actual loss is more or less than the normal loss. In such cases material mix variance arises.15. Actual material consumed was 2700 kg at a cost of Rs. 000 – Rs. Qty – Actual Qty] Rs. 355 . Recon ciliation: Quantity Variance = Mix Variance + Yield Variance.

000 42.7.6. 000 A B C Total I] Material Cost Variance: Standard Cost [for actual production] – Actual Cost Rs. 000 [A] Note: Standard cost of materials for actual production: For 1 ton of production. 000 9.8. and usage and mix variances.35. 000 53. 000 per t on Calculate material cost.5 – Rs. 9 6 7 Actual Amount Rs. 38. 38. 000 [A] . 000 per ton 4 2 tons of material B @ Rs.Illustration 2] The standard material cost to produce a ton of chemical X is giv en below: 300 kg of material A @ Rs. price.9] = Rs. 000. 000 = Rs.10 – Rs. 00. 00. Material Standard Qu antity Kg 300 kg 400 500 1200 Standard Rate Rs. 38. Solution: The fo llowing table is prepared for computation of the variances. 71. 30. the standard cost is Rs. 000 [Rs.6 per kg During a particular period. 000 II] Material Price Variance: Actual Quantity [STD Price – Actual Price] • • Mater ial A = 35. 10 5 6 Standard Cost Rs.10 per kg 400 kg of material B @ Rs. 000 3. 3000 20 00 3000 8000 Actual Quantity Kg 35. the standard cost is Rs. 000 2. so for 100 tons. 52. 100 tons of mixt ure X was produced from the usage of 35 tons of material A @ Rs. 000 1. 000 – Rs.1.42.8. 3.8.9.5 per kg 500 kg of material C @ Rs. 15. 000 [Rs. 000 per ton 53 tons of material C @ Rs.6] = Rs. 000 Actual Rate R s. 000 [F] Material B = 42.9.

18.11. 66. 30.10 = Rs.50. 333 • • • • • • • Note: Standard Cost of Standard Mix is comp as under If Actual mix would have been in the standard proportion. the standard mix of whi ch are as follows: Material A 60% at Rs.5 = Rs. 000] = Rs. 000 [A] Total Material Quantity Variance = Rs.3. while th e actual output was 165 kg Calculate all material variances. 667 Standard cost of actual mix has been computed by multiplying the actual quantity by the standard cost. the quantitie s of material A.8. A: 300/1200 B: 400/1200 C: 500/1200 1.8.3. 000 [A] IV] Material Mix Variance = Std Cost of Std Mix – Std Cost of Actual Mix Rs. 000 – 53.78.2 . t he standard mix was changed and the actual mix was as follows: Material A 105 kg at Rs.6 = Rs.10. 25.9 per kg Actual loss was 35 kg. manufactures a single product.6 [50. 30. 30. 667 1. 000 [A] Material B = Rs.53.10 per kg Normal loss in the production is 20% of input. 500 X Rs. 000 – 35.60. 357 . 000 [Rs. 000 – 42. 000] = Rs.7] = Rs. 000 [A] Material C = Rs. B and C would have been.67 X Rs. 000 1. 78. 000 = 32. Illustration 3] S. 000 [A] Total Material Price Variance = Rs. Due to shortage of material A. 25. 333. 66.33 X Rs. 16.20 per kg Material B 95 kg at Rs.6 – Rs. 000 [A] III] Material Quantity Variance = Standard Price [STD Quantity – Actual Quantity] • • • • Material A = Rs. 000 Total standard cost of standard mix = Rs.• • Material C = 53. 000 = Rs. 000 = 43. 000] = Rs.V.10 [30.5 [40. 667 – Rs.20 per kg Material B 40% at Rs. 000 = 54. Ltd.8. 166.

3.20 – Rs.380 [F] Material B = Rs. 300 II] Material Price Variance: Actual Quantity [Standard Price – Actual Price] • • • Material A = 105 [Rs. the standar d cost is 165/80 X 1600 = Rs.95 [F] Total Material Price Variance = Rs.10 – Rs.20 [124 – 105] = Rs. 30 0 – Rs.2400 Materi al B: 40% of 200 [Actual Input] = 80 X Rs.150 [F] Note: Standard cost of standard mix is compute d as under. 20 9 Actual Cost Rs.95 [F] III] Material Quantity Variance: Standard Price [Std.2955 = Rs.Solution: The following table is prepared for computation of variances in this e xample. 600.10 [83 – 95] = Rs. 20 10 S tandard Cost Rs.L. Material Standard Quantity kg 60 40 100 20 80 Standard Price Rs.5 or 83 IV] Material Mix Variance: Standard Cost of Standard Mix – Std.3.10 = Rs.1. Cost of Actual Mix Rs.20 = Rs. so for actual production of 165 kg.] 165 Actua l Output Actual Price Rs. 050 = Rs.3200 .9] = Rs.3.3. 2100 855 2955 A B Total Normal Loss Standard Output I] 1600 2955 Material Cost Variance: Standard Cost for Actual Production – Actual Cost Rs.800 Total Cost = Rs. Material A: 60% of 200 [Actual Input] = 120 X Rs. 200 – Rs.120 [A ] Total Material Quantity Variance = Rs. Quantity – Actual Quantity] • • • Material A = Rs.75 or 124 Material B = 165/80 X 40 = 82.345 [F] Note: Standard cost for actual production is computed as shown below: For 80 kg. 1200 400 1600 Actual Quantity kg 105 95 200 35 [A. the standard cost is Rs.20] = Nil Material B = 95 [Rs.260 [F] Note: Standard quantity for actual production is computed as shown below • • Materia l A = 165/80 X 60 = 123.

100 [F] Note: Standard yi eld is in relation to the actual input of 200 kg and hence the standard yield is 200 less 20% normal loss i.40 kg and the standard yield is 160 kg.20 [165 –160] = Rs.e. .Standard cost of actual mix is computed by multiplying the actual quantity by th e standard price V] Material Yield Variance: Standard Yield Rate [Actual Yield – S tandard Yield] 1600/80 [165 – 160] = Rs.

5 per hour = Rs. 00. 000 and the actual wage bill came to Rs. 50. the balance having been paid at Rs. 000 units Product N: 15. Both products require identical kind of labour and the standard wage rate per hour is Rs. M and N are 15 ho urs per unit and 20 hours per unit respectively. 50. Product M: 10.50 per hour.5 per hour = Rs.7.7. This i ncludes 12. 000 – Rs. In a particular yea r. You are required to ca lculate labour variances. 000 units 15 hrs per unit 20 hrs per unit Rs. 000 hours paid for @ Rs. 000 [A] Note: Standard Labour Cost for Actual Production is comp uted as under. 000 .7 per hour and 9400 hours paid for @ Rs. 000 = Rs.50.22. 000 Rs.23. 10.000. 000 units of N were produced.15.23.Illustration 4] Standard hours for manufacturing two products. 50. The total labour hou rs worked were 4.5 per hour. 000 units of M and 15. 00. 50.22. [ICWAI Inter] Solution: I] Labour Cost Variance: Stand ard Labour Cost for Actual Production – Actual Labour Cost Rs. 000 Total standard labour cost for actual production = Rs.5. 0 0.

23.6.5 [4.5. 29. 50.5] = Nil Total Labour Rate Variance = Rs.47.7] = Rs. 400 [Rs. 000 [Rs. 500 [A] III] Labour Ef ciency Vari ance = Standard Rate [Standard Time – Actual Time] Rs. Solution: The following table is prepared for computation of various relevant labour varia nces. Rs. 960 * – Rs.6. Compute various relevant labour variances. 604 7. 960 I] 4200 – 210 = 3990 Labour Cost Variance: Standard Cost for Actual Production – Actual Cost Rs.5 – Rs. 000 [A] = Rs.2500 [A] Reconciliation: Labour Cost Variance = Labour Rate Variance + Labour Ef ciency Variance Rs. 30 and 60 of the workers.II] Labour Rate Variance: Actual Hours [Standard Rate – Actual Rate] 12.70 Amount Rs.6.2500 [A] Illustration Num ber 5] The standard output of production EXE is 25 units per hour in a manufactu ring department of a company employing 100 workers.5 – Rs. 500 [A] + Rs. 2 . 50.50] = Rs.70 respectively to 10.5.7.20 Rs.6 per hr = Rs.24. The standard wage rate per l abour hour is Rs. 500] = Rs. In a 42 hours week.432 [F] 361 .6 and Rs. The h ourly wage rate actually paid were Rs. the department produced 1040 units of th e product despite 5% of the time paid were lost due to an abnormal reason.24.5 – Rs.47.20. 560 14. 528 ** = Rs. Rs. 000 [A] 9. 100 [Rs. 364 Standard output 25 units per hour for 42 hrs X 10 workers 100 employees = 420 hr s Hence standard man hours per unit = 42 hrs X 30 workers 100 workers/25 units p er hr = 4 = 1260 hrs 42 hrs X 60 workers Actual output = 1040 units = 2520 hrs T otal: 4200 hrs 24. 500 [A] 4. Standard Actual Hours Actual Rate Rs. 000 – 4. 528 Standard hrs for 1040 units = 1040 X 4= Idle Time 4160 5% of 4200 = 210 hrs Stan dard cost for actual output = Actual Hrs Worked 4160 hrs X Rs.50.24.6.24.00 Rs.

810 units of the product was recorded as output of the gang during the month.6 = Rs.14 per hour Un-skilled: 5 workers @ Rs.1 0 per hour The gang was engaged for 200 hours during the month.6 – Rs.1260 [A] * As shown in the table ** As show n in the table # Standard time for actual output = 4160 hrs as shown in the tabl e. During the month in question.672 [F] III] Labour Ef ciency Variance: Standard Rate [Standard Time –Actual Time Worked] Rs . however the actual compo sition of the gang and hourly rates paid were as under Skilled: 2 workers @ Rs. The standard output of the gang was four units per hour of the product. .2 0 per hour Semi-Skilled: 3 workers @ Rs.II] Labour Rate Variance: Actual Hours [Standard Rate – Actual Rate] • • • • 420 [Rs.6 – Rs.8 per hour each.20 per hour each Semi-Skilled: Four wo rkers at a standard rate of Rs.84 [A] 1260 [Rs. T he standard composition of workers and wage rates per hour were as follows. in one of the production departments.12 per hour each Unskilled: Four workers at a sta ndard rate of Rs. Skil led: Two workers at a standard rate of Rs.6 – Rs 6.20] = Rs.1020 [F] IV] Labour Idle Time Variance: Abnormal Idle Time X Standard Rate 210 hrs X Rs.6 [4160 # – 3990] = Rs. Calculate va rious labour variances.756 [F] Total Labour Rate Variance = Rs.5.6] = Nil 2520 [Rs. Illustration Number 6] The following was the composition of a gang of workers in a factory during a particular month.70] = Rs. which included 1 2 hours when no production was possible due to the machine breakdown.

120 as shown in the table. 8.2.20] = Nil Semi-skilled: 600 [Rs12 – Rs.8 – Rs. 20 14 10 Actual C ost Rs.2000 [A] Total Labour Ra te Variance = Rs. Thus standard labour cost for actual production will be 810 units X Rs. 40 48 32 120 Actual Composition of Gang and number of hrs 2 X 200 = 40 0 3 X 200 = 600 5 X 200 = 1000 10 X 200 = 2000 Actual Rate Rs.20 – Rs. 300 – Rs.26. 000 8.14] = Rs. 400 = Rs. In one hour 4 units are produced and so the standard labour cost per unit is Rs.24. Category of Workers Standard Composition of Gang 2 4 4 Standard Rate Rs. 300. 400 10.Solution: The following table is prepared to compute the variances.10] = Rs. 100 [A] Note: Standard labour cost for actual production: For 1 man-hour the standard co st is Rs. 000 26. 20 12 8 40 Standard Cost Rs.120/4 units = Rs.30 per unit.30 = Rs.3200 [A] 363 .1200 [A] Un-skilled: 1000 [Rs.24. Actual labour cost is shown in the table. 400 Skilled Semi-skilled Un-skilled Total I] Labour Cost Variance: Standard Cost for Actual Production – Actual Cost Ra. II] Labour Rate Variance: Actual Hours [Stan dard Rate – Actual Rate] Skilled: 400 [Rs.

000 Rs. 000 Rs.44.33. 000 365 . 000 Actual 24.39. 000 Rs. Part iculars Production – Units Fixed Overheads Variable Overheads Number of Days Numbe r of man hours Budgeted 22. 000 Rs. 000 26 27.Illustration Number 7] From the following information extracted from the books o f a manufacturing company.49. calculate Fixed and Variable Overhead Variances. 000 25 25.

1760 [F] + Rs. 000 hours.1760 [F] B] Variable Ov erheads Variance: . 000 = Rs.4.2 [22. 000 [F] = Rs. 000 hrs [standard hours]. 760 units should have been produced. 520 [F] Reconciliation II = Volume Variance = Ef ciency Varianc e + Capacity Variance Ra. 000 budgeted production = Rs.1760 [F] Note: Standard quan tity is computed as shown in the Ef ciency Variance. 000 [A] = Rs. 000 = Rs. 000 budgeted xed overheads / 22.2 [Rs. 880] = Rs. both are given. 760 – 22.3. 000 – Rs.4. 000 – 24.1. When number of days and number of hours.2 X 880 = Rs. 000 X standard rate Rs. 000 [F] IV] Fixed Overhead Ef ciency Variance: Standard Rate [Sta ndard Quantity – Actual Quantity] = Rs.480 [F] + 3.1. 00 0 units are produced in 25. Revised Budget Quantity is co mputed as: in 25 days. 000] = Rs. 000 [A] + Rs. However.49. 880 – 22. 000 – Rs. 760 [F] Reconciliation III = Capacity Variance = Revised Capacity Varianc e + Calendar Variance = Rs.2 [22. 000] = Rs.2 [23. 000 so in 26 days the revised quant ity is 22. Reconciliation I = Cost Variance = Expenditure Variance + Volume Variance Rs.4. 880 units.44. the standard quantity is always to be computed in relation to t he actual hours.2 [23. VII] Fixed Overhead Calendar Variance: Standard Rate [Revi sed Budgeted Quantity – Budgeted Quantity] = Rs.480 [F] Note: Stan dard quantity of production is in reference to actual number of hours. 76 0 – 22. 520 [F] = Rs.5. 2 3.48. if only number of days is given. 000 [A] Note: Standard xed overheads for actual production = Actual Production 24. If 22.Solution: A] Fixed Overhead Variances: I] Fixed Overhead Cost Variance: Standard Fixed Overheads for Actual Production – Actual Fixed Overheads = Rs. in actual 27. 760 – 24.5. the standard quantity will have to be computed in relation to number of days.2] II] Fixed Overhead Expenditure Variance: Budget ed Fixed Overheads – Actual Fixed Overheads = Rs.1. 000] = Rs. 000 [F] The variance is favourable as the actual quantity produced is more than the budgeted quantity.2 [23. the production is 22.44. V] Fixed Overhead Capac ity Variance: Standard Rate [Standard Quantity – Budgeted Quantity] = Rs. 520 [F] VI] Fixed Overhead Revised Capacity Variance = Standard Rate [Standard Quantity – Revised Budgeted Q uantity] = Rs. 000] = Rs. 000 [A ] III] Fixed Overhead Volume Variance: Standard Rate [Budgeted Quantity – Actual Q uantity] = Rs.3.49 .2 X 880 = Rs.

39. 000 = Rs. During a particular period materials used are. 000 [A] Note: Standard Variable Overhe ads for Actual Production = Standard Rate Per Unit X Actual Production Units = R s.2 per kg = Rs. 000] = Rs.64 Actual Material A – 8 kg @ Rs.2 per kg Material B – 80% @ Rs.1.5] X 24. 000 units = Rs.5 [Budgeted variable overheads Rs.1.7 per kg = Rs. T he standard cost of a certain chemical mixture is as follows: 40% of Material A @ Rs.8 kg @ Rs. Calculate Material Cost Variances from the following: Actual Material A – 8 kg @ Rs. Material Usage Variance.39.33.1. 000 – Rs.I] Cost Variance: Standard Variable Overheads for Actual Production – Actual Variable Overheads: Rs. 000 II] Expenditure Variance: Standard Variable Overheads for Standard Production – Ac tual Variable Overheads: Rs.200 per ton 60% of Material B @ Rs.52 = Rs.340 per ton Actual product ion produced was 182 tons of the nished goods.3.4 Material B .3360 [A] III] Ef ciency Variance: Standard Rate [Standard Quantity – Actual Quantity] Rs.24 Material B – 4 kg @ Rs . Sol ution : The following statement will have to be prepared for calculation of the material variances.3 per kg = Rs.68 – Rs.5 [23.8 per kg There is no process loss. 000 /Budgeted production units 22.36. Solution – The following statement will have to be prepared for computation of var iances.360 [F] Solved Problems 1.180 per ton 110 tons Material B @ Rs.300 per ton A standard loss of 10% is ex pected in the production.3 per kg Material B – 4 kg @ Rs. Standards Material A – 2 kg @ Rs.36. Calculate Material Price Variance.5 X 23. Material Mix Variance and Material Yield Variance.16[F] 2.7 per kg Standards Material A – 20% @ Rs. 000 = Rs.1.8 per kg = Rs. 760 – Rs. 000 = Rs. 760 – 24. 90 tons Material A @ Rs.28 Material Cost Variance = Standard Cost – Actual Cost = Rs. 367 .

Standards Material A 40 tons @ Rs.200 = Rs.8,000 Material B 60 tons @ Total 100 tons = Less: 10% Std. Loss Standard Production I] Rs.300 = Rs.18,000 Rs.26,000 1 0 tons 90 tons = Rs.26,000 Actuals 90 tons @ Rs.180 per ton = 110 tons @ Rs.340 per ton = Less: Actual loss Rs.16,200 Rs.37,400 200 tons = Rs.53,600 18 tons 182 tons = Rs.53, 600 Material Price Variance - AQ [ SP – AP] = Material A = 90[200-180]= Rs.1,8 00 [F] Material B =110[300-340]= Rs.4,4 00[A] Total Price Variance = Rs.2,6 00 [A] II] Material Usage Variance SP [SQ – AQ]- Material A = 200[81-90]= Rs.1,8 00[A] Ma terial B = 300[121-110]= Rs.3,3 00[F] Total Usage Variance = 1,500 [F] III] Mate rial Mix Variance – Std. Cost of Std. Mix – Std. Cost of Actual Mix Rs.52, 000 – Rs.51 ,000 = Rs.1,000 [F] IV] Material Yield Variance – Std. Yield Rate[Actual Yield – Sta ndard yield] 26, 000/90[182-180] = Rs.577.77[F] Standard Yield Rate = Standard c ost per unit of standard production 3. Calculate Material Price and Mix variance from the following Standard Material A – 20 kg @ Rs.5 Material B – 30 kg @ Rs.4 Mat erial C – 50 kg @ Rs.6 Total – 100 kg Solution: Material Price Variance – AQ [SP – AP] – M aterial A = 20[Rs.5-Rs.6] = Rs.20[A] Material B = 20[Rs.4- Rs.3] = Rs.20[F] Mate rial C = 60[Rs.6-Rs.5] = Rs.60[F] Total Material Price Variance =Rs.60[F] Materi al Mix Variance – Standard Cost of Standard Mix – Standard Cost of Actual Mix Rs.520 – Rs.540 = Rs.20[A] 20 kg @ Rs.6 20 kg @ Rs.3 60 kg @ Rs.5 Total – 100 kg Actual

4. Mixers Ltd. is engaged in producing a standard mix using 60 kg of chemical X and 40 kg of chemical Y. The standard loss of production is 30%. The standard price of X is Rs.5 per kg and of Y is Rs.10 per kg. The actual mixture and yield were as follows: X – 80 kg @ Rs.4.50 per kg Y – 70 kg @ Rs.8.00 per kg Actual yield 115 kg. Calculate all Material Variances Solution: The following statement will have to be prepared for calculation of va riances. Standard Material X – 60 kg @ Rs.5 = Rs.300 Material Y – 40 kg @ Rs.10= Rs. 400 Std. Loss – 30% Std. Production – 70 kg = Rs.700 I] Actual 80 kg @ Rs.4.50 = Rs. 360 70 kg @ Rs.8 = Rs.560 Actual Loss = 35 kg Actual Production – 115 kg Material Cost Variance – Std. Cost – Actual Cost – Rs.1,150 – Rs.920 = Rs.230[F] II] Material Price Variance – AQ [SP – AP] : X = 80 [Rs.5 - Rs.4.50] = Rs.40[F] Y = 70 [Rs.10 - Rs.8] = Rs.140[F] Total Price Variance = Rs.180[F] III] Material Qua ntity Variance – SP [SQ – AQ] : X = Rs.5[98.57 – 80]=Rs.92.85[F] Y = Rs.10 [65.71 - 70 ] = Rs.42.9[A] Total Quantity Variance = Rs.49.95 [F] IV] Material Mix Variance – Std Cost of Std Mix – Std Cost of Actual Mix Rs.1,050 – Rs.1,100 = Rs.50 [A] V] Mate rial Yield Variance – Std Yield Rate [Actual Yield – Standard Yield] Rs.10 [115 - 10 5] = Rs.100 [F] 5. Standard hours for manufacturing two products, M and N are 15 hours per unit and 20 hours per unit respectively. Both products require identi cal kind of labour and the standard wages rate per hour is Rs.5. In the year 200 6, 10,000 units of M and 15,000 units of N were manufactured. The total labour h ours actually worked were 4,50, 000 and the actual wages bill came to Rs.23,00, 000. This includes 12, 000 hours paid for @ Rs.7 per hour and 9,400 hours paid f or @ Rs.7.50 per hour, the balance having been paid @ Rs.5 per hour. Calculate l abour variances. Solution: Labour Cost Variance = Standard labour cost for actual production – Actu al labour cost Product M = 10,000 units Product N = 15,000 units 15 hrs. 20 hrs Rs.5 = Rs.7, 50, 000 Rs.5 = Rs.15,00, 000 369

Total standard cost = Rs.22, 50, 000 Total actual labour cost = Rs.23, 00, 000 L abour Cost Variance = Rs.22, 50, 000 – Rs.23, 00, 000 = Rs.50, 000[A] Labour Rate Variance = Actual Hours [Standard rate – Actual rate] 12, 000 [Rs.5 – Rs.7] = Rs.24, 000 [A] 9, 400 [Rs.5 – Rs.7.50] = Rs.23, 500 [A] 4, 29, 100[Rs.5 – Rs.5] = Nil Tota l Labour Rate Variance = Rs.47, 500 [A] Labour Ef ciency Variance = Standard Rate [Standard Time – Actual Time] = Rs.5 [4,50,000 – 4,50,500] = Rs.2, 500[A] 6. The sta ndard cost card for a product shows, Material cost 2 kg @ Rs.2.50 each = Rs.5.00 per unit Labour 2 hours @ Rs.10 each = Rs.20 per unit The actual which have eme rged from business operations are as follows. Production – 8,000 units, material c onsumed – 16,500 kg @ Rs.2.40 each = Rs.39,600, Wages paid 18,000 hours @ Rs.8 eac h = Rs.1, 44, 000 Calculate appropriate material and labour variances. Solution: Material Cost Variance = Standard Cost – Actual Cost 16, 500 Rs.2.40 – 16,000 Rs.2. 50 Rs.39, 600 – Rs.40,000 = Rs.400[F] Material Price Variance = Actual quantity [Stan dard price – Actual price] = 16, 500 [Rs.2.50 – Rs.2.40] = Rs.1, 650 [A] Material Qu antity Variance = Standard price [Standard quantity – Actual quantity] = 2.50 [ 16 , 000 – 16, 500] = Rs.1, 250 [A] Labour Cost Variance = Standard labour cost – Actua l cost = Rs.1, 60, 000 – Rs.1, 44, 000 = Rs.16, 000 [F] Labour Rate Variance = Act ual hours [Standard rate – Actual rate] = 18, 000 [ Rs.10 – Rs.8] = Rs.36, 000 [F] L abour Ef ciency Variance = Standard rate [Standard hours for actual production – Act ual hours] = Rs.10 [16, 000 – 18, 000] = Rs.20, 000 [A]

000 hrs = Rs.7. 000/400 units = Rs.9.000 Rs. 750 E] Standard hours for actual output = Actual output X Standard hours per unit = 360 units X 20 hours = 7.12. 000 – Rs.200 hours Computation of Variable overhead varia nces I] Variable overhead cost variance – Recoverable variable overhead – Actual var iable overhead = Rs. 000 Standard 4.8. 000 Actua l 3. A] Standard variable ove rhead per unit = Rs. 8. 150 = Rs.8.25 = Rs.150 [A] II] Variable overhead budget or expenditure variance – Budgeted variable overheads – Actual variable overhead = Rs.250[F] 8. 750 = Rs. 150 = Rs. 000 Rs. The following data are available in respect of a manufacturing company Particula rs Budget 400 8.10.000 Rs. 000 D] Budgeted variable overheads [Based on actual hours worked] – Actual hours worked X Standard variable overhead per hour = 7.800 units Calculate the following overhead variances I] Variable overhead variance II] Fixed overhead cost variance III] Fixed overhead expenditure variance 371 . 750 – Rs.25 per hour C] Recovered variable o verhead = Actual output X Standard variable overhead per hour 360 units X Rs. 000 hrs X Rs.1. 000 Actual 360 7.12.39. Particulars Production Working days Fixed overhead Variable overhe ads 20 Rs. 150 Production .40.9. The following inform ation is available from the records of a manufacturing company using standard co sting system.10.10.25 = Rs.1.9.000 units 21 Rs.25 per unit B] Standard variable over head per hour = Rs.9. 000/8. Calculate vari able overhead variances.400[A] IV] Variable overhea d ef ciency variance – Standard variable overhead per hour [Standard hours for actua l output – Actual hours] = Rs.9. 000 Rs.9. 000 – Rs. Solution: The following working notes will have to be p repared for computation of variable overhead variances.units Man-hours to produce above Variable overheads The standard time to produce one unit of the product is 20 hours.

000 A ctual number of working days: 27 Actual man-hours per day: 6. 000 [A] V] Fixed overhead ef c iency variance: Standard xed overhead rate per day [Actual time – standard time for actual output] = Rs. 800 units Rs. 000 – Rs. 000/ 4.1.1.39.2.12.2.6. 000 = Rs. 50. 000. 000 [F] 9] The following data has been collected from the c ost records of a unit for computing the various xed overhead variances for a peri od.1.1. 000 [ 21 – 19] = Rs. 000 [A] III] Fixed overhead expenditure variance: Budgeted xed overheads – Actual xed overheads = Rs. 56. 000 units = Rs.40.2. 000 [21 – 20] = Rs. 000 = Rs. 000 [A] . 000 – 3. 000 – Rs . calculate xed ov erhead variances Solution: I] Fixed overhead expenditure variance: Budgeted xed o verheads – Actual xed overheads = Rs. 000 = Rs. 000 [F] IV] Fixed overhead volume variance: Recoverable overhea ds – Budgeted overheads Rs.1. 300 Actual output per man-hours [in units]: 0. Number of budgeted working days – 25 Budgeted man-hours per day – 6.4. 000 = Rs. 50.2.3 Standard production per day = 4.IV] Fixed overhead volume variance V] Fixed overhead ef ciency variance VI] Fixed overhead calendar variance Solution: Standard variable overhead rate per unit = Budgeted variable overheads/ budgeted number of units = Rs.3 = 600[A] Rs.39. 800 units Rs.1.40. 000 units/20 days = 200 units Standard x ed overhead per day = 200 Computation of Variances I] Variable overhead cost var iance: Actual variable overheads – Recoverable variable overheads = Rs.10 = Rs. 000 [F] VI] Fixed overhead calendar variance: Standard xed overhead rate per day [Actual days – Budgeted days] = Rs.000 Output [ budgeted] per man-hours: 1 unit Fixed overhead cost as budgeted: Rs.12.10 – Rs.38. 000 – Rs. 56. 000 II] Fixed overhead variance: Standard xed overheads for actual production – Actual x ed overheads = 3.9 Actual xed overhead: Rs.2.

00 Rs. ABC Ltd. 200 Cost Rs. 400 3. The position of stock and purchases for the month of September 2007 is as under. 300 27 – Rs.010 [A] V] Fixed overhead cost variance: Variance I + II + III + IV = Rs. 700 kg of nished output. During September 2007. 1. 3.2. 12.Rs. Mix Varianc e and Yield Variance. Material A B Quantity as on 1/9/2007 Kg 35 40 Qu antity as on 30/9/2007 -Kg 5 50 Purchases Kg 800 1. 000 [F] Fixed overhead rate per day = 2 X III] Fixed overhead capacity variance: Standard overheads – Possible overheads (Re vised capacity) Re.70. Price Variance. Material A B Standard Mix 40% 60% Standard Price Rs.9 6300 27 . 000 = Rs. 17.II] Fixed overhead calendar variance: No.3.1 6. 910 [A] 10. It operates a standard costing system and the following standards have been set for raw materi als.8.1. 62. 100[F] IV] Fixed overhead ef ciency variance: Recoverable overheads – Standard overheads 1 . of excess working days Rs. produces an article by blending two basic raw materials. Assume that First In First Out method is followed for mate rial issues 373 .4. 000 = Rs.100 = Rs.00 The standard loss in processing is 15%. the company produ ced 1. 000 Calculate Material Cost Variance. Quantity Variance.6.

25 + Rs.4] = Nil = 795[Rs.4 .3518.3 – Rs.6800 – Rs.25 [F] Actual Output = 1700 kg Total Cost Total Actual Cost Rs.3 – Rs.4.2.3] = Nil = 1150[Rs.575 [F] Total Material Pri ce Variance = Rs.6800 2.25 [Rs.2.5] = Rs. Material Price Variance: Actual Quantity [Standard Price – Actual Pric e] Material A = 35[Rs.75 [A] Mate rial B = 40[Rs.00 Purchases: 795 kg @ Rs.2875 Total 100 kg = Rs.25 Material B: 60 kg X Rs.6513.2995] Actual Loss = 320 kg = Rs.4 = Rs.340 For actual output of 1700 kg.86.120 From Purchases: 1150 kg @ Rs.180 Mater ial B: Total Quantity Used = Opening Stock + Purchases – Closing Stock 40 + 1200 – 5 0 = 1190 kg Actual Cost Of Actual Quantity From Opening Stock: 40 kg @ Rs. 25 = Rs.6513.e. 35 + 800 – 5 = 830 kg Actual Cost of Actual Quantity Opening Stock 35 kg @ Rs.140.4* = Rs.3 = Rs .25] = Rs. the standard cost is Rs.Solution: The following table is prepared for the computation of the variances.376.340 Less: Norm al Loss 15% = 15 kg Normal Output = 85 kg Computation of Variances 1. Material C ost Variance: Standard Cost [For Actual Production] – Actual Cost Rs.3 = Rs.2.75 [F] Note: Standard cost is computed as shown below: For 85 kg ou tput.3518.Rs.4.198.Rs.2995 .25 Total = Rs.3.25 = Rs.5 = Rs.378.4 . Standard Material A: 40 kg X Rs. standard cost is Rs.160 Actual Material A: Total Quantity Use d = Opening Stock + Purchases – Closing Stock i.

4 per kg = Rs.4 [800 –830] = Rs. Material Yield Variance: Stand ard Yield Rate [Actual Yield – Standard Yield] Rs. A: 808 kg B: 1212 kg Rs.30 [F] Total Material Quantity Variance = Rs. 232 Rs.3 per kg = Rs.6. In a man ufacturing process. 320 Rs. thus standard loss for actual input is 3 03 kg Standard yield from actual input is 2020 kg – 303 kg = 1717 kg. 570 Total standard cost for actual mix = Rs. Material Quantity Variance: Standard Price [Standard Quantity – Actual Quantity] M aterial A = Rs.46.3 = Rs.90 [A] Note: Standard quantity for A and B is computed as under A: 1700/85 B: 1700/85 40 = 800 kg 60 = 1200 kg 4.6.50 per kg Standard mix: 75% A and 25% B [by w eight] Standard output [weight of product as a percentage of weight of raw mater ial] 90% In a particular period actual cost. Standard prices: Raw Material A Rs.3 [1200 – 1190] = Rs.6. the following standards apply. Material Mix Variance: Standard Cost of Standard Mix – Standard Cost of Actual Mix Rs. quantity of A would be 808 kg and B 1212 kg. 11. Raw Material B Rs.340/85 kg [1700 – 1717] = Rs. usages and output were as follows: 4400 kg of A costing Rs.3.4 = Rs.68 [A ] Note: Standard yield is computed as under Actual input is A 830 + B 1190 = 202 0 kg Standard loss is 15% of the input.120 [A] Material B = Rs. 636 Total standard cost of standard mix = Rs. 868 Standard cost of actual mix: A: Actual quantity 830 B: Actual quantity 1190 Rs. 890 = Rs. 890 5. 500 375 .3.3. Standard cost of this mix then would be. 868 – Rs.22 [A] Note: Standard Cost of Standard Mix is computed as under Actual quantity of A and B consumed together = 830 + 1190 = 2020 kg If this quantity were mixed in standard proportion.6.3.10 per kg.3.

000 Material B 2000 Rs.1.10 [4725 – 4400] = Rs. 000 1. Mat erial Price Variance: Actual Quantity [Standard Price – Actual Price] Material A = 4400 [Rs.1. 26.1. The standard cost of this mix would be.10 – Rs.1. 26.10 = Rs.1.2000 [F] 4. 20. if it is mixed in standard proportion.50 [1575 – 1600] = Rs. 000 Less: Actual Loss 10% Loss 330 kg Normal Output 7200 kg at a standard cost Actual Output = 56 70 kg at actual cost of Rs.000 Total 8000 : Rs. 25. A: 4500 kg Rs. 500 Total 6000 kg = Rs.46. 000 1.46. 25.78.1. 000 – R s.78. 00. 000 so for 5670 kg. For 7200 kg the standard cost is Rs.1500 [F] Total Material Price Variance: 3. 60. 60. Material Mix Variance: Standard Cost of Standard Mix – Standard Cost of Actual Mix Rs. Material Cost Variance: S tandard Cost of Materials [For Actual Production] – Actual Cost. 60.4000 [A] Note: Standard Cost of Standard Mix is computed as shown below: Actual total inp ut is 6000 kg.60. 500 Material B 1600 kg = Rs.1.1. 000 Rs. 25.50 = Rs.50 – Rs.2500 [A] Material B = 1600 [Rs. 24.1 .45. 000 = Rs. Rs. quantity of A would have b een 4500 kg [75% of 6000] and that of B 1500 kg [25% of 6000].1.500/16 00] = Rs.1600 kg of B costing Rs. = Rs. 500 Output 5670 kg of product The budgeted output fo r the period was 7200 kg Calculate Material cost variances Solution: The followi ng table is prepared for computation of material variances Standard Material A 6 000 kg Rs.78.1.1 000 [F] Note: Standard cost of materials for actual producti on is computed as shown below. 000 . 60. 1250 [A] Total Material Quantity Variance = Rs. 000 – Rs.3250 [F] Material B = Rs. 000 = Rs. 000 = Rs.1000 [A] Material Quantity Variance: Standard Price [Standard Quantity – Actual Quantity] M aterial A = Rs. 000 Less: Normal Actual Material A 4400 kg = Rs. the standard cost is 5670/7200 X 1.500/4400] = Rs.10 per kg = Rs.

20. 000 1.% 40 30 20 10 Raw mat erial cost Standard Rs/kg 50 80 90 100 Quantity consumed Actual 42. The following information is available regarding the stan dards and actual.50 per kg = Rs. 2000 2400 1800 1000 7200 7200 Materials A B C D Total Less: Inevitable Loss 10% Normal Output II] Statement Showing Details Regarding Actual Materials A B C D Total Less: Act ual Loss Actual Output Quantity 42. 000 18. 000 Standard cost of actual mix is computed by multiplying the actual quantity of A and B by the standard price per kg 5. Mix and Yield variances. 80. 000 .1. Sol ution: I] Statement Showing Details Regarding Standards Quantity 40 30 20 10 100 10 90 Price – Rs/kg 50 80 90 100 Cost – Rs. 2. Material Yield Variance: Standard Yield Ra te [Actual Yield – Standard Yield] Rs. A company is manufacturing a chemical product making use of four different t ypes of raw materials. 00./kg 48 80 92 110 A B C D There is an inevitable normal loss of 10% during the processing.75.99 or Rs. 000 71. 60. 000 kg Calculate Material Cost. Quantity. 06.B: 1500 kg Rs. 000 Total = Rs.6000 [F] 12. 000/7200 [5670 – 5400] = Rs. 000 377 Price – Rs. 000 9./kg 48 80 90 110 Cost – Rs.1. 90. 000 71. 06. 20. 000 92. Price. 000 18. Material Share of total input Standard . 000 9. 000 16. 000 31. 000 31. 016.5999. 000 24. 000 9. 000 8. Actual output 9 2. 000 Raw material cost – Actual Rs.

48] = Rs. Material Yield Variance: Standard Yield Rate [Actual Yield – Standard Yield] 13. Material in kg P Q R Total Input Less: Standard Loss Standard Output Quantity [Rs. 000 [Rs. 60. 000 [A] Material D = 9 . The standard material inputs required for 1. Material Cost Variance: Standard Cost of Materia ls [For Actual Production] – Actual Cost = Rs. 000 [Rs. 2. 000 [A] Total Price Variance = Rs. 000 – Rs.84.80] = Nil Material C = 18.80 – Rs.100 – Rs.42. 5 4. 000 [F] Material B = 31. 000 = Rs. 5.36. 000 [A] Material Quantity Variance: Standard Price [Standard Quantity – Actual Quantity] • • • • • aterial A: Rs.90 – Rs.50 [ Material B Material C Material D Note: Standard Quantity for each material is computed as shown below: Material A Material B Material C Mater ial D 4.Computation of Variances: 1. 000 [Rs.92] = Rs.90. 000 Material Price Variance: Actual Quantity [Standard Price – Actual Price] • • • • • 3 Material A = 42.] 450 400 250 1100 100 1000 Standard Rate Per Kg – Rs. 000 [Rs. Material Mix Variance: Standard Cost of Standard Mix – Standard Cost of Actual Mix Note: Standard Cost of Standard Mix is computed as shown below.2. 000 kg of a nished output are gi ven below.71.110] = Rs. 20 40 60 .50 – Rs.73. 06.

000 400 kg @ Rs.2. Mix and Yield Variances.40.Kg 10. 000 kg.40 [8. 500 kg @ Rs. 000 kg of the nished product for which the quantities of materials used and the prices paid thereof are as under.20 = Rs. 000 [Actual Productio n] Material Cost Variance: Standard Material Cost [for Actual Production] – Actual Co st Rs. Material Quantity Variance: Standard Price [Standard Quantity – Actual Quantity] • • • • • aterial P = Rs. the standard cost is Rs.40 = Rs.22. 000 4. Material Price Variance: Actual Quantity [Standard Price – Actual Price] • • • • Material P = 10.10.42 = Rs. Price.8.Actual actual terial Rs] 19 production in a period was 20.8. 500 kg @ Rs. 000 [A] Note: Standard quantity of materia ls for actual production is computed as shown below.60 = Rs. Prepare recon ciliation among the variances Solution: Table showing Standards and Actual Detai ls Material P Q R Total Input Less: Standard Loss Standard Output 1.20 – Rs.40. 000 [A] Material Q = Rs.20.60 [5.20 [9. 92.19] = Rs. 000 – 4. 000 [F] Material Q = 8.20.60 – Rs.40. For 1000 kg [standard production] .40 – Rs. 379 . 000 – 8 . 000] = Rs.42] = R s. 500 [A] Note: Standard Material Cost for actual production is computed as shown below.10. 000 100 kg 1. 500] = Rs. Quantity.15. 500 [A] 3. 000 [A] Material R = 4.65 = Rs. so for actual production of 20. 500 [Rs. 500 23. 500 4.000 2.1. 500 Purchased Price Per Unit [ 42 65 Calculate Material Cost.3. 000 – Rs. 000 kg @ Rs.17. 000 [A] Material R = Rs.29.19 = Rs. 000 Actual 10. 000/1000 40. 00. 500] = Rs. 500 [A] Total Material Price Variance = Rs. 39.8.30. 000 8. 00. 000 1.39. 000 – 10. 500 [Rs. the s tandard cost is 20. 39. 000 kg = Rs. 000 = Rs. 500 = Rs. 000. Standard 45 0 kg @ Rs.9.65] = Rs. 90.16. 000 250 kg @ Rs. 500 3. 57. 000 8. 000 [F] Tota l Material Quantity Variance = Rs. 100 kg = Rs. 000 kg = Rs. 000 kg [Actual Loss] 20. Ma P Q R Quantity Used .8. 000 [Rs.

360 5. 000 – 20.40 . 000 units Number of employees 200 Sta ndard wage rate per employee per day = Rs. 36.40 Standard daily output per employee = 100 units Total number of days worked =50 days [Idle time paid for and include d in the above half day for each employee] Actual wage rate per day = Rs.091 Therefore standard production for actual input is 23.3. Material Yield Variance: Standard Yield Rate [Actual Yield – Standard Yield] Rs. 000 /1100 Q: 23. 23. 000/1000 X 450 = 9. 34.36. 360 – Rs. An input of 100 kg of material yields to standard output o f 10. 000/1100 450 = 9409 X Rs. 909] = Rs. 000 kg Material Mix Variance: Standard Cost of Standard Mix – Standard Cost of Actual Mix Rs. 000 kg Actual price per kg of material Rs.40 = Rs. 000 kg Material Q = 20. From the following particulars of a manufacturing company. 88.1. 36.26. 000 kg Material R = 20. 000 units. 00. 000/1000 [20. 000/1000 X 250 = 5.21 per kg Actual output 9. Material P = 20.60 = Rs. 000 – 2 091 = 20. Standard price per kg of material Rs. 000/1000 X 400 = 8. 000/1100 R: 23. compute material and labour variances. 10. 000 would have been mixe d in standard proportion.• • • 4. 560 250 = 5227 X Rs. the quantities along with cost of P.45 .20 Actual quantity of mate rial issued and used by production department 10. 13. 909 kg 14. 62 0 Total Cost = Rs. 000 = Rs. 000 /11 = 2.3.8. • • • • P: 23. 180 400 = 8364 X Rs. Q and R would hav e been. 360 [A] Note: Standard yield is computed a s under Standard loss is 1/11th of input. hence normal loss for actual input is. 360 [F] Note: Standard cost of standard mi x is computed as shown below If the actual input of 23.8.8.20 = Rs .

Therefore the tim e taken is 10.45] Rs. hence for actual output of 9. 000 man days i. 000 kg. 000 days are required.21] = Rs. 000 – 5. 4. 000 man days less idle time of 5. 000] = Rs. 9. 000 [Rs. 80. Idle Time Variance: Abnormal Idle Time X Standard Rate 5. 00. 2. 000 3. 50. 000 [A] Note: For 10. 60.40 = Rs. The following standards have been set to manufacture a product Direct Materi als: • • 2 units of A @ Rs. 000 kg Rs.30.4 0 [daily wages per employee]/100 [number of employees] = Rs.20 – Rs. 100 k g of materials is required. 60. Quantity Varian ce: Standard Price [Standard Quantity – Actual Quantity] Rs. 000 = Rs. 000 [A] Note: Standard rate per unit = Rs. 000 [A] Note: Standard quantity of materials required for actual producti on is computed in the same manner as shown in the Note to the Cost Variance B] L abour Variances: 1. 000 X Rs.40 – 50 days X 200 employees X Rs. 200 number of employees [Rs. 000. 000 [A] 3.50.9 381 . 10. 00.40 [9. Rate Variance: Actual Time Paid For [Standard Rate – Actual Rate] 50 days 10.3 per unit: Rs.10.90.4. Cost Variance: Standard Cost of Materials [F or actual production] – Actual Cost 9. Cost Variance: Standard Cost of Labour [For actual productio n] – Actual Labour Cost 9. 000 units of actual production. 00. standar d quantity of materials is 9. 000 [A] 15. 000 units.2.8 3 units of B @ Rs. 000 [A] Ef ciency Variance: Standard Rate [Standard Time for Actual Production – Actual Time ] = Rs.5 = Rs. 5.1. 000 – Rs.45 Rs. 000 units of nished product. 000] = Rs.40 2. 00 0 – Rs. 000 man da ys.1. Price Variance: Actual Quantity [Standa rd Price – Actual Price] 10.20 – 10.3. 000 [F] Note: Standard output per employee per day is 100 and so for 9.20 [9. 000 = Rs.40 – Rs. 000 units Rs.e.2. 000 – 10. Idle time is half day for each emp loyee and hence idle time is 200 employees X 25 days = 5.21 = Rs.20.4 per unit: Rs.Solution: A] Material Variances: 1. 000 man days Rs .

2. 000 hours : 15.54.4 – Rs. 000 = Rs.4.20] = R s.2. 0 00 18. 000 [A] Material B = Rs.80] = Rs. 700 [A] Total Material Price Variance = Rs. 200 1. 500 [F] Tota l Material Usage [Quantity] Variance = Rs.19. 500 units of A @ Rs. 000 Actual 12.50.1 – Rs. 500 hours: 2.• • • 15 units of C @ Re.4 [12. 000 [A] .40] = Rs. Standards 12.5.4 = Rs.3 – Rs.3 [18.12. 000 @ Rs.90. 5 00 @ Rs.1 [90. 500 [Re.12] = Rs. 500 [Rs. 000 – Rs.1.8 per hour: Rs. Solution: Statement showing details Regarding Standards and Actual Material A B C Total I. 000 [A] For 15.56 The company manufactured and sold 6000 units of the product during the year.55. 000 @ Rs.8 – Rs.20 = Rs.24 Standard Prime Cost: Rs.1.48. 000 90.1.20 per unit The company worked for 17. Labour Rate Variance: Actual Hours [Standard Rate – Actua l Rate] • • • For 2.2. Calculate material price and usage variances and l abour rate and ef ciency variances.2. 000 1.80 per unit 88.80 = Rs. Material A = 12. 100 [A] Material Usage [Quantity] Variance: Standard Price [Standard Quantity – Actual Qua ntity] • • • • Material A = Rs.1 per unit: Rs. 000 18. 000 @ Re.1.4. 000 – 88. 06. Material Price Variance: Actual Quantity [Standard Price – Actual Price] • • • • 2.8] = Nil Total Labour Rate Variance: Rs.500 [A] II] Labour Variances: 1. 600 Material Variances: 1. 400 88.10.1.40 per unit 18. 000 [A] Material B = 18. 500 [Rs.2. 000 units of B @ Rs.1 = Rs. 000 [Rs.12 per hour while for the remaining the wages we re paid at the standard rate. 000 – 18.3.40 = Rs.1. 500 units of C @ Rs.17.15 Direct Labour 3 hrs @ Rs.8 – Rs. 600 [F] Material C = 88. Dir ect Material cost was as follows: • • • 12. For 2500 of these hours the company paid Rs.10. 19. 500 direct labour hours during the year. 92 . 500 @ Rs. 20. 11. 000 @ Rs. 500] = Rs. 000] = Nil Material C = Re.3 = Rs.4. 000 = Rs. 500 [Rs. 500] = Rs.

000 – 17. 000 [A] Fixed O verhead Ef ciency Variance: Standard Rate [Standard Quantity * – Actual Quantity] = Rs. 000 = Rs. 000 Standard xed overheads per unit = Rs. 000 Rs.600 [A] Fixed Overhead Variance: Standard Fixed Overheads for Actual Production – Actual Fixed Overheads: Rs. 000 = Rs. 800] = Rs. 000/4. 800 – Rs. 000 Actual 3. 000. 16. • • • • • • Variable Overhead Variance Fixed Overhead Expenditure Variance Fixed Overhead Volume Variance Fixed Overhead Ef cie ncy Variance Fixed Overhead Calendar Variance Also prepare a reconciliation stat ement for the standard xed expenses worked out at standard xed overhead rate and t he actual xed overhead. 000 Rs.10 [4.40. 000 = Rs.1.2. 000 – Rs. 000 Solution: Basic Calculations: Standard Variable Overhead Rate Per Unit = Rs. 800 units – Rs. 000 units/20 da ys = 200 units Standard xed overheads per day = 200 Rs.3 per unit Standard production per day = 4.10 Computation of Varian ces: 1) 2) 3) 4) 5) Variable Overhead Variance: Standard Variable Overheads for Actual Production – Actual Variable Overheads: Rs. 000 20 Rs.39. 000 – 3. Labour Ef ciency Variance: Standard Rate [Standard Time For Actual Output] – Actual Time] : Rs.40.12.39.4.12.3 X 3.10 X 3. 000 [F] Fixed Overhead Volume Variance: Standard Rate [Bu dgeted Quantity – Actual Quantity] = Rs.39. the number of hours required are 6. 000 [A] 383 . 000 X 3 = 18. Particulars Production Working Days Fixed Overheads Variable Overheads Calculate.10 = Rs.8 [18. The following information was obtained from the records of a manuf acturing unit using standard costing system.10 [4.4.40. 200 – 3. 000 = Rs .2. 500] = Rs. 000 [F] Note: Standard time for actual output : 3 labour hours per unit is the standard and so for producing 6.2.12. 800 21 Rs. 000 [A] Fixed Overhea d Expenditure Variance: Budgeted Fixed Overheads – Actual Fixed Overheads: Rs. Standard 4. 000/4. 800] = Rs.1. 000 units.12.000 units = Rs.

10 Less: Fixed Overhead Expenditure Variance Less: Fixed Overhead Calendar Variance Add: Fixed Overhead Ef ciency Variance Actual Fixed Overheads 17. 000 [F] * Standard quantity: in 20 days. In this example.1. 0 00 [A] 39. 4000 units are produced and hence in 21 days. standard quantity is always computed in relation to the working hours while the revised b udgeted quantity is computed in terms of number of days. 200 units ** Revised budgeted quant ity is calculated in the similar manner as mentioned above. 000 [F] 35.10 [4. Particular Number of budgeted working days Budgeted man hour per day Output [budgeted] per man ho urs Fixed overhead cost as budgeted Actual number of working days Actual man hou r per day Actual output per man hour Actual xed overheads Calculate the following Fixed Overhead Variances • • • • • • Expenditure variance Calendar variance Capacity varia ce Ef ciency variance Volume Variance Cost Variance Details 25 6. 000 Particulars Standard Fixed Overheads: 3. The following data has been collected from the cost records of a unit for co mputing various xed overhead variances for a particular period. 300 0.6) Fixed Overhead Calendar Variance: Standard Rate [Revised Budgeted Quantity ** – Bu dgeted Quantity] = Rs. 000 4. 000 1 unit Rs. When working hours are given. • Reconciliation Statemen t: Fixed Overheads Rs. 000] = Rs.2. 000 [F] 2. 000 . 000 [F] Rs. 200 – 4. 000 3. 56. 1. 000 27 6. num ber of working hours is not given and hence the standard quantity and the revise d budgeted quantity is one and the same. 800 units X Rs. 50. t he standard quantity will be 21/20 4000 = 4.1. 38.9 units Rs.

100 As per the standard. 50. 27 days X 6300 man hrs per day = 1. 50. 000 and hence standard rate is Rs. Calen dar Variance: Standard Rate [Revised Budgeted Quantity – Budgeted Quantity] Re.20. 4. 50. Volume Variance: Standard Rate [Budgeted Quantity – Actual Quantity] Re. 70. 910 [A] 18.2 Rs.8 Rs. 090] = Rs. Cost Variance: Standard Fixed Overheads for Actual Production – Actual Fixed Overheads = Re. 62. 100 units are supposed to be produced which is the standard quantity in actual hours. 000 units 3. 000 [A] 2. 000 = 1. 000 [F] Note: Standard Rate = 25 days X 6000 man hours per day X 1 unit per man hour = 1.2. 50. 53. 50.Solution: Fixed Overhead Variances 1. The variance is favourable as the stan dard quantity is more than the budgeted one that indicates more number of workin g hours than budgeted. 53. 53. 70.4 Rs. 100 [F] Note: Standard Rate is as p er the computation in the Note to the Calendar variance. 090 – Rs.1. 50. The follo wing data relating to August 2007 have been furnished to you: Particulars Standa rd Cost Per Unit –Direct Materials Direct Wages Fixed Overheads Total Units proces sed/in process Product A Rs. 000 u nits. 1. 000 = Rs. 6 2. 50. 56.1 [1. Capacity Variance: Standard Rate [Standard Quantity – Budgeted Qua ntity] Re. 50.12. 000] = Rs. 50. the revised quantity will be 27/25 1. Actual number of hours worked are. 090] = Rs.1 [1.6 Rs.16 Rs. 090 [F] 6. 1. Standard quantity is co mputed as shown below.1.17. A company manufacturing two products uses standard costing system. 000 = Rs. 000 units is the budgeted producti on.26 Product B Rs. 100 – 1.1 [1.3. 70.1 [ 1.1.6. 000 – 1.1. 50. Expenditure Variance: Budgeted Fixed Overh eads – Actual Fixed Overheads Rs. 70. 70. xed overheads budgeted are Rs. 000/1.1 1. 100 – 1. 56. Ef ciency Variance: Standard Rate [Standard Quantity – Act ual Quantity] Re. 100 man hours. therefore in 27 days. 000 – Rs.22 385 . 000] = Rs. 010 [F] 5. 000 units = Re1 Revised Budgeted Quantity = in 25 days. 1 unit per man hour is the output and so in 1.1. 000 – 1.12 Rs.

000 The following were the actual costs recorded during the month. 000 6. 12. Direct materials used for consumption at standard price amount to Rs. 400 22. 50. Solution: I] Statement Showing Equivalent Production Units – Ma terials. 000. all materials applied and 80% co mplete in respect of labour and overheads Units completed and transferred to war ehouse during the month You may use average cost method to analyse Product A 4. 000 100% 80% L&O% 100% 80% Units 16.4.8. 00. Direct wages for actual hours worked at standard wages rates wer e Rs. 000 8. Fixed overheads volume and expenditure variance V. 600 .2. I. Direct material price variance at the point of consumption and at the point of purchase II. 000 12. all materials applied and 50% complete in re spect of labour and overheads End of the month. 000 and actual xed overheads incurred were Rs. Re quired. 000 and at actual wages rate were Rs. 000 24. Direct wage rate and ef ciency variance IV . 20. Labour & Overheads Particulars Units completed -A Closing WIP Total Uni ts completed -B Closing WIP Total Units 16. 000 12. 75. 20.1. 000. 000 32. 25. Direct materials purchased at standard price amount to Rs. 000 9.4. 000 100% 100% M. Direct material usage variance III. 000. 000 3 2. 000 8. 000 8. 000 20.2.Particulars Beginning of the month. 000 Product B 12. Standard cost of WIP at the end of the month. 000 16. 400 20. 000 20.8. 000 and actual cost of which is Rs. 600 29. Fixed overheads bud geted were Rs. 000. 000 24. % of Number of Completion Units 100% 100% 16. 000 20. 000 12.

75.12 Rs. 00. 55.8. Cost of actual quanti ty of material used Actual Cost of actual quantity of materials Rs.16 Rs. 200 Total Rs.4. 600 Rs.2.1. 92.1. 000 Rs.7. 500 [A] [Refer to Working Note Number II] Direct Material Price Variance [At the point of purchase]: Standard Price of material purchased – Actual Cost of mat erial purchased: Rs.48. 50. 600 Rs. 75.4.1. 000/2. 00.2. 58. 25.6 Rs. 200 rates [1 X 2] Direct wages for a ctual hours at standard rates Actual direct wages [actual rates] IV] Fixed Overh eads: Particulars Equivalent Units [1] Fixed overheads per unit [2] Fixed overhe ads charged to production [1 X 2] Budgeted xed overheads Actual Fixed Overheads C omputation of Variances: • Product A 22. 800 Rs.1. 13. 20. 12.2. 000 = Rs. 500 = Rs. 20.1 . 000 – Rs. 000 Rs. 17. 400 Rs. 600 Rs. 000 [A] 387 • . 20.3.8 Product B 29. 400 Product B 29. 000 X 1.2 Rs. 000 Product B 32. 77. 28. 56. 000 Total Product A 24. 000 – Rs.1.3.20. 600 Rs.II] Direct Materials: Particulars Equivalent Units [1] Standard Cost per unit [I I] Std. 000 Rs.8. 000 Rs. Cost of std. 92. 000 Total Rs. 000 Rs. 400 Rs. 500 Standard direct wages at standard Rs. 000 III] Direct Labour: Particulars Equivalent Units [1] Stand ard direct wages per unit [2] Product A 22. 000 Direct Material Price Variance [At the point of consumption]: Standard Cost of A ctual quantity – Actual Cost of Actual Quantity: Rs. 79. requirement of materials [1 X 2] Std.4 Rs. 75.1.3.

000 = Rs. 13. Compute the following variances from the data given below. 000 Rs.7. 000 [A] [Refer to Working Note 4] Valuation of Closing Work in Progress: Particulars Product A Equivalent Units St andard Cost Per Unit Value of WIP Product B Equivalent Units Standard Cost Per U nit Value of WIP 12. 200 [A] [R efer to Working Note 3] • Fixed Overhead Volume Variance: Fixed Overheads Charged to Production – Budgeted F ixed Overheads: Rs. Sales marg in quantity [sub volume] variance.25. 56.4. 000 = Rs.1. Total sales ma rgin variance II. 000 9.16. 75. 69. 000 = Rs.1. 000 – Rs. 11.1.8. 80 0 Rs. 000 – Rs. I.1.24 Rs.48.2.2 Rs. 000 Labour and O verheads 6.4. 53.1. 000 – Rs. Sales margin volume variance III. 600 Material 8.1. 72.18 Rs. 000 Rs. 20. 50. 400 [A] [Refer to Workin g Note 4] • Fixed Overhead Expenditure Variance: Budgeted Fixed Overheads – Actual Fixed Overh eads: Rs.63. 000 = Rs. 25. 20. Sales margin price variance IV. .1.8. 76. 400 Total 19.8. 25. 800 Rs. 600 Rs. 000 [F] [Refer to Working Note 3] • Labour Ef ciency Variance: Standard Direct Wages at Standard Rate – Direct Wages for Actual Hours at Standard Rate = Rs. 600 – Rs. 000 [ F] [Refer to Working Note 2] • Direct Wage Rate Variance: Direct Wages at Standard Rate – Actual Direct Wages at Actual Rate = Rs. 20.4 Rs.3.• Direct Material Usage Variance: Standard Cost of Standard Quantity of Materials – Standard Cost of Actual Quantity used: Rs.8. 12. 800 – Rs.4. 000 = Rs. 600 Rs.

30 20 15 Budgeted Standard Standard Budgeted Budget Actual Actual Actual Sales Sales Qty. 400 = Rs.600 [F] II] Sales margin volume variance: Budgeted Ma rgin Per Unit X [Actual Quantity – Budgeted Quantity] Product X = Rs. Sales Mix Variance V. 000 [A] Total Variance = Rs. 000 – Rs.45 Rs.15 Rs. Sales Volume Variance IV.10 [200 –160] = Rs. Pro t Sales Sales Sale Price Cost Per Price Margin Qty Margin Unit Per Unit Rs.2.3.20 Rs.3.45 Rs.50 25 Actual Sale Standard Cost Price Per Unit Per Unit Rs.6.1. 6 00 [F] III] Sales margin price variance: Actual Quantity [Actual Margin Per Unit X Budgeted Margin Per Unit] Product X = 400 [Rs.1000 Rs.25 Rs.6000 Rs.15 – Rs. From the following information.5 400 200 Actual Pro t X Y Total Rs.400 [F] Total Variance = Rs.1600 Rs.20 Rs.Product X Y Solution: Product Budgeted Quantity Units 240 160 Actual Quantity Units 400 200 Budgeted Sales Price Per Unit Rs. 000 [A] Produ ct Y = 200 [Rs.3200 [F] 20. calculate the following sales variances I. Sa les Quantity Variance 389 .30 Rs.15 Rs.10 240 Rs.7000 Computation of Variances: I] Total sales margin variance: Actual Pro t – Budgeted Pr o t Rs.4800 160 Rs.10] = Rs. 200 [F] Product Y = Rs.20] = Rs.20 [400 – 240] = Rs. 000 [A] IV] Sales margin quantity [sub volume] variance: Budgeted Margin Per Unit of Budgeted Mix [Actual Quantity – Budgeted Quantity] = 6400/400 [600 – 400] = Rs. Sales Price Variance III. Total Sal es Variance II.7.3.6400 Rs.50 Rs.5 – Rs.

6 [5000 – 4000] = Rs. 000 = Rs. 000 Amount Rs. 000 [F] IV] Sales Mix Variance: [Actual Mix – Revised Sales Mix] Standard P rice Per Unit Rs.6 1500 0/12000 3000 =3750 @ Rs.60 00 [F] Product C = Rs.500 [F] [Refer to Working Note 1] V] Sa les Quantity Variance: Standard Unit Sales Price [Actual Quantity – Std.6] = Rs.7] = Rs. per unit 5 6 7 Amount Rs. 500 Act ual Mix 6000 5000 4000 15.5 [6000 – 5000] = Rs. 000 21. 36. 000 – Rs. 000 88.5 15000/12000 4000 = 5000 @ Rs.87.17.Product Number of Units A B C Solution: I] 5000 4000 3000 Standard Rate Per Unit Rs. 5 6 7 Amount Rs. 000 28.5] = Rs.88.8 –Rs.5000 [A] P roduct C = 4000 [Rs.6 – Rs. 000 26.5000 [F] Product B = Rs. Quantity] 70. 000 Amount Rs. 000 – Rs.7000 [F] Total Sales Volume Variance = Rs. 000 Actual Rate Per Unit Rs. 500 = Rs. 000] = Rs.4000 [F] Total Sales Price Variance = Rs. 30.5000 [F ] III] Sales Volume Variance: Standard Price [Actual Quantity – Standard Quantity] Product A = Rs.7 [4000 – 3000] = Rs. 000 [F] II] Sales Price Variance = Actual Quantity [Actual Price – Standard Price] Product A = 6000 [Rs.18. 000 Total Sales Variance = Actual Sales – Standard Sales Rs.5 – Rs.23 . 000 24. 500 [F] Working Note 1 Product A B C Tota l Revised Mix 15000/12000 5000 = 6250 @ Rs. 31. 000 32. Actual Number of Units 6000 5000 4000 25.70.6000 [F] Product B = 5000 [Rs. 000 25. 000/12 [15. 000 .7 15.93. 250 87. 250 30. 000 30. 6 5 8 Amount Rs. 000 – 12.

duly reconciling the stand ard pro ts of actual production with actual pro ts.240 During one particular month 9600 units of the product were manufactured and sold incurring the following actual cost: Par ticulars Direct materials 90000 kg Direct labour 25000 hours Variable overheads 25000 hours Fixed overheads Total cost Net pro t Sales Amount Rs. The following are the details of the standard cost of the product.10 each Variable overheads: 3 hours @ Rs. It has therefore decided to introduce a standard cost system to control cost. the management has also decided to introduce an incentive scheme under which employees are paid 20% of t he standard cost of materials saved and also 40% of the labour time saved valued at standard labour rate. B] Bonus amount earned by the wo rkers during the month under incentive scheme.130000 [A] II] Material Usage Variance: S tandard Price [Standard Quantity – Actual Quantity] Rs.5 each Fixed overheads [based on a budgeted output of 10000 units] Total standard cost per unit Selling price per unit Rs.12 e ach Direct labour: 3 hours @ Rs.21. 120 30 15 25 190 Required: A]Variances that occurred during the month. To motivate workers to improve the productivity. Standard Cost Per Unit Particulars Direct material: 10 kg @ Rs. Solution: A] Computation of Varia nces: I] Material Price Variance: Actual Quantity [Standard Price – Actual Price] 90000 kg [Rs.4000 [A] 391 .10 – Rs.12 – Rs.12 [9600 10 kg – 90000] = Rs.254000 / 25000] = Rs. 1210000 254000 1 47000 250000 1861000 419000 2280000 Amount Rs.1210000/90000] = Rs. A company producing a standard product is facing declining sales and dwindli ng pro ts. 72000 [F] III] Labour Rate Variance: Actual Hours [Standard Rate – Actual Rate] 25000 [Rs.

000 [A] VII] Sales Price Variance: Actual Sales [Standard Sales Price – Actual Sales Price ] 9.61. 600 units [Rs. 72000 . 000/9600] = Rs.10. 000] = Rs.1.2.15 9. 000 [A] 3000 10000 147000 24000 171000 110000 4000 38000 Ad verse Variance Rs.190 Actual cost Standard pro t of actual production 9600 X Rs . 000 [A] Analysis of Varianc es Particulars Material price Material usage Labour rate Labour ef ciency Variable overheads Fixed overheads Total Sales price variance Total Net variance Rs. 4000 18. 80.38. 000 [F] V] Variable Overhead Variance: Standard Variable Overheads for actual production – Actual variable overheads [Rs. 01. 000 [A] Reconciliation of Standard Pro t with Actual Pro ts Particulars Standard cos t of 9600 units @ Rs. 47.50 Actual pro ts earned Variance in pro ts Amount Rs.240 – Rs. 600 – Rs. 000] = Rs. 000 [A] VI] Fixed Overheads Cost Variance: Standard Fixed Overheads For Actual Productio n – Actual Fixed Overheads [Rs. 000 61. 000 4. 600 – Rs. 82. 80 . 000 4. 1. 50.IV] Ef ciency Variance: Standard Rate [Standard Time – Actual Time] Rs. 600 3 – 25.24. 19.3.22.10 [9. 130000 Favourable Variances Rs. 000] = Rs.25 9.

200 Total bonus earned = Rs. 400 + Rs.38. 400 Labour ef ciency = 40% of time saved at 40% of Rs. 15.29. 000 = Rs. 000 = Rs.14.14.72 . 600 .15.Bonus Earned By Employees Materials usage = 20% of material saved = 20% of Rs. 200 = Rs.

000 /1100 Rs. Solut ion The cost driver data will be determined as given below.) 5. 000 / 520 Rs. The calcu lations are shown below.76.70.76.50. 195 Rs.20.15.000 Particulars Direct Materials Direct Labor Prime Cost – Direct Materials + Direct L abor Add : Overheads Particulars Details Amount in Rupees . inspection – 28. 2. The budgeted overheads and cost driver volum es of XYZ are as follows.20. 1. Cost driver data – The rate will be determined by dividing the amount by relevan factors. its material cost was Rs.600 components of AX . Details Rs.600 components of AX-15.000 3.30. Cost Pool Material procurement Material handling Set-u p Maintenance Quality control Machinery Budgeted Overheads (Rs. 115 Rs. 5. Solved Problems 1.several activities like Activity Based Budgeting. of set ups Maintenance hours No.000 and labor cost Rs. reducing the costs through eliminati on of non value adding activities and also initiating innovative measure for red uction of costs. 527 Rs.50. 2. set ups – 25.0 00 4.000 /8400 Rs. 7.30. 1.000 / 680 Rs. 1.30 Particulars Material procurement Material handling Set up Maintenance Quality co ntrol Machine 2. of inspection No.000 /900 Rs. Calculation of a Batch of 2.000 The company has produced a batch of 2.45.15 Details Amount in Rupees 1 .400 900 24.000 7. 798 Rs.000 Rate of cost drivers Rs.800 Calculate – cost driver rat es that are used for tracing appropriate amount of overheads to the said batch a nd ascertain the cost of batch of components using Activity Based Costing. performance measurement of activity.000 2.000 9.75. of machine hours Budget ed Volume 1.000 1. of orders No.000 /24.70.100 680 520 8.15. Material orders – 26.000 Cost Driver No. of movement s No. maintenance hours – 690. 4. 368 Rs.000 2.80. The usage activities of the said batch are as follows. material moveme nts – 18.000. 9.80.45. machine hours – 1. Cost management based on activ ities.

17. 17.5. A.Material Procurement Material handling Set-up cost Maintenance Quality control M achine Total 26 Rs. 798 690 Rs. Absorption of manufacturing overheads :Prod uct X Rs. we will calculate the Product Cost based on Direct Labor Hour Rate.000 direct labor hours p. Product Y is high volume and labor inte nsive. Direct labor hour rate method for absorption of overhead costs a nd II.50 X 8 Direct L abor Hours = Rs. 195 1. 527 18 Rs. Direct Labor -@ Rs.000 5.800 Rs.000 p. 105 Product Y Rs.624 19. The calculations are shown below.000/1. its sales are 25.000 p.a.a.086 Note :.17.000 = Rs. 17.350 5.140 Particulars Manufacturing Overheads Overheads based on Activity Based Costing :413 . it is clear that by using Activity Based Co sting. I. Total manufacturing overhead costs are Rs. 30 13.00.17.a.10 per hour Total Product X 200 60 260 Product Y 100 80 180 The company works 1. X and Y.00.50 B. You are required to compute per unit cost of each pr oduct using.460 54. there can be substantial accuracy in the overhead absorption.From the above calculations.50. 115 28 Rs.54.50. Direct Labor Hour Rate :Total manufacturing ove rheads / Total direct labor hours Rs. The product X is a low vol ume and its sales are only Rs. 2.702 6. 368 25 Rs. Activity Based Costing technique for absorption of overhead costs Solution F irstly. Product X takes 6 labor hours to make one unit but Y requires 8 hours per unit. The overhea ds are charged on the basis of cost drivers and not on the basis of absorption r ate.000 units pa. Details of costs for materials and labor f or each product are as follows.50 X 6 Direct Labor Hours = Rs. Particulars Direct Materials – Rs.950 79. A company manufactures two products.

A. Identi cation of Activities and Rate for each Activity :Particulars Machine Set up Quality inspection Production order Machine hours worked Material receipts T otal overheads B. Total Overheads 4,50,000 3,00,000 1,80,000 6,25,000 1,95,000 1 7,50,000 Details of Activity 10,000 15,000 600 50,000 1,500 Rate per Activity [R s.] 45 per set up 20 per inspection 300 per order 12.5 per hour 130 per receipt Allocation of overheads to Products on the basis of Activity Rates :Frequency of activity 10,000 15,000 600 50,000 1,500 Rate per activity 45 20 300 12.5 130 Pr oduct X Rs 6,000 X Rs. 45 = Rs.2,70,000 10,000 X Rs. 20 = Rs. 2,00,000 200 X Rs. 300 = Rs. 60,000 12,000 X Rs.12.5 = Rs. 1,50,000 300 X Rs. 130 = Rs. 39,000 7,1 9,000 5,000 143.80 Product Y Rs 4,000 X Rs.45 = Rs.1,80,000 5,000 X Rs.20 = Rs.1 ,00,000 400 X Rs.300 = Rs.1,20,000 38,000 X Rs.12.5 = Rs. 4,75,000 12,000 X Rs.1 30 = Rs. 1,56,000 10,31,000 25,000 41.24 Particulars Machine Set up Quality inspection Production order Machine hours wor ked Material receipts Total overhead costs Units produced Overhead cost per unit Computation of Total Cost under Traditional Cost Accounting and Activity Based C osting Particulars Product X – Activity Based Costing 200 60 143.80 Product Y – Acti vity Based Costing 100 80 41.24 221.24 Product X – Product Y – Traditional Costing T raditional Costing 200 100 60 80 105 140 365 320 Direct Material Direct Labor Manufacturing overheads Total cost of 403.80 Manufa cture From the above comparative analysis it is clear that, under Traditional Costing, Product X is charged with Rs. 105 per unit as manufacturing overheads while in case of Product Y, the share of overhead cost is Rs. 140. Under Activity Based C osting the amount is Rs. 143.80 and Rs. 41.24 per unit. Thus due to Activity Bas ed Costing, the distortion in cost is avoided.

Solved Problems 1 The following information relates to budgeted operations of Division X of a ma nufacturing company. Particulars Sales – 50,000 units @ Rest. 8 Less :- Variable C osts @ Rest. 6 per unit Contribution margin Less : Fixed Costs Divisional Pro ts A mount in rupees 4,00,000 3,00,000 1,00,000 75,000 25,000

The amount of divisional investment is Rs. 1,50,000 and the minimum desired rate of return on the investment is the cost of capital of 20% Calculate I] I] 2. Di visional expected ROI and ii] Divisional expected RI ROI = Rs. 25,000/1,50,000 X 100 = 16.7% A company has two division, A and B. Division A manufactures a comp onent which is used by Division B to produce a nished product. For the next perio d, output and costs have been budgeted as follows. Division A 50,000 -------------2,50,000 1,50,000 Division B ---------50,000 6,00,000 2,00,000 Solution II] R I = Divisional Pro ts – Minimum desired rate of return = 25,000-20% of 1,50,000 = (R s. 5,000) Particulars Component units Finished units Total variable costs - Rupees Fixed C osts Rupees The xed costs are separable for each division. You are required to advise on the transfer price to be xed for Division A’s component under the following circumstanc es. A. Division A can sell the component in a competitive market for Rs. 10 per unit. Division B can also purchase the component from the open market at that pr ice. B. As per the situation mentioned in (A) above, and further assume that Div ision B currently buys the component from an external supplier at the market pri ce of Rs. 10 and there is reciprocal agreement between the external supplier and another Division C, within the same group. Under this agreement, the external s upplier agrees to buy one product unit from Division C at a pro t of Rs. 4 per uni t to that division, for every component which Division B buys from the sup Solution Transfer price decisions can be taken on the following basis. A. Transf er Price :Marginal Cost + Opportunity Cost i.e. Rs. 5 + Rs. 5 = Rs.10 Note :- Ma rginal Cost = Rs. 2,50,000/50,000 units= Rs. 5 Opportunity cost Rs. 5 is compute d on the basis that the Division A will sacri ce Rs.5 if they sell the product to Division B. B. In this situation, the transfer price will be worked out as under , Marginal Cost + Contribution + Pro t foregone by Division C Rs. 5 + Rs. 5 + Rs. 4 = Rs. 14 In situation (B), if Division B purchases from Division A, it will no t purchase from external supplier. Hence, the supplier will stop purchasing from Division C, which will result in a loss of pro t to Division C @ Rs.4 per unit, a nd therefore this amount will be recovered from the transfer price. Transfer Price = 421

000 Amount 10. Solution ation of Transfer Price for Division A Particulars Variable Cost Per Unit Cost per unit.000 = Rs. 5.000 5.80.00. 5.3 A company xes the inter-divisional transfer prices for its products on the basis of cost plus an estimated return on investment in its divisions.000/4. 2.00. Amou nt in Rupees 5.00. = 4.00.00.00. The following particulars of Division A are also known.00. 0 .000 = Re.000 10 4.000 2. 00.00.70 Current Assets Rs.000 8. Return on Investment Desired Return 28% on Rs. The relevant po rtion of the budget for the Division A for the year 2006-07 is given below.000 Pro t Margin per unit Transfer Price Per king Notes :I.000 28% Particulars Fixed Assets Current Assets (other than debtors) Debtors Annual xed c ost for the division Variable cost per unit of product Budgeted volume of produc tion per year (units ) Desired Return on Investment You are required to determine the transfer price for Division A.70 4 A company has two divisions. 10.8.00 0.00.00.000/4 .000 II.000 Budg eted volume of Production p. Amount in Rupees 5.70 12.00.000 Particulars Fixed Overheads Variable Cost Average Assets – Debtors Inventories Pla nt Comput Fixed Unit Wor Rupees .000 Total Rs.00. 1 per unit 2.00 2. Di vision A has a budget of selling 20. Division A and Division B.a.000 5. 10.00.00.000 number of a particular component X to fe tch a return of 20% on the average assets employed. Investments in Division A Fixed Assets Rs.00.000 units Pro t margin per unit = 2.000 3.000 Re.00.80.

4.40.000 units @ Rs.40. The following working notes are required for this. A want s a price of Rs.I] Total Sales Amount in Rupees 5.000 12. of Rs. Divisi on A has another option on hand.50.12.05.000 6.000/12.00.000 and xed overheads by Rs. This will reduce the holding of assets by Rs.00.000 80.000 units of the product @ Rs.00.05. 2 per unit of X.000 2.00.000 units to Divisi on B @ Rs. 2 per unit Total Sales Variable Overheads Contribution Margin [Sales – vari able overheads] Less :. 4.000 + 5.000 2. i. The second option is to produce and sell only 1.000 X 100 = 8.000 7.70 per unit Transfer to Division B 50.000 80.000 units of component X.00.75% Option II – Amount in Rupe es 7.000 8.000 Desired pro t – 20% of average assets.000 units @ Rs.000 1.000 10.000 units of the compon ent X can be directly sold to the market at the proposed price.05.000 9. 000 1. 2. we will evaluate the two options available to Division A.000 4. Statement Showing Comparative Pro tability of Option I and Option II Particul ars Sales – 1.000 = Rs.000 units of comp onent X. It has been gath ered that Division B can take up the balance 50.55.00.4 0.000 5.70 per unit.00.00.50.000 = Rs.00.000.000 5. You are required to advise the most pro table course of action for Division A.40.50. which is to produce only 1. 12.70 to outsiders and 50. The statement of evaluation is prepared as given be low.000 units = Rs. 2. 4 per unit but B is prepared to pay Rs.000 [ 2.000 Working Note II Particulars Fixed Cost Variable Cost Pro t [ As per Working Note No.000 1.000 units @ Re. 4.70 per unit Now.00.000 Selling Price Per Unit = Rs.05.2. Solution For arriving at the solution.00.000/2.Fixed Costs Pro t Capital Employed Return on Capital Emplo yed Option I – Amount in Rupees 7. 1 per unit ] 2.000 units to ou tsiders @ Rs.05. The rst option is to sell 1. 2.50.00.00.75.000 1.00. we will have to nd out the am ount of desired pro t and the sales value of Product X alongwith the selling price per unit.e.00. 4.However there is a constraint in marketing and only 1.05.00.50.00.9.000/10.000 + 5.05. 25. Working Note I – Amo unt of desired pro t = 20% of average assets employed Average Assets Employed = De btors + Inventories + Plant and Equipments = Rs.000 X 100 = 8% 423 .50.

0 0.Alfa Particulars Fixed Cost Return on Capital Employed Residual inc ome desired Total Amount in Rupees 80.Observation – From the above calculation.000 = 90. You are required to calcula te.000 12% Particulars Sale (outside customers) Variable cost per unit Divisional apital employed Cost of Capital xed cost C Beta has just received a special order for which it requires components similar to the ones made by Alfa. Alfa and Beta agree that this wi ll involve an extra variable cost of Rs. Alfa has annual capacity to manufacture 15. 160 Rs. Beta has ask ed Alfa to quote for manufacture and supply of 3. Division . Also indicate the circumstances in which the proposed transfer price may res ult in a sub optimal decision for the Company as a whole.000 units @ Rs.000 while that of Alfa is Rs.000 270.75% rate of return while Option II results into 8% return on Capital Employ ed.000 units = Rs. Solution We will have to prepare a statement showing details of cost and income desired as shown below . Alfa and Beta.000/3.000 Minimum contribution to be earned from additional 3.00. 5 per unit . it is clear that the Option I results in to 8. 10 per unit Additional variable cost for modi cation = Rs. 160 [Variable cost] = Rs. 30 lakhs.00.750.00. 270 lakhs – Rs.0 00 Rs.00.00. The budge ted residual income of Beta is Rs.00.0 0. 180 per unit Rs.000 100.00.00.80. Contribution per unit Rs. 240 lakhs = Rs. Hence.000 = Rs. 5 per unit. Calculate the transfer price which Alfa should quote to Beta to achieve i ts budgeted residual income. II. I.000 units X Rs. Fully aware of the idle capacity of Alfa.00. 30. Option I is recommended. Details 12.000 numbers of the component s with a slight modi cation during nal processing.00 0. 20 Total desired contribution = 12.000 Contribution per unit = Rs.000 numbers of a specia l component that it sells to outside customers.100. but has idle capacity.00.00.00. Other relevant details extracted from the budget of Alfa for the current year s were as follows.00.000 12% of 750.00. 2 40. 180 [Selling Price per unit] – Rs.00. 20 per unit = Rs. 5 XYZ Ltd which has a system of assessment o f Divisional Performance on the basis of residual income has two Divisions. 120.

Marginal Cost: Rs. 4 per unit.2 . 4 X 1 . 1.500 units = Rs. 4 X 50. 4 = Re. VI] At an ag reed market price of Rs. 175 will be sub optimal for the group as a whole. Marginal Cost + 25% = Rs. 4 + Re. Total pro t = 50. 4 = Rs.50. 1 = Rs.67 = Rs. the minimum transfer price per unit = Rs.e. I] Marginal Co st II] Marginal Cost + 25% III] Marginal Cost + 15% return on capital employed.00 [variable 100%] Labor: Rs. 4 + 15% p. i.500 units [completed] at a capacity of 75%.67 – existing marginal cost Rs.50 Assume no increase in the xed costs.000 X Rs.a.000 units = Rs.00 [variable 25%] The sale price of a completed unit of Transferor Ltd. 175 per unit If Beta can buy from outside at less than the variable cost of manufact ure.50. Transferee Ltd. the pro t is Rs. with the following alternative transfer prices per unit. Extra pro ts = 15/100 X 20. = 2. 6. there will be no change in the pro t s. [ Assume capital employed Rs. 8 per unit.1] If output is transferred at Rs. 5 = Rs. 425 .000 IV.000.500.00. 6. Existing pro t = Rs.87.Hence. Extra pro t earned = 50. Solution The existing normal output of Trans feror Ltd. 4 per unit. is Rs.000 X 6/12 = Rs.500 units per week or 1. 8/12 X Rs.000 units in 25 weeks. 10 + Rs. hence total pro t = Rs. 5 Extra pro t = Rs.Rs. is 7. Marginal Cost + 15% return on capital = Rs. 1 per unit.67 = Rs. I. for 6 months [25 weeks] of supplying units to Transfe ror Ltd. at the existing cap acity is as follows. Number of units required by Transferee Ltd. Contrast the effect on t he pro ts of Transferor Ltd.000 III. 7. 1 = Rs.000 units per week of prepared material for their nishing process. The exi sting cost structure of one prepared unit of Transferor Ltd. 2. 2. Existing cost Rs. 6. Had production problems in preparing and req uire 2. The normal output per week is 7.000 X Re.00. Transferor Ltd. II. 4. The impact on pro t under various alternatives is as follows. 4 per unit.33. 160 + Rs.00 [variabl e 50%] Overheads: Rs. 5 . 4 per unit [material Rs.000 V Existing cost + portion of pro t on the basis of preparing cost/total co st X unit pro t Rs. 1 + Overh ead Re . 10. 4 per unit [excluding selling and distrib ution expenses overheads which are not given directly in the example] At existin g cost. have two processes – P reparing and Finishing. 8 + Rs. 8. 20 lakhs. Existing cost = marginal + xe d = Rs.000 units per week o r 50. 165 then only the decision to transfer at a price of Rs. Rs. 20 lakhs] IV] Existing Cost V] Existing Cost + a p ortion of pro t on the basis of preparing cost/total cost X unit pro t.500 units for 6 month [25 weeks] The rate of pro t is Rs.67. 2 + Labor Re.87.67. Material: Rs. 16 with a pro t of Rs. 2. 2. 4 = pro t per unit = Rs. Thus the total pro t for 6 months will be Rs. 3. 4. 50. of Rs.

800 /5 = 360 units 360 units of L can be produced by utilizing balance hours and this means that balance 240 units of product L will have to be transferred to B from existing production.000 – 13.800 hours [15. 8. A company is o rganized into two divisions namely A and B. sales/ production 1000 600 1600 Hours used Balance hours 5000 1800 6400 100 000 8200 1800 Transfer price of 600 units of L for division B Balance hours available = 1. 4. If division A ca nnot supply the requirements. 1 00 70 30 3 10 II Statement showing utilization of labor hours Product L M K Hours per unit 5 3 4 Max. A produces three products. Thus there will be foregoing of contribution. 115 60 55 5 11 I M Rs. 115 60 5 1000 M Rs.50 = Rs. 4.VI Agreed market price = Rs. L and M.50 – existing marginal cost Rs.000 Solution Statement showing contribution per direct labor hour Particular s Market price Variable costs Contribution Direct labor hours Contribution per d irect labor hours Ranking K Rs. As per the statement number one. What should be the transfer price of 600 units of L for divis ion B.50 pro t per unit. 4. 120 84 4 1600 L Rs. 120 84 36 4 9 III L Rs. Thus 24 0 units of L can be produced by foregoing contribution on K. 2.25.00 = Rs. Total pro t = 50. K Rs. The relevant data per unit is given below. if the total direct labor hours available in division A are restricted to 15. contribution per hour for K is the lowest. division B can buy a similar product from market a t Rs. .112 per unit. 100 70 3 600 Particulars Market price Variable costs Direct labor hours Maximum sales potenti al . K.000.000 units X Rs. 7.200] Hour per unit of product L = 5 hours Number of units of L = 1.units Division B has a demand for 600 units of product L for its use.

9 Hours per unit of L = 5 Hence oppo rtunity cost Rs. 78 per unit 427 .Opportunity cost per hour [product K] = Rs. 60 + Rs. 105 Price for 360 units = Rs. 9 X 5 = Rs. 60 X 360]/600 = Rs. 60 Transfer price for 600 unit s = [Rs. 45 Thus price for 240 units = Rs. 105 X 240 + Rs. 45 [oppo rtunity cost] = Rs.

Q.1) (a) State whether the following statements are True (T) or False (F): (i) A BC analysis is made on the basis of unit prices of materials. (ii) Cost of tube used for packing tooth paste is indirect material cost. (iii) Value analysis hel ps in cost control. (iv) No distinction is made between direct and indirect mate rials in Process Costing. (v) Cost industry makes use of output costing. (vi) St andard hour is the standard time required per unit of production. (b) Match the following correctly: Merit rating Flexible budget Differential cos t analysis Debenture interest Angle of incidence Pure nance not included in cost Pro tability rate Evaluation of a job Liquidity Considers costs by behavior Decisi on taking Budgetary control Basis for remunerating employees (c) Choose the correct answer from the brackets: (i) The annual demand of a cert ain component bought from the market is 1,000 units. The cost of placing an orde r is Rs. 60 and the carrying cost per unit is Rs. 3 p.a. The Economic Order Quan tity for the item is_______ (200, 400, 600) (ii) The monthly cost of maintenance of machinery for 12,000 machine hours run is Rs. 1,70,000 and for 18,500 hours it is Rs. 2,02,500. The cost of maintenance for 14,000 hours is Rs. ______. (1,9 0,000, 1,80,000, 1,85,000) (iii) A company’s xed cost amounts to Rs. 120 lakhs p.a. and its overall P/V ratio is 0.4. The annual sales of the company should be Rs. ______ lakhs to have a Margin of Safety of 25%. (400, 500, 600) Ans.1) (a) (i) – F alse; (ii) – False; (iii) – False; (iv) – True; (v) – True; (vi) – False.

(b) Merit rating Flexible budget Differential cost analysis Debenture interest A ngle of incidence Basis for remunerating employees Considers cost by behavior De cision making Pure nance not included in cost Pro tability rate (c) (i) – 200 units; (ii) – 1,80,000; (iii) – Rs. 400 lacs; Set : 2 Q.1) (a) State whether the following statements are True (T) or False (F ): (i) (ii) (iii) (iv) (v) (vi) Marginal costing is useful for long-term plannin g. Standards are arrived at based on past performance. Cost of oppy disk used for of ce computer is administration overhead. Opportunity cost is the value of bene t sacri ced in favor of an alternative course of action. Bin cards show quantity and value of stores. A production order is an order received from a customer. (vii) LIFO method of pricing issues is useful during periods of in ation. (viii) O bsolete stocks can be determined by the frequency of issues. (b) Fill in the blanks correctly: (i) (ii) (iii) (iv) (v) (vi) ________ cost is the difference in total cost that results from two alternative courses of action . _______ is a must for meaningful inter rm comparison. The most powerful tool us ed to analyze and interpret the health of an enterprise is ________. Under _____ ___ plan employees receive a constant portion of value added. Idle time variance is always __________. Generally an item of expense, when identi ed with a speci c c ost unit is treated as _________. (vii) Contribution earned after reaching BEP is ________ of the rm. (viii) In ‘make or buy’ decisions, it is pro table to buy from outside only when the suppliers pric e is below the rm’s own _________. 431

(c) Choose the correct answer from the brackets, giving brief workings: (i) In a company there were 1,200 employees on the rolls at the beginning of a year and 1,180 at the end. During the year 120 persons left service and 96 replacements w ere made. The rate of labor turnover according to ux method is ________ % (5.04, 4.03, 9.08) (ii) The variable cost of a product increases by 10% and the managem ent raise the unit selling price by 10%. The xed cost remain unchanged. Then BEP of the rm _____ (increases, decreases, remain the same) (iii) In a factory where standard costing is followed, 4,600 Kg. of materials at Rs. 10.50/Kg. were actua lly consumed resulting in a price variance of Rs. 4,800 (A) and usage variance o f Rs. 4,000 (F). The standard cost of actual production is Rs._______ (1,00,000, 96,000, 1,20,000) Ans.1) (a) (i) – False; (ii) – False; (iii) – True; (iv) – True; (v) – False; (vi) – False; (vii) – True; (viii) – False. (b) (i) – Differential; (iii) – ratio a nalysis; (v) – Adverse; (vii) – Pro t; (ii) – Uniform Costing; (iv) – Ruckev; (vi) – Direct expense; (viii) – Variable Cost (c) (i) – 9.08%; (ii) – remains the same; (iii) – Rs.1,00,000 Set : 3 Q.1) (a) Match the following correctly: Relevant costs Primary packing m aterials Subsidised canteen facility Normal capacity Practical capacity Indirect materials Control of inventory Long-term average capacity based on sales expect ancy JIT system Value analysis Future costs affected by decisions taken Direct m aterials Non-monetary incentive (b) Fill in the blanks correctly: (i) Work study consists of _________ and _________. (ii) Two methods used for calculation of e quivalent production are _________ and _________.

7. (ii) Rs.000 ( F)] Ans. (v) Flexible budget recognizes the differen ce between _________ and _________. Fo r a certain period the actual production was 11.000.000 kg. (c) Choose the correct answer from the brackets. [4.000 (F). —————. respectively. 110.(iii) Economic Batch Quantity depends on _________ and _________ costs. Costing Pro t and Loss Account (v) Variable. and 15.000 kg. time and motion study (ii) FIFO. If the costs are in the proportion 4:6:7 then the cost per equivalent unit is Rs. Then the volume variance is Rs. (iii) Rs. 2.000 units and actual expenditure came to Rs. storage (iv) Production overhead. (iv) Nor mal idle time cost should be charged to _________ while that due to abnormal rea sons should be charged to _________.000 units is Rs. xed costs. 2. (c) Choosing correct Answer : (i) 110%. 20.000 kg. 15.. supported by brief workings: (i ) If the capacity usage ratio of a production department is 90% and activity rat io is 99% then the ef ciency ratio of the department is _________%.1) (a) Matching Statements: Relevant Costs Primary packing materials Sub sidized canteen facility Normal Capacity JIT System : : : : : Future costs affec ted by decision taken Direct materials Non-monetary incentive Long-term average capacity based on Sales expectancy Control of inventory (b) Fill in the blanks. 2.000 (A). Q and R in a factory are 20. (i) method study. 5. 90) (ii) The output of three different products P.000 (FAV) 433 . 5) (iii) The b udgeted xed overheads for a budgeted production of 10. 24. avera ge method (iii) Set up costs. _________. (120.000. (10.

500 machine hours worked and Rs. To get maximum bene t the rm should place orde r for ____________ units at a time. 16. (vi) Material usage vari ance is the sum of ____________ and ____________. 17.200. 60 each.400 for November 2004 when only 5. If the average amount of debtors of the rm is Rs.1) (a) Match the following correctly: Pareto distribution Angle of incidence S tandard costing Electricity under taking Direct materials Telephone charges Cost reduction Semi-variable cost Engineered cost Pro t earning capacity Cost control Operating costing Margin of safety ABC analysis Relevant cost (b) Fill in the blanks suitably: (i) Two broad methods of costing are __________ __ and ____________ (ii) A cost which does not involve any cash out ow is called ____________ or (iii) Reorder level is ____________ multiplied by ____________. 15.500 during Octobe r 2004 for 7. (1000.800. the average collection period of credit sales ____________ months. (c) Choose the correct answer from the brackets. 1.Q. 80 lakhs and 25% of the same is cash sales. giving brief workings: (i) The budgeted annual sales of a rm is Rs. (1/2. 120 and the annual storage charges works out to 10% of the cost of the item. 900. 1 . It was Rs. 16. The cost of plac ing an order and following it up is Rs.200) . (iv) The normal value of current ratio is ____________ and that of quick ratio i s (v) Margin of safety is ____________ or ____________. The budgeted cost of repairs and maintenance f or December 2004 when 6. of machine hours run.200 machine hours are expected to be worked will be Rs.000 nos of a certain component which it buys at Rs. 5 lakhs. 800) (iii) The repairs and maint enance of machinery in a factory is found to be a semi-variable cost having some relationship with the no. ____________ (17.400 machine hours were worked.1/2) (ii) A rm requires 16.

400 (F). (iii) Rs. Rs. Pr o t / (C/S) (vi) Mix variance. Imputed Cost (iii) Maximum usage.200 to manufac ture 400 units. 400 (F). (iv) – Variable overhead expenditure variance : Rs. Sales. 16. In a certain months it took 1. [Rs. Yield variance (c) (i) – 1 month. 600 (F) and Rs. 400(A)] Ans.1) (a) Match the following correctly with what it relates: Uniform costin g Variance analysis Point rating Value engineering Stepped cost Supervisors’ salar ies Decision making Design of the product Technique to assist inter .1) (a) Match the following correctly: Pareto distribution Angle of incidence Standard costing Electricity undertaking Direct materials Telephone charges ABC analysis Pro t earning capacity Cost Control Operating Costing Engineering Cost Semi-variable cost (b) (i) Speci c order costing. 10 (5 hours @ Rs. Rs. 600 (F) and Rs.800 hours at a cost of Rs.rm comparis on Job evaluation Engineered cost Management by exception Method of costing 435 .(iv) The standard variable overhead cost of a product is Rs. The variable overhead expenditure and efficiency variances are _ ___________ and ____________ respectively. ( ii) – 800 unit (EOQ). 4.600 (A) Set : 5 Q.1 (v) Sales minus B.200. 600 (A) and Rs. Operation Costing (ii) Notional Cost.E.). Maximum lead period (iv) 2. 2 /hr.

(ii) Time and motion study which is a function of the engineering department. 22. (iii) Fixed costs vary with volume rath er than time. (vi) In break-even analysis it is assumed that variable costs u ctuate inversely with volume.000 (Adv. it is treated as direct expense. 24.300 units B: 2. (ii) In a fa ctory of PEE Ltd. (v) Future costs are not relevant while making mana gement decisions.800 uni ts .). 3.order level of material A will be A: 2. If th e company has a pro t volume (P/V) ratio of 40%. (iii) ZEE Ltd. uses materia l A for the production of product M. Then actual production for the period was A: 5. function and cost can be expressed as: Cost = Value/Function.400 units B: 4.000. (c) In the following cases one of the answers is correct.200 units C: 3.000 units D: none of the above. 30 lakhs per annum. The safety stock of material A is 300 units : the supplier quotes a delivery delay of two or three weeks. where standard costing is followed. (iv) The relationship of value. 200 lakhs B: Rs.(b) State whether the following statements are True (T) or False (F): (i) If an expense can be identi ed with a speci c cost unit. the re . is useless for the determination of wages.800 units is Rs. For a certain period act ual expenditure incurred was Rs.400 units C: 2.. 300 lakhs C: Rs. Choose the correct ans wer and give your workings/reasons brie y: (i) A company maintains a margin of saf ety of 25% on its current sales and earns a pro t of Rs. 325 lakhs D: none of the above. If the company use s 500 to 800 units a week according to the activity levels. the budgeted xed overheads for a budgeted production of 4.000 resulting in a xed overhead volume varian ce of Rs. its current sales amount to A: Rs .700 units D: 2.

1) (a) Match the following correctly with what it relates: Uniform costing V ariance analysis Point rating Value engineering Stepped cost Technique to assist inter rm comparison Management by exception Job evaluation Design of the product Supervisors’ salaries (b) (i) – True.1) (a) Match the following correctly: Scatter Diagram Escalator Clause Perpetual Inventory Material Requisition By-product Cost Accounting Production Order Reverse Cost Method Splitting of Semi-variable Costs Contract Costing Meth od of maintaining Store records Purchase Order Continuous Veri cation of Stores (b ) State whether the following are True (T) or False (F): (i) Variable Cost varie s with time. (c) (i) – B : Rs.700 units Set : 6 Q.Ans. (iii) Ce nvat credit is allowed on the basis of Central Excise Gate Pass. 300 lacs (ii) – B : 4. (ii) – False. (ii) ABC analysis is based on the unit price of materials. (v) Integral accounts merge nancial and cost accounts in one set of accounts. 437 . (iv) – False. (iii) – False. (v) – False.200 units (iii) – C : 2. (vi) – False. (iv) Differenti al Costing and Marginal Costing mean the same thing.

.(c) Choose the correct answer from the answers given for each of the following q uestions. 5. 000. 40. (A) Rs. The s ___________. 85 lakhs (B) Rs. There is no change in C/S ratio or xed costs.000 (C) 3. (ii) – False. 5 lakhs (B) Rs.500 (B) 4. 75 lakhs (C) Rs. By -month. by a Company which has an annual credit reducing the period of credit to half-a fall in the amount of average Debtors i lakhs (C) Rs. 15/hr. Annual rate of interest: 12%.000 and Rs. Indicate workings brie y: (i) A worker has a time rate of Rs. Cost of production per unit: Rs.1) (a) Match the following correctly: Scatter Diagram Escalator Clau se Perpetual Inventory Material Requisition By-product Cost Accounting Splitting of Semi-variable costs Contract Costing Method of maintaining store records Pro duction order Reverse cost method (B) Cost bene t analysis (D) None of the above (b) (i) – False.000 (iii) A company has annual turnover of Rs.20. 3. 820 ( C) Rs.000 units. 792 (B) Rs. 108 lakhs. (iii) – True. (iv) – False. (v) – True. (v) The average period of credit allowed sales of Rs. The C/S ratio of the Company is ___________.80. Set-up cost per ba tch:Rs. He makes 720 units of a component (standard time:5 minutes/unit in a week of 48 hou rs. It makes 10% pro t o sales before charging depreciation and interest which a mount to Rs. (A) Rs. costs are accumulated by (A) Cost objects (C) Co st Pool Ans. 120. 6 lakhs (vi) In activity based costing. 4 . (ii) A television company manufactures several components in batches. 864.4.000 and Rs. The Economic Batch Quantity is ___________ units (A) 2. (A) 1/3 (B) 2/5 (C) 1/4 (D) None of these.000 respectively. 120 lakhs is one month. 60 lakhs (D) Rs. 200 lakhs and an average C/S ratio of 40%.5 lakhs (D) Rs. 16. The follow ing data relates to on component: Annual demand:32. sales fall to Rs. 24. (A) Rs. The Company’s net pro ts for these months amounted to Rs. (iv) Sales for two consecutive months of a Company are Rs. 840 (D) Rs. 55 lakhs.10 lakhs and Rs. His total wages including Rowan bonus for the week is —————. 15 lakhs respectively The annual xed cost of the com pany is ___________.000 ( D) 2.

(c) (i) – D : Rs. which at a particular time or over a period. 5 lacs (vi) – A : Cost pool Set : 7 Q. (ii) MNC consciously manipulate the transfer prices as an instru ment of maximizing achievement of _________. Measures the divisional performance (ii) Value analysis (iii) Material requirement planning (iv) Residual income (v) Performance of public (b) Fill in the blanks: (iii) Purchase order processed (iv) Shows pro tability and capacity utilization (v ) Promotes innovation and creativity (i) Transfer Pricing have a signi cance for the purpose of measurement of ________ __ performance. 439 . will not li mit the activities of the organization. (iv) A exible budget recognizes the behavior of ________ an d ________. (iv) A key factor.1) (a) Match the Statement in Column I with that in Column II: Column I (i) Cost driver (i) (ii) Column II Delivers what is required in the correct pl ace at the correct time. (c) Which of the following statements are True or False: (i) In ZBB important re ference is made to previous level of expenditure. (v) Pro t volume graph shows the relationship between _______ and ____ __. (v) Pro t planning and control is not a pa rt of budgetary control mechanism. 85 lacs (iv) – B : 2/5 ( v) – C : Rs. 2000 units (iii) – A : Rs. 864 (ii) – D : Rs. (ii) Just-in-time deals with c ontrolling defects in time. (iii) Production budget is prepared before sales bud get. (iii) Ef ciency is basically a ratio of ______ and ______.

Measures the divisional performance (iv) Shows pro tability and capacity utilization. xed .Ans. (ii) – corporate goal. (iv) – variable. (iii) – True. (v) – False.1) (a) Column I (i) Cost driver (ii) Value analysis (iii) Material requireme nt planning (iv) Residual income (v) Performance of public enterprises Column II (iii) Purchase order processed (v) (i) (ii) Promotes innovation and creativity Delivers what is required in the correct place at the correct time. costs (v) – sales. (iii) – input. pro t (c) (i) – False. output. (iv) – False. (ii) – False. (b) (i) – divisional.

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