Cost Management and Accounting

Name:-Velagapudi Anudeep
Course: pgdm6
Roll no: 1967
Module leader:-Prof.Sunil Lalchandani
Question – 1

Cost sheet & estimated cost sheet of lavish motors Inc. For the year 2019-2020 &
2020-2021

(amount in $)
Current 2019-2020 Estimated 2020-2021
Particulars Amount Amount Amount Amount
Raw materials consumed 1,20,000 1,20,000 1,68,000 1,68,000
Prime cost 1,20,000 1,68,000
+Factory Overhead 75,000 75,000 1,05,000 1,05,000
Net work cost 1,95,000 2,73,000
+Office and administration
overheads
 Rent, rate, and taxes 15,000 15,000
 General expenses 30,000 30,000
 Office expenses 90,000 1,35,000 90,000 1,35,000
Cost of goods sold 3,30,000 4,08,000
+Selling and distribution 45,000 45,000 51,750
overheads
Total cost 3,75,000 4,59,750
Profit 2,25,000 4,40,250
sales 6,00,000 9,00,000

*Working note –
(for estimated 2020-21)

 Manufacturing exp. are in same proposition to materials consumed (2019-20) =

(120000/75000) =(168000/x) =100500
 Material consumed raised by 40% = 1,20,000*40% = 1,68,000
 Adm. Exp. Remains same
 Sales and distribution raised by 15% = 45000*15% = 51750 & Sales raised by 50% =
600000*50% = 900000

Question – 2(A)
a. Calculation of BEP

STATEMENT SHOWING BEP

CALCULATION (Amount in Rs)
*Note - Variable cost = direct material + direct
labour + other variable cost = 8+6+6 = 20
PARTICULAR
S AMOUNT (P/U) BEP = Fixed cost /
Sales ₹ 40 contribution per
(-) variable cost ₹ 20 unit
Contribution ₹ 20 BEP = 1,00,000 / 20 = 5000
(-) Fixed cost ₹ 1,00,000
(FIXED COST/ Therefore BEP = 5000
BREAK EVEN
CONTRIBUTION b. Profit earned if unites sold are 7000?
POINT =
PER UNIT )
A) BEP( UNITS) 5000
B) PROFIT IF 7000 UNITS WERE SOLD
given, sales 7,000.00
profit be X
fixed cost ₹ 1,00,000
contribution ₹ 20
(fixedcost + desired profit) / contributionper
sales =
unit

profit = (sales*contribution per unit) - fixed cost

X= ₹ 40,000

Given sales = 7000

Let profit = X
Fixed cost = Rs. 1,00,000
Contribution = Rs. 20/unit
Sales = (fixed cost + desired profit) / contribution per unit
7000 = (1,00,000 + X) / 20
X = 1,40,000 – 1,00,000
Therefore profit = 40,000
c. Sales to earn a profit of Rs. 10,000

C) SALES TO EARN PROFIT 10000

Given, Profit ₹ 10,000
 sales be X
fixed cost ₹ 1,00,000
contribution ₹ 20
(fixedcost + desired
sales = profit) / contributionper
unit
x (Units)= 5,500

Given profit = 10,000

Let sales = X
Fixed cost = Rs. 1,00,000
Contribution = Rs. 20/unit
Sales = (fixed cost + profit) / contribution per unit
Sales = (1,00,000 + 10,000) / 20
Therefore sales = 5,500
Question – 2(B)
Question – 2(B)
Particulars First half second half Change
Sales 90,000 1,00,000 10,000
Cost 80,000 86,000 6,000
Profit 10,000 14,000 4,000

a. P/V ratio = change in profit / change in sales

= 4000 / 10,000
= 40%
b. Fixed cost = contribution – profit
contribution = sales * p/v ratio = 1,00,000*40% = 40,000
Fixed cost = 40,000 – 14,000 =26,000
b. BEP = Fixed cost / (p/v ratio)
= 26,000 / 40% = 65,000
c. Margin of safety (MOS) = Profit / (p/v ratio)
= 14,000 / 40% = 35,000
*note – Considered Q2 sales for contribution
Considered Q2 profit for fixed cost
Considered Q2 profit for MOS
Particular Reorde Normal Min. Max. Reorder Normal Min. Max.
s r period reorder reorder reorde quantity usage usage usage
period period r (units) per per per
period week week week
X 4-6 5 4 6 600 100 50 150
weeks
Y 2-4 3 2 4 1000 100 50 150
weeks
 Question – 3(A)

Reorder level = Max. usage per week * Max. reorder period

Minimum level = Reorder level – (Normal usage * normal reorder period)
Maximum level = Reorder level + Reorder quantity – (Min. usage * Min. reorder period)
Average stock level = Minimum level +½ (order quantity)
Particulars X Y

Reorder level 150 * 6 900 150*4 600

Min. level 900 – (100 * 5) 400 600 – (100*3) 300

Max. level 900+600 – (50*4) 1300 600 + 1000 – (50*2) 1500

Avg. stock level 400 + ½ (600) 700 300 +½ (1000) 800

Question – 3(B)
Calculation of economic reorder quantity (EOQ) of Kodak ltd.
Particulars Value

Annual demand 10000

Material cost per unit Rs. 20

Holding cost per annum 10%

Ordering cost Rs. 50

Economic order quantity = [(2*annual demand*order cost) / holding cost] ^ (½)

= (1000000 / 2) ^ (½)
= 707.107

PRICE
PARTICULARS UNITS PER UNIT AMOUNT CASE 1 CASE 2 CASE 3 CASE 4
SALE UNITS 15000
₹ ₹ ₹ ₹
SELLING PRICE ₹ 10 ₹ 1,50,000 1,35,000 1,65,000 1,50,000 1,50,000
( - ) VARIABLE ₹ ₹
COST ₹6 ₹ 90,000 90,000 ₹ 90,000 99,000 ₹ 90,000
CONTRIBUTION ₹4 ₹ 60,000 ₹ ₹ 75,000 ₹ ₹ 60,000
 45,000 51,000
₹ ₹
( - ) FIXED COST ₹ 34,000 34,000 ₹ 34,000 34,000 ₹ 40,000
₹ ₹
PROFIT ₹ 26,000 11,000 ₹ 41,000 17,000 ₹ 20,000
Question 4

P/V ratio = (contribution / sales) * 100

BEP = Fixed cost / (p/v ratio)
Margin of safety = Profit / (p/v ratio)

PARTICULARS NORMAL CASE 1 CASE 2 CASE 3 CASE 4

P/V RATIO 40% 33% 45% 34% 40%
BEP (VALUE) ₹ 85,000 ₹ 1,02,000 ₹ 74,800 ₹ 1,00,000 ₹ 1,00,000
MOS ₹ 65,000 ₹ 33,000 ₹ 90,200 ₹ 50,000 ₹ 50,000

Working notes –
Case 1 – Selling price decreased by 10% therefore new selling price will be 9
Case 2 – Selling price increased by 10% therefore new selling price will be 11
Case 3 – Variable cost increased by 10% therefore new variable cost will be 6.60
Case 4 – Fixed cost increased by 6000 therefore new fixed cost will be 40,000

QUESTION NO: 5

5) Calculation of standard quantity

standard actual Material usage variance
Quantity (units) Cost per unit (Rs.) Quantity (units) 280 (fav)
be X (?) 2.5 4538
 Material usage variance: (Standard quantity – actual quantity)* standard price

 280 (fav) = (X – 4538) *2.5

 280/2.5 = X – 4538
 X = 112 + 4538
 X = 4650 Units
Therefore, Option (b) is the correct answer.
b) Calculation of material price variance
Particulars Standard Actual
Material Cost per kg I(Rs.) 70 72
Material used kgs. (units) 3,500 3,420

Material price variance = (standard price - actual price) * actual quantity

 MPV = (70-72) * 3420
 MPV = -2 * 3420
 MPV = 6840 (Adverse)

Therefore, Option (c) is the correct answer.

c) Calculation of labour efficiency variance
Standard Actual
Hours Rate per hour Hours
29880 8.50 27000
Labor efficiency variance = (standard hours - actual hours) * Standard rate

 Labor efficiency variance (LEV) = (29880 – 27000) * 8.50

 LEV = 2880 * 8.50
 LEV = 24480 (Favourable)

Therefore, Option (d) is the correct answer.

d) Statement 1: A cost that does not change, in total, with the change in activity is
called variable cost is false because the total variable cost changes whereas variable cost
per unit doesn’t change
Statement 2: A cost that changes, in total amount, with the change in the level of activity
is called fixed cost is false because the total fixed cost remains same where as fixed cost
per unit changes.
Therefore, option (d) is zcorrect answer, because both the statements are false.

Part B
Case 1
STATEMENT SHOWING PROFIT OF GTC LTD.
OGY LTD BELLOITE &CO
PARTICULARS CURRENT SUUGESTION SUGGESTION
SALES (UNITS) 100000 120000 90,000
 SELLING PER UNIT ₹ 20.00 ₹ 18.00 ₹ 22.00
SALE (VALUE) ₹ 20,00,000 ₹ 21,60,000 ₹ 19,80,000
(-) Variable cost ₹ 14,00,000 ₹ 16,80,000 ₹ 12,60,000
Contribution ₹ 6,00,000 ₹ 4,80,000 ₹ 7,20,000
(-) Fixed cost ₹ 4,00,000 ₹ 4,00,000 ₹ 4,00,000
Profit ₹ 2,00,000 ₹ 80,000 ₹ 3,20,000

Working note –
1. OGY ltd. Suggestion
If selling price decreases by 10% then quantity sold increased by 10%

IF SELLING PRICE DECREASES BY 10% THEN QUANITY SOLD INCREASED BY 10%

NEW SELLING NEW QUANTITY
PRICE, 10% (INCREASE BY
SELLING PRICE DECREASE QUANTITY GIVEN 10%)
₹ 20.00 ₹ 18.00 1,00,000 1,10,000

2. Belloite & Co
If selling price increases by 10% then quantity sold decreased by 10%
Selling price New selling price Given quantity New quantity
10%

Rs. 20 Rs. 22 1,00,000 90,000

3. variable cost:
Given variable cost = 1400000
Sale units = 100000
Therefore, variable cost per unit= 1400000/100000 = 14/-

CASE B
CALCULATION OF INCOME STATEMENT AT DIFFERENT ALTERNATIVES

Particulars 2500kgs type 1, 3000kgs type 1, 2000kgs typer1, 5000kgs 5000kgs

2500kgs type 2 2000kgs type2 3000kgs type 2 type 1 type 2
 Type Type Type Type Type Type
1 2 Total 1 2 Total 1 2 Total Type 1 Type 2
sale (units) 2500 2500 5000 3000 2000 5000 2000 3000 5000 5000 5000
selling price
(selling price *
sale units) 200 225 425 240 180 420 160 270 430 400 450
(-) Variable
cost
(variable cost*
sale units)
(working
notes) 162.5 175 337.5 195 140 335 130 210 340 325 350
Contribution     87.5     85     90 75 100
(-) Fixed cost     2.5     2.5     2.5 2.5 2.5
Profit     85     82.5     87.5 72.5 97.5
(AMOUNT IN RS. ‘000)

From the above, table we can see that maximum profit is earned by the organisation when we
produce only 5000kgs of Type 2, i.e. 97500.
So, I would suggest the organisation to produce 5000kgs of type 2 detergent among the
alternatives given.
WORKING NOTES:
1) Calculation of variable cost. (Amount in Rs.)

VARIABLE COST TYPE 1 TYPE 2

Ram material consumed 20 16
Direct labor 20 24
Variable cost 25 30
Total 65 70

2) Selling prices of type

Type 1: Rs. 80, Type 2: Rs. 90.