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

QUIZ IV AY 2020-21: MANAGEMENT ACCOUNTING

MM: 10 TIME: 20 Minutes
Indian Electrical Equipment Limited (IEEL) receives a trial order from ABC Ltd. for supplying 750 printing
machines @ Rs. 5000 per machine. The machines are to be supplied regularly within one-year period, and the
payment will be made continuously. ABC has communicated that it will require another 3,000 such machines
in next four years; however, the orders will be placed based on competitive bidding. The cost accountant of
IEEL estimates the following cost per unit of machine:
Particulars Cost per unit (Rs.)
Direct Material (1.5 Kg per unit) @ 2250
Labor & Overheads (manufacturing & assembling) * 1000
Amortization of tools (1875000/1500) ** 1250
Allocated Corporate Overheads 875
Total Cost per machine 5375
@ Direct material to manufacture up to 800 machines is in stock. The material is not used for any other products of the
firm. If not used for this purpose, the company would sell it at Rs. 1000 per Kg. The material was purchased at Rs. 1500
per Kg.
*25% of the labour & overheads are fixed in nature. By and large, such fixed costs are allocated ones and unavoidable
in nature. Also, there is enough idle capacity available to manufacture up to 250 machines during the current year.
**Depreciation/ amortization is charged on the total investment needed for designing & manufacturing of tools. The
tools will be enough for manufacturing 1500 printing machines.

The company requires pre-tax ROI of 30% p.a. on its investments.

Required: While evaluating the TRAIL order:

1. Material cost per unit to be considered will be:

Amount: Reason/ Calculations:

2. Labor & overheads cost per unit to be considered will be:

Amount: Reason/ Calculations:

3. Allocated corporate overheads will be:

Amount: Reason/ Calculations:

4. Determine the profit/ loss that the company would get from the TRIAL order:
Amount: Reason/ Calculations: