NAME: ………………………………………….. ROLL NO: ….……………….................. SECTION:…………….

QUIZ IV 2019: MANAGEMENT ACCOUNTING

MM: 10 TIME: 20 Minutes
Lucknow Engineering Ltd. (LEL) sells automatic machines. The company receives a trial order from KBC
Ltd. to supply 150 vending machines @ Rs. 15000 per machine. The payment will be received at the end of
the year. Further, KBC would require another 600 machines (150 each year) in four years; the orders for these
machines will be placed based on competitive bidding. The manufacturing happens in two stages: first, the
company manufactures tools, and next, the vending machines are manufactured using these tools. The
company outsources tools from one of its foreign partners. Tools would cost Rs. 900,000, and are enough to
manufacture 300 vending machines. The accountant estimates the cost of vending machine per unit:

Particulars Cost per unit (Rs.)

@
Direct Material (5 Kg @ Rs. 1000/ Kg.) 5000
#
Direct Labor (Manufacturing & Assembly) 2500
Amortization of Tools (900,000/300) 3000
Allocated Corporate Overheads 500
@ This material was purchased by the company a year ago, for a similar contract. The remaining material is
sufficient to manufacture 150 machines. It was purchased @ Rs. 1000 per Kg. Currently, it can be sold @ Rs.
900 per Kg. The company does not use this material for its other products.
# 60% of these costs are fixed and inescapable.
The company requires a pre-tax ROI of 30%.
Part (i) Trial Order (1+2+2=5 marks)
1. The cost (before amortization of tools) per vending machine would be (Rs.):
a) 5500 b) 7500 c) 6000 d) None of these (Specify)
=5000*900/1000 + 2500*0.4
2. The amount of ‘investment with required ROI’ to be recovered from trial order is (Rs.):
a) 585,000 b) 11,70,000 c) 10,35,000 d) None of these (Specify)
=900,000*1.3
3. Will you accept the trial order if you do not get any subsequent orders from KBC:
a) Yes b) Why: 150*(15000 – 5500) -1170000 >0; all costs are recovered with
No desired ROI.

Part (ii) Subsequent orders: Assume that the company will get 50% of the subsequent orders, and payment
will be made at the end of year. (1+2+2=5 marks)
1. Cost per vending machine including amortization is (Rs.):
a) 9000 b) 11000 c) 10500 d) 10000
= 5000+2500+3000+500 = 11,000
2. Average investment per year is (Rs.):
a) 450,000 b) 562500 c) 900000 d) None of these (Specify)
=(900,000+900,000*.25)/2
3. Assume that average investment is 500,000, the profit charged per machine included in the quoted price
is (Rs.):
a) 2000 b) 1000 c) 500 d) None of these (Specify)
=500,000*0.3/75