Answer.

Absorption costing Rs.'000 Rs.'000

Sales [6,000 x 50,000] 300,000
Less: cost of sales:
Opening stock [800 x 36(W-1)] 28,800
Production [6,200 x 39.2(W-1)] 243,040
Closing stock [1,000 x 39.2(W-1)] -39,200 -232,640
Gross profit 67,360
Over applied fixed OH (W-2) 588
Adjusted gross profit 67,948
Less: Admin & selling expenses:
Variable 7,200
Fixed 12,000 -19,200
Net profit 48,748

Marginal costing Rs.'000 Rs.'000

Sales [6,000 x 50,000] 300,000
Less: variable cost of sales:
Opening stock [800 x 32(W-1)] 25,600
Production [6,200 x 34.96(W-1)] 216,752
Closing stock [1,000 x 34.96(W-1)] -34,960 -207,392
Gross contribution 92,608
Less: variable selling cost [1,200 x 6,000] -7,200
Net contribution 85,408
Less: Fixed costs
Production 25,700
Admin & selling 12,000 -37,700
Net profit 47,708

(b)
Reconciliation Rs.'000
Profit (Absorption) 48,748
Opening stock (Absorption) 28,800
Closing stock (Absorption) -39,200
Closing stock (Marginal) 34,960
Opening stock (Marginal) -25,600
Profit (Marginal) 47,708

OR
 Reconciliation Rs.'000

Profit (Marginal) 47,708

Opening stock (Marginal) 25,600
Closing stock (Marginal) -34,960
Closing stock (Absorption) -28,800
Opening stock (Absorption) 39,200
Profit (Absorption) 48,748

Workings:

W-1 Product cost

Current Previous
Material [102,300 / A] 16.5 [16.5 / 1.1] 15
[12.96 /
Labor [80,352 / A] 12.96 1.08] 12
Variable OH [34,100 / A] 5.5 [5.5 / 1.1] 5
34.96 32
[(25,700 - 260) / [4.24 /
Fixed OH B] 4.24 1.06] 4
39.2 36

W-1.1
Current year production:
Actual production = 6,000 - 800 +
1,000 6,200 [A]
=
Normal production 6,000 [B]

W-2
Applied Fixed OH [4.24 x 6,200] 26,288
Actual Fixed OH -25,700
588
Answer.2
Determining the level of inventory which is most profitable for al

Incremental Carrying Costs Total cost

Reorder level stock Stock out Loss of Sales Loss of
Probability (Rs.)
(Units) (Units) (Units) (Units) Contribution F= (**216 x A)
(C) E+F
(A) (B) D = (B)x(C) E = (*1000 x D)
900 - 100 0.45 45 45,000 - 45,000
- 200 0.20 40 40,000 - 40,000
- 300 0.05 15 15,000 - 15,000
100,000

1,000 - 100 0.20 20 20,000 - 20,000

- 200 0.05 10 10,000 - 10,000
- - 30,000

1,100 100 100 0.05 5 5,000 21,600 26,600

- 26,600
-
1,200 200 - - - - 43,200 43,200
(Marks 2.5 each ROL working)

*Contribution = Rs. 3,400 – Rs. 2,400 = Rs. 1,000

**CC= 2400*9% = Rs. 216

Conclusion:
Profit would be maximized at re-order level of 1,100 units. Therefore, the company should reorder when the stock reaches 1100 units.

Page 3 of 6
Page 4 of 6
Solution - 4

(a) Rs.
Basic wages [47 (W-2) x Rs. 200] 9,400.00
Overtime premium [5 (W-2) x Rs. Rs. 200 x 50%] 500.00
Training premium [2 (W-2) x Rs. 200 x 20%] 80.00
Bonus:
Bonus [(W-1 )6.5 x Rs. 200 x 70%] 910.00
10,890.00

W-2
Hours Normal Productive Units
Day Training Overtime
worked hours hours produced
[A] [B] [C] [D = A-B-C] [E = A-C] [F]

Mon 9.00 8.00 - 1.00 9.00 44.00

Tue 10.50 8.00 1.00 1.50 9.50 32.00

Wed 11.00 8.00 1.00 2.00 10.00 50.00

Thu 8.50 8.00 - 0.50 8.50 42.00

Fri 8.00 8.00 - - 8.00 30.00

47.00 40.00 2.00 5.00 45.00 198.00

(b) Rs.
Basic wages [47 (W-2) x Rs. 200] 9,400.00
Overtime premium [5 (W-2) x Rs. Rs. 200 x 50%] 500.00
Training premium [2 (W-2) x Rs. 200 x 20%] 80.00
Bonus [4.5 x Rs. 200 x 70%] 630.00

Page 5 of 6
Standard time [198 (W-2) / 4] 49.50

Actual time (W-2) 45.00

Time
saved 4.50

10,610.00

W-1
Productiv Units Standard
Day Time saved
e hours produced time for F
[E] [F] [G = F/4] [H = G - E]

Mon 9.00 44.00 11.00 2.00

Tue 9.50 32.00 8.00 -

Wed 10.00 50.00 12.50 2.50

Thu 8.50 42.00 10.50 2.00

Fri 8.00 30.00 7.50 -

6.50

Page 6 of 6