ICAB

Certificate Level-l't Batch

Business and Finance
Mock/Class Test

Full Marks: 50
Time: l Hour

01. Briefly explain the following. 5x2=10

(a) Financial Reporting Vs Management Accountrng
(b) Product cost and period cost
(c) Oppfrtunity cost
(d) Sunk Cost
(e) Margin of safety

02. (a) write four Assumptions/Limitations of cost volume profit Analysis.

(b) X Manufacturing Company Limited has decided to introduce a new product. The new product
can be manufactured by either a "fully automated manufacturing system" or a "partly automated
manufacturing system". The manufacturing system will not affect the quality of the product.
The estimated manufacturing cost under the two systems are as follow:

Fully automated Partly automated

manufacturing System manufacturing Svstem
Raw materials per unit Tk.30.00 Tk.30.00
Direct Labor per Unit
(0.0s DLH x 40) Tk. 2.00 (0.s0 DLH x 10) Tk. s.00
Variable overhead per Unit
(0.0s DLH x 20) Tk. 1.00 (0.s0 DLH x 10) Tk.5.00
Directly traceable additional
annual fixed manufacturing cost Tk.2.5 million Tk. l million
l' Company's market research department has recommended an introductory unit sale price of Tk. 50.
The additional annual marketing expenses are estimated to be Tk.0.50 million plus Tk.2 for each unit sold
regardless of manufacturing method

Requirement:

i) Determine BEP in units & amount under both manufacturing system. 6

ii) How many units must be sold to eam a profit of Tk. 0.45 miltion after tax under fully automated manufacturing
system. Assume corporate tax rate is 40Vo. 5
iiD X manufacturing company wants to sale 2,50,000 units in the next year. Which manufacturing system will be
more profitable? g
03. Unilever (Bangladesh) Ltd. is currently preparing its budget for the period from July 01, 2018 to
December 31,2018. The company manufactures and sells three products: Lux, Dove Shampoo and
Fair & Lovely.

The unit selling price and cost structure of each product is budgeted as follows.

Dove Fair &

Lux Shampoo Lovely
CU CU CU
Selling price 100 124 32
Variable costs:
Labor 24 48 6
Materials 26 7 8
Overhead 10 5 6
qq 60 20

The labor rate is budgeted at CU6 per hour, and fixed costs at CU 1,300,000 per annum. The company has a
maximum production capacity of 228,000labor hours.

A meeting of the board of directors has been convened to discuss the budget and to resolve the problem as to the
quantity of each product which should be made and sold. The sales director presented the results of a recent market
survey which reveals that market demand for the company's products will be as follows.

Product Units
Lux 24,000
Dove Shampoo 12,000
Fair & Lovely 60,000

The production director proposes that since Fair & Lovely only contributes CU12 per unit, the product should no
longer be produced, and the surplus capacity transferred to produce additional quantities of Lux and Dove
Shampoo. The sales director does not agree with the proposal. Fair & Lovely is considered necessary to
complement the product range and to maintain customer goodwill. If Fair & Lovely is not offered, the sales director
believes that sales of Lux and Dove Shampoo will be seriously affected. After further discussion the board decided
that a minimum of 10,000 units of each product should be produced. The remaining production capacity would then
be allocated so as to achieve the maximum profit possible.

Requirement:

Prepare a budget statement which clearly shows the maximum profit which could be achieved in the year ending
December 31, 2018. 15

04. Assume that PV ratio is 20Vo, Margin of Safety sales is Tk. 75,000 and BE sales is Tk. 3,00,000 of a
Manufacturing organi zation.

(i) Draw a break-even (BE) chart showing above results.

(ii) Find out total sales, total fixed cost, total variable cost and total profiV(losses)

Abdul Harnid, FCA

Additional Managing Director & CFO
Eastland Insurance Company Limited