NARSEE MONJEE INSTITUTE OF MANAGEMENT

STUDIES

SCHOOL OF BUSINESS MANAGEMENT

Trim 1
FAMA,

FTMBA, Trimester 1, 2021-22

SUBMITTED BY:

Shivangi Agrawal (F053)

SAP No: 80512100872
Q. No. 1

Planne Varianc Adverse/

  d Standard Actual e Favourable
   
Units 1 6000 6000  
   
Raw Material 20 120000 150000 -30000 A
Cost of Material/kg 10 10 9.75 0.25 F
Total Raw Material 146250 -
Cost 200 1200000 0 262500 A
   
Labour Hours 5 30000 32000 -2000 A
Cost Labour/Hour 60 60 57.5 2.5 F
184000
Total Labour Cost 300 1800000 0 -40000 A

a. Manufacturing Labour Variances:

SR 60
AR 57.5
SH 30000
AH 32000
Direct Labour Price Variance: (SR-AR)*AH = 80000
Direct Labour Efficiency Variance: (SH-AH)*SR = -120000

Total Labour Variance = -40000

b. 150000 kg direct material used in Production

c. 9.75Rs. is the actual price per kg of materials
d. Direct Material Price Variance
SP 10
AP 9.75
SQ 1200000
AQ 1462500
Direct Material Price Variance: (SP-AP)*AQ = 365625
Direct Material Usage Variance: (SQ-AQ)*SP = -2625000

Total Direct Material Variance = -2259375

e. Reason for Variance: Both variances are adverse in nature.
This means that the cost for both Labour and Direct Material has increased.
Any external factors, availability, demand could lead to this increase in cost that the budgeted
one.
Q. No 2

    Price/Unit
Selling
price/unit 15
Direct
Materials 4
Direct labour 1
Prodn OH:  
  Variable 3
  Fixed 180000
Sales OH  
  Variable 0.25
  Fixed 45000
Contribution 6.75
   
Profit 3
   
Units 60000
Capacity   60%

60% 80%
  Particulars Capacity Capacity
  Units 60000 80000
  Sales 900000 1135000
   
Direct
Less Materials 240000 320000
Less Direct Labour 60000 80000
Less Production OH:  
  (Variable) 180000 240000
Less Sales OH  
  (Variable) 15000 20000
  Total VC 495000 660000
  Contribution 405000 475000
   
Less Fixed Cost  
  Production OH: 180000 180000
  Sales OH 45000 45000
  Total FC 225000 225000
  Profit 180000 250000

Minimum selling price to be charged to earn a profit of Rs. 2,50,000: 14.1875(1135000/80000)

Breakeven Point: At break even point, the company occurs no profit or loss.
It is the minimum quantity the company must sell to ensure no loss.

(Price/Unit)* Quantity - (Variable Cost/Unit)* Quantity = Total Fixed Cost

(Contribution Margin)* Quantity = TFC
Breakeven Quantity = TFC/ Contribution Margin

Margin of Safety: In terms of quantity, it is the additional quantity that the company sells after break
even quantity. It helps managers know the profit they are making.
Q. No. 3

Finished goods

Month Opening inventory produce sales Closing inventory

January 0 2000 2000 100
February 100 2005 2000 105
March 105 2090 2100 95
April 95 1895 1900 90
May 90 1710 1800 0

Direct Materials

Use in
  Opening inventory purchase Production Closing inventory
Jan 0 4200 4000 200
Feb 200 4010 4000 210
March 210 4180 4200 190
         

Sales Price: 160

A. Total Sales Budget: 160*2100 = $336000
B. Production Budget in March = 2090 units
C. Direct Material Required/Unit: 2kg
Total quantity produced in March: 2100
Material Budget Quantity: =2*2100= 4200kg
D. Material Purchase Budget for March: 4180kg
E. Manpower budget for March
Finished goods produced: 2090
Labour Hours required: 6270
Labour Working hour in March: 200
Total Manpower budget: 31.35
32 workers will be required to work in the factory to produce 2090 units
Q. No 4:

A. Costs under traditional direct labour hour based costing

             
  Allocating overhead costs(900000)  
   
BLIT BLIT
  Boot Club Total  
  Units 25000 5000  
Direct Labour
  hours/Unit 1 1  
  Labour Hours 25000 5000 30000  
  Overhead Cost 750000 150000 900000  
  Overhead Cost/Unit 30 30  
   
Total Cost Calculation under traditional
  method  
BLIT BLIT
  Boot Club  
  Direct Labour cost/Unit 12 12  
  Direct Material/unit 40 30  
  Overhead Cost/Unit 30 30  
  Total Cost/Unit 82 72  
   
             
           
Allocation of Overhead Costs  
   
1 Setting Up Machines 300000  
  Cost Driver Number of setups  
   
BLIT BLIT
  Boot Club Total
  Units 25000 5000  
  No of setups 500 1000 1500
Rate = cost/No of
  setups 200  
  Setup Cost 100000 200000 300000
  Setup Cost/Unit 4 40  
   
   
2 Machining 500000  
  Cost Driver Machine Hours  
   
BLIT BLIT
  Boot Club Total
  Units 25000 5000  
  Machine Hours 30000 20000 50000
  Rate 10  
  Machine Cost 300000 200000 500000
  Machine Cost/Unit 12 40  
   
   
3 Inspecting 100000  
  Cost Driver Number of Inspections  
   
BLIT BLIT
  Boot Club Total
  Units 25000 5000  
  No of Inspections 500 1500 2000
  Rate 50  
  Inspection Cost 25000 75000 100000
  Inspection Cost/Unit 1 15  
           
Total Cost using ABC

         
BLIT BLIT
  Boot Club  
  Direct Labour cost/Unit 12 12  
  Direct Material/unit 40 30  
  Total Direct Cost/Unit 52 42  
  Setup Cost/Unit 4 40  
  Machining Cost/Unit 12 40  
  Inspecting Cost/Unit 1 15  
Total Overhead
  Cost/Unit 17 95  
  Total Cost/Unit 69 137  
         

For BLIT boots under traditional method, the per unit cost is $ 82 whereas under ABC it is $69.
That is the company is charging $13 extra per unit, if we switch to ABC, the cost will reduce and
more people may be interested in buying.

For BLIT Club under traditional method, the per unit cost is only $72 whereas under ABC it is $137.
This is a big difference i.e. $65 per unit less, that the company should account for and the price for
BLIT club, should be raised accordingly.

This $65 is being bared by BLIT boots users as of now.

Company should opt for Activity based costing.