Q.1. Something More Ltd. is considering adding to its product line.

After a lot of deliberations

between the sales and production personnel, it is decided that products P, Q and R would be
the most desirable additions to be company’s product range on account of the technical
competency, marketing potential and production flexibility as regards these products. In fact P,
Q and R can all be made on the same kind of plant as that already in use and therefore as
regards production, all products can be readily interchanged. However, it is considered
necessary to build further plant facilities to cater for additional production. In this connection
the following data are relevant:

Products (Per Unit) P Q R

Direct Materials Rs. 100 120 90
Direct Labour Rs. 50 70 90
Variable Overheads Rs. 50 130 100
Selling Price Rs. 350 420 370
Demand in units per cost period (on the basis of the above selling price) 200 125 750
Machine Hours required per units of production 15 5 3
It is felt that initially extra plant facilities can be built to operate at the following five different
levels of activity, viz., 1,800; 2,300; 2,800; 3,300 and 3,800 machine hours per cost period. The
fixed overhead costs for a cost period relevant to these five different levels of activity are
estimated at Rs. 15,000; Rs.20,000; Rs. 26,000; Rs.33,000 and 39,000 respectively.
You are required to advise, with supporting figures, the product or products to be
manufactured and in what quantities at each of the five contemplated levels of activity in order
to maximize the profits at each level and also indicate the level of activity and would seem most
desirable to be pursued for such maximization of profits.

Q.2. M Company’s Central Services Department is evaluating new coping machines to replace the firm’s
current copier, which is worn out. The analysis of alternative machines has been narrowed to three and
the estimated costs of operating them are shown below:

Cost per 100 copies Machine A Machine B Machine C

Rs. Rs. Rs.
Materials Cost 60 40 20
Labour Cost 80 30 20
Annual Lease Cost 30,000 58,000 1,00,000
Required:
(i) Compute the cost indifference points for the three alternatives.
(ii) What do the cost indifference points suggest as a course of action in this regard?
(iii) If the management expects to need 87,000 copies next year which copier would be most
economical?

Q.3. The following particulars are extracted from the records of Ajanta Works Limited:

Particulars Product A Product B

Selling price per unit Rs.1,000.00 Rs. 1,200.00
Consumption of Material Kg. 20.00 Kg. 30.00
Material cost Rs.100.00 Rs.150.00
Direct wages Rs. 150.00 Rs. 100.00
Direct expenses Rs. 50.00 Rs. 60.00
Machine Hours used 3 2
Overhead Expenses:
Fixed Rs. 50.00 Rs. 100.00
Variable Rs. 150.00 Rs. 200.00
Note: Direct wages per hour is Rs. 50.00
Required:
(i) Comment on the profitability of each product (both use the same raw material) when:
(a) Total sales potential in units is limited
(b) Total sales potential in value is limited
(c) Raw Material is in short supply, and
(d) Production Capacity (in terms of Machine Hours) is the limiting factor. (Max machine hours
= 12,500)
(d) Production Capacity (in terms of Labour Hours) is the limiting factor. (Max labour hours =
10,000)
(ii) Assuming raw material as the key factor, availability of which is 1,00,000 Kg., and maximum
sales potential of each product being 3500 units, find out the product mix which will yield the
maximum profit.

Q.4. A manufacturing company currently operating at 80% capacity has received an export
order from Middle East, which will utilise 50% of the capacity of the factory. The order has to be
either taken in full and executed at 10% below the current domestic prices or rejected totally.
The current sales and cost data are given below:

Sales Rs. 16.00 lakhs

Direct Material Rs. 5.80 lakhs
Direct Labour Rs.2.40 lakhs
Variable Overheads Rs.0.60 lakhs
Fixed Overheads Rs. 5.20 lakhs
The following alternatives are available to the management:
(I) Continue with domestic sales and reject the export order.
(II) Accept the export order and allow the domestic market to starve to the extent of excess of
demand.
(Ill) Increase capacity so as to accept the export order and maintain the domestic demand by:
(i) Purchasing additional plant and increasing 10% capacity and thereby increasing fixed
overheads by Rs. 65,000, and
(ii) Working overtime at one and half time the normal rate to meet balance of the required
capacity.
Required:
Evaluate each of the above alternatives and suggest the best one.

Q.5. Evenkeel Ltd. Manufacturers and sells a single product X whose price is Rs. 40 per unit and the
variable cost is Rs. 16 per unit.

a) If the fixed cost for this year are Rs, 4,80,000 and the annual sales are at 60% margin of safety,
calculate the rate of net return on sales assuming an income tax level of 40%.
b) For the next year, it is proposed to add another product line Y whose selling price would be Rs.
50 per unit and the variable cost Rs. 10 per unit. The total fixed costs are estimated at Rs.
6,66,600. The sales mix of X:Y would be 7:3. At what level of sales next year would Evenkeel Ltd.
Break even?
Give separately for both X and y the break even sales in rupees and quantities.

Q.6. Accelerate Co. Ltd., manufactures and sells four types of products under the brand names of A, B, C
and D. The sales mix in value comprises 33 1/3%, 41 2/3%, 16 2/3% and 8 1/3% of products A, B, C and
D, respectively. The total budgeted sales (100%) are Rs.60,000 p.m. Operating Costs are—Variable costs:
Product A 60% of selling price, Product B 68% of selling price, Product C 80% of selling price, Product D
40% of selling price; Fixed costs: Rs. 14,700 p.m.
Required:
Calculate the break-even-point for the products on overall basis.

Q.7. The following information is available from the records of VIDESH LTD., for a product – AB:
The number of units sold (units) 22,000
Total Sales Value (Rs.) 2,20,000
Total Valuable Costs (Rs.) 1,54,000
Total Raw Material Consumed (Rs.) 1,10,000
Fixed Cost (Rs.) 58,900
What will be the BEP (in units) if the Raw Material Price is reduced by 2%?