1.

Prepare a Cash Budget for the three months ending 30th June, 2019 from
the information given below:
(a)

(b) Credit terms are:

Sales/debtors: 15% sales are on cash, 50% of the credit sales are collected
next month and the balance in the
following month.
Creditors: Materials 2 months
Wages 1/4 month
Overheads 1/2 month.
(c) Cash and bank balance on 1st April, 2019 is expected to be ₹8,000.
(d) other relevant information are:
(i) Plant and machinery will be installed in February 2019 at a cost of
₹96,000. The monthly instalment of ₹2,000 is payable from April onwards.
(ii) Dividend @ 5% on preference share capital of ₹2,00,000 will be paid
on 1st June.
(iii) Advance to be received for sale of vehicles ₹9,000 in June.
(iv) Dividends from investments amounting to ₹1,500 are expected to be
received in June.

2. C.M. Rao and Company, a manufacturer of quality handmade walnut bowls, has had a
steady growth in sales for the past five years. However, increased competition has led Mr.
Rao, the president, to believe that an aggressive marketing campaign will be necessary next
year to maintain the company’s present growth. To prepare for next year’s marketing
campaign, the company’s controller has prepared and presented Mr. Ro with the following
data for the current year, 2011:
1. What is the projected net income for 2011?
2. What is the breakeven point in units for 2011?
3. Mr. Rao has set the revenue target for 2012 at a level of $550,000 (or 22,000 bowls). He
believes an additional marketing cost of $11,250 for advertising in 2012, with all other costs
remaining constant, will be necessary to attain the revenue target. What is the net income
for 2012 if the additional $11,250 is spent and the revenue target is met?
4. What is the breakeven point in revenues for 2012 if the additional $11,250 is spent for
advertising?
5. If the additional $11,250 is spent, what are the required 2012 revenues for 2012 net
income to equal 2011 net income?
6. At a sales level of 22,000 units, what maximum amount can be spent on advertising if a
2012 net income of $60,000 is desired?

3. Stable Doors Ltd produces two types of doors, Interior and exterior. The company’s simple costing
system has two direct cost categories (materials and labour) and one indirect cost pool. The simple
costing system allocates indirect costs on the basis of machine-hours. Recently, the owners of Stable
Doors have been concerned about a decline in the market share for their interior doors, usually their
biggest seller. Information related to Smart Doors’ production for the most recent year follows:

The owners have heard of other companies in the industry that are now using an activity-based costing
system and are curious how an ABC system would affect their product costing decisions. After analysing
the indirect cost pool for Stable Doors, six activities were identified as generating indirect costs:
production scheduling, materials handling, machine set-up, assembly, inspection and marketing.
Smart Doors collected the following data related to the indirect cost activities:

Marketing costs were determined to be 3% of the sales revenue for each type of door.

Required

1. Calculate the cost of an interior door and an exterior door under the existing simple costing system.

2. Calculate the cost of an interior door and an exterior door under an activity-based costing system.

3. Compare the costs of the doors in requirements 1 and 2. Why do the simple and activity-based
costing systems differ in the cost of an interior and exterior door?

4. How might Smart Door Ltd use the new cost information from its activity-based costing
system to address the declining market share for interior doors?
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Delhi Medical Centre(DMC) operates a general hospital. The medical centre also rents
space and beds to separately owned entities rendering specialized services, such as
Paediatrics and Psychiatric Care. DMC charges each separate entity for common
services, such as patients’ meals and laundry, and for administrative services, such as
billings and collections. Space and bed rentals are fixed charges for the year, based on
bed capacity rented to each entity. DMC charged the following costs to Paediatrics for
the year ended June 30, 20x1:
During the year ended June 30, 20x1, Paediatrics charged each patient an average of $300 per
day, had a capacity of 60 beds, and had revenue of $6 million for 365 days. In addition,
Paediatrics directly employed personnel with the following annual salary costs per employee:
supervising nurses, $25,000; nurses, $20,000; and aides, $9,000.
Delhi Medical Center has the following minimum departmental personnel requirements, based
on total annual patient days:

Paediatrics always employs only the minimum number of required personnel. Salaries of
supervising nurses, nurses, and aides are therefore fixed within ranges of annual patient days.
Paediatrics operated at 100 percent capacity on 90 days during the year ended June 30, 20x1.
Administrators estimate that on these 90 days, Paediatrics could have filled another 20 beds
above capacity. Delhi Medical Centre has an additional 20 beds available for rent for the year
ending June 30, 20x2. Such additional rental would increase Paediatrics’ fixed charges based on
bed capacity. (In the following requirements, ignore income taxes.)
Required:
1. Calculate the minimum number of patient days required for Paediatrics to break even for the
year ending June 30, 20x2, if the additional 20 beds are not rented. Patient demand is unknown,
but assume that revenue per patient day, cost per patient day, cost per bed, and salary rates will
remain the same as for the year ended June 30, 20x1.
2. Assume that patient demand, revenue per patient day, cost per patient day, cost per bed, and
salary rates for the year ending June 30, 20x2, remain the same as for the year ended June 30,
20x1. Prepare a schedule of Paediatrics’ increase in revenue and increase in costs for the year
ending June 30, 20x2. Determine the net increase or decrease in Paediatrics’ earnings from the
additional 20 beds if Paediatrics rents this extra capacity from Delhi Medical Centre.

25. Barkley Company manufactures and sells adjustable canopies that attach to motor
homes and trailers. The market covers both new units as well as replacement canopies.
Barkley developed its 20x2 business plan based on the assumption that canopies would
sell at a price of $400 each. The variable cost of each canopy is projected at $200, and the
annual fixed costs are budgeted at $100,000. Barkley’s after-tax profit objective is
$240,000; the company’s tax rate is 40 percent. While Barkley’s sales usually rise during
the second quarter, the May financial statements reported that sales were not meeting
 expectations. For the first five months of the year, only 350 units had been sold at the
established price, with variable costs as planned. It was clear the 20x2 after-tax profit
projection would not be reached unless some actions were taken. Barkley’s president,
Melanie Grand, assigned a management committee to analyze the situation and develop
several alternative courses of action. The following mutually exclusive alternatives were
presented to the president.
• Reduce the sales price by $40. The sales organization forecasts that with the significantly
reduced sales price, 2,700 units can be sold during the remainder of the year. Total fixed and
variable unit costs will stay as budgeted.
• Lower variable costs per unit by $25 through the use of less expensive raw materials and
slightly modified manufacturing techniques. The sales price also would be reduced by $30,
and sales of 2,200 units for the remainder of the year are forecast.
• Cut fixed costs by $10,000 and lower the sales price by 5 percent. Variable costs per unit
will be unchanged. Sales of 2,000 units are expected for the remainder of the year.
Required:
1. If no changes are made to the selling price or cost structure, determine the number of units that
Barkley Company must sell
a. In order to break even.
b. To achieve its after-tax profit objective.
2. Determine which one of the alternatives Barkley Company should select to achieve its annual
after tax profit objective.

26. Niagra Falls Sporting Goods Company, a wholesale supply company, engages
independent sales agents to market the company’s products throughout New York and
Ontario. These agents currently receive a commission of 20 percent of sales, but they are
demanding an increase to 25 percent of sales made during the year ending December 31,
20x2. The controller already prepared the 20x2 budget before learning of the agents’
demand for an increase in commissions. The budgeted 20x2 income statement is shown
below. Assume that cost of goods sold is 100 percent variable cost.

The company’s management is considering the possibility of employing full-time sales

personnel.
Three individuals would be required, at an estimated annual salary of $30,000 each, plus
commissions of 5 percent of sales. In addition, a sales manager would be employed at a fixed
annual salary of $160,000. All other fixed costs, as well as the variable cost percentages, would
remain the same as the estimates in the 20x2 budgeted income statement.
Required:
1. Compute Niagra Falls Sporting Goods’ estimated break-even point in sales dollars for the year
ending December 31, 20x2, based on the budgeted income statement prepared by the controller.
2. Compute the estimated break-even point in sales dollars for the year ending December 31,
20x2, if the company employs its own sales personnel.
3. Compute the estimated volume in sales dollars that would be required for the year ending
December 31, 20x2, to yield the same net income as projected in the budgeted income statement,
if management continues to use the independent sales agents and agrees to their demand for a 25
percent sales commission.
4. Compute the estimated volume in sales dollars that would generate an identical net income for
the year ending December 31, 20x2, regardless of whether Niagra Falls Sporting Goods
Company
employs its own sales personnel or continues to use the independent sales agents and pays them a
25 percent commission.

27.
 28. An NGO has an annual budget of Rs. 15,00,00,000 for arranging free eye surgeries for old
age people belonging to poor sections of society. On an average the cost per surgery is Rs
60,000 payable to hospitals. Salaries paid to NGO staff is Rs. 1,20,00,000 per year. Fixed
Overhead of NGO’s this wing are Rs. 60,00,000 per year. An incentive of Rs. 6000 per surgery is
paid to social welfare officer. You are required to:

a) Determine the number of surgeries that NGO would be able to organise this year.
b) Calculate the number of surgeries that the NGO will be able to organise next year if total budget
is reduced to 78%.
Calculate the maximum amount per surgery which the NGO will be able to pay to the hospitals if total
budget is reduced to 78% and the NGO wishes to maintain status quo with respect to the number of
surgeries.

29.
Rcity Planet has just opened its doors. The new retail store sells refurbished computers at a
significant discount from market prices. The computers cost Rcity Planet $100 to purchase and
require 10 hours of labor at $15 per hour. Additional variable costs, including wages for sales
personnel, are $50 per computer. The newly refurbished computers are resold to customers for
$500. Rent on the retail store costs the company $4,000 per month.
Required
1. How many computers does Rcity Planet have to sell each month to break even?
2. If Rcity Planet wants to earn $5,000 per month after all expenses, how many computers does the
company need to sell?
3. Rcity Planet can purchase already refurbished computers for $200. This would mean that all
labor
required to refurbish the computers could be eliminated. What would Rcity Planet’s new
breakeven point be if it decided to purchase the computers already refurbished?
4. Instead of paying the monthly rental fee for the retail space, Rcity Planet has the option of paying
its landlord a 20% commission on sales. Assuming the original facts in the problem, at what sales
level would Rcity Planet be indifferent between paying a fixed amount of monthly rent and paying
a 20% commission on sales?
30.
Agri Engine Company manufactures and sells diesel engines for use in small farming equipment.
For its 2012 budget, Agri Engine Company estimates the following

The first quarter income statement, as of March 31, reported that sales were not meeting
expectations. During the first quarter, only 300 units had been sold at the current price of $3,000.
The income statement showed that variable and fixed costs were as planned, which meant that the
2012 annual net income projection would not be met unless management took action. A
management committee was formed and presented the following mutually exclusive alternatives to
the president:
a. Reduce the selling price by 20%. The sales organization forecasts that at this significantly
reduced price, 2,000 units can be sold during the remainder of the year. Total fixed costs
and variable cost per unit will stay as budgeted.
b. Lower variable cost per unit by $50 through the use of less-expensive direct materials. The
selling price will also be reduced by $250, and sales of 1,800 units are expected for the
remainder of the year.
c. Reduce fixed costs by 20% and lower the selling price by 10%. Variable cost per unit will
be unchanged. Sales of 1,700 units are expected for the remainder of the year.
Required 1. If no changes are made to the selling price or cost structure, determine the number of
units that Agri Engine Company must sell (a) to break even and (b) to achieve its net income
objective.
2. Determine which alternative Agri Engine should select to achieve its net income objective. Show
your calculations

31:
The Ram Company has three product lines of belts—A, B, and C— with contribution margins of
$3, $2, and $1, respectively. The president foresees sales of 200,000 units in the coming period,
consisting of 20,000 units of A, 100,000 units of B, and 80,000 units of C. The company’s fixed costs
for the period are $255,000.
Required 1. What is the company’s breakeven point in units, assuming that the given sales mix is
maintained?
2. If the sales mix is maintained, what is the total contribution margin when 200,000 units are sold?
What is the operating income?
3. What would operating income be if 20,000 units of A, 80,000 units of B, and 100,000 units of C
were sold?
What is the new breakeven point in units if these relationships persist in the next period?

32:
Purify Water Products produces two types of water filters. One attaches to the faucet and cleans all
water that passes through the faucet. The other is a pitcher-cum-filter that only purifies water
meant for drinking. The unit that attaches to the faucet is sold for $80 and has variable costs of $20.
The pitcher-cum-filter sells for $90 and has variable costs of $25. Purify Water sells two faucet
models for every three pitchers sold. Fixed costs equal $945,000.

1. What is the breakeven point in unit sales and dollars for each type of filter at the current sales
mix?
2. Purify Water is considering buying new production equipment. The new equipment will increase
fixed cost by $181,400 per year and will decrease the variable cost of the faucet and the pitcher
units by $5 and $9 respectively. Assuming the same sales mix, how many of each type of filter does
Purify Water need to sell to break even?
3. Assuming the same sales mix, at what total sales level would Purify Water be indifferent between
using the old equipment and buying the new production equipment? If total sales are expected to be
30,000 units, should Purify Water buy the new production equipment?

33.

34.
A company manufactures 3 products viz. A, B & C. Products contribute 10%, 50% and 40%
respectively in the sales mix whereas the contribution margins are ₹60, ₹40 and ₹20
respectively. The company’s fixed costs are as under:-
 Fixed Manufacturing Overheads = ₹ 1000000 per annum.
 Fixed Marketing Overheads = ₹ 1040000 per annum.
You are required to find out the following

a) Company’s breakeven point in units assuming the given sales mix is maintained.
b) Company’s breakeven point in units assuming the sales mix is revised as 10%, 40%
and 50% respectively
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