ACCOUNTING ASSIGNMENT

Assignment No: 2

Submitted to: Dr. Irfan Sahibzada

GROUP MEMBERS:
FATIMA BATOOL
MARIA IRSHAD KHAN
MARYAM ZAFAR
ACF’18 (A)

1
 PER UNIT ANALYSIS OF STEEL AND PLASTIC
SP-01 per 100 SP-01 per unit Plastic per 100 Plastic per unit
($) ($) ($) ($)
FIXED
COST
Administrative 196.50 1.97 65.50 .66
expenses
Departmental 157.2 1.57 52.4 .52
expenses
VARIABLE
COST
Direct Labor 196.5 1.97 65.5 .66
Material 321.90 3.22 17.65 .18
Departmental 235.8 2.35 78.6 .79
amount
TOTAL 1107.9 11.08 279.65 2.80

As we calculated per unit of both plastic and steel, we can see a big profit difference of
$8.24/unit (11.08-2.80) which means $828.25 in additional profits per 100 spare parts. This
profit margin is enough to cover the costs of lost inventory once it is discarded by TML.
As its end of May and TML aims to sell its current SP-01 inventory until mid-September. Total
number of weeks from 1st June to 15th September are 15. According to the given calculation:
Total number of sales in 15 weeks= 690*15
=10350 units
Thus, 10350 units of SP-01 will be sold till Mid-September. While the remaining 15100 spare
parts will be discarded as discussed.
Per unit cost of steel spare parts=1107.90/100
= 11.08 / steel spare part
Per unit price of steel spare part = 1350/100
= $13.50/ steel spare part
Profit Generated = 13.50-11.08 = 2.42
Profit Generated from selling 10350 parts until September= 2.42*10350
= $25,057
Loss of discarding 15100 spare parts= 15100*11.079

2
 = $167293
Total Gain/Loss on selling 10350 spare parts and discarding the remaining 1500 parts of SP-01
with raw material included:
=25057-167293-110900= $ (253,136)
Thus, loss is generated in this case
HOW TO RECOVER FROM LOSS
Initially, TML has two choices; if it decides to discard all the SP-01 inventory worth $110900,
then it can recover the loss in:
Recovering Loss= 110900/5713 = 19.4 ~ 20 weeks
Similarly, if the company decides to sell the current inventory tell mid-September and then
discard the remaining 10500 then the loss will be recovered in:
Recovered Loss= 253136/5713 = 44.3 ~ 45 weeks

FINAL VERDICT: