Management Accounting – Assignment I

Q.1 A Ltd. manufacturing and sells four types of products. The sales mix in value
comprise of:
Products Percentage
A1 331/3
A2 412/3
A3 162/3
A4 81/3
The total budgeted sales are Rs. 6,00,000 per month. The variable costs are: A-1
60% of selling price, A-2 68% of selling price, A-3 80% of selling price and A-4 40% of
selling price. Fixed cost Rs. 1,59,000 per month. Find break even point.
Q.2 A Company produces and sells two items A&B. Its F.C. is Rs.13,77,000 p.a. VC per
unit of A Rs. 7.80. VC per unit of B Rs. 8.90. Selling price A Rs. 15, B Rs. 20, 80% of
total sales revenue is realized from sale of B. Find B.E.P. What should be sales revenue
to result in 9 per cent post-tax profit on sales. Tax rate 55 per cent.
(Hint: Gross Income = Net Income × 100
100 – Tax rate)
Q.3 A and B are similar plants under the same management who want them to be merged
for better operation. The details are as follows:
A Plant B Plant
Capacity operated 100% 70%
Turnover 200 210
V.C. 150 140
F.C. 40 40
Find out (i) the capacity of the merged plant for break even (ii) turnover from the
merged plant to give profit of Rs. 20.
Q.4 A Company is considering expansion. F.C. is Rs. 4,20,000. It is expected to increase
by 1,25,000 when expansion is completed. The present plant capacity is 80,000 units a
year. Capacity will increase 50 per cent with the expansion. V.C. is Rs. 6.80 per unit and
is expected to go down by 0.40 per unit after expansion S.P. Rs. 16 per unit. What are the
B.E. points under either alternative? When alternative is better and why? Assume sales is
no problem.
Q.5 From the following figures find B.E. volume:
S.P. per tone Rs. 69.50
V.C. per tone Rs. 35.50
Fixed cost Rs. 18.02 lakhs
If this volume represents 40% capacity, what is the additional profit for an added
production of 40 per cent capacity, the S.P. of which is 10% lower for 20% capacity
production and 15% lower, than the existing price, for the other 20% capacity.

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 Management Accounting – Assignment II
Q.1 X Ltd., manufacturers only pens where the marginal cost of each pen is Rs. 3. It has
fixed costs of Rs. 25,000 per annum. Present production and sales of pens is 50,000 units
and selling price per pen is Rs. 5. Any sale beyond 50,000 pens is possible only if the
company reduces 20% of its current selling price.
However, the reduced price applies only to the additional units. The company wants a
target profit of Rs. 1,00,000. How many pens to company must produce and sell if the
target profit is to be achieved?
Q.2 From the following data, calculate break-even point (BEP):
Selling price per unit Rs. 20
Variable cost per unit Rs. 15
Fixed overheads Rs. 20,000
If sales are 20% above BEP, determine the net profit.
Q.3 If fixed costs are Rs. 4,000 variable costs Rs. 32,000 and break-even point Rs.
20,000, find: (i) Profit-volume ratio; (ii) Sales; (iii) Net profit; (iv) Margin of safety.
Q.4 (i) Ascertain profit, when sales = Rs. 2,00,000
Fixed Cost = Rs. 40,000
BEP = Rs. 1,60,000
(ii) Ascertain sales, when fixed cost = Rs. 20,000
Profit = Rs. 10,000
BEP = Rs. 40,000
Q.5 From the following data, compute break-even sales and margin of safety:
Sales Rs. 10,00,000
Fixed cost Rs. 3,00,000
Profit Rs. 2,00,000
Q.6 X Ltd. produces a single article. Following cost data is given about its product:
Selling price per unit Rs. 200
Marginal cost per unit Rs. 120
Fixed cost per annum Rs. 8,000
Calculate:
(a) P/V ratio (b) Break-even sales
(c) Sales to earn a profit of Rs. 10,000 (d) Profit at sales of Rs. 60,000
(e) New break-even sales, if sales price is reduced by 10%.
Q.7 From the following data, find out (i) sales; and (ii) new break-even sales, if selling
price is reduced by 10%:
Fixed cost Rs. 4,000
Break-even sales Rs. 20,000
Profit Rs. 1,000
Selling price per unit Rs. 20

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Q.8 From the data given below, find out:
(a) P/V ratio; (b) Sales, and (c) Margin of safety
Fixed cost : Rs. 2,00,000
Profit : Rs. 1,00,000
B.E. Point : Rs. 4,00,000
Q.9 If fixed costs are Rs. 24,000, margin of safety Rs. 40,000 and break-even 80,000,
find out:
(1) Sales; (2) Profit-volume ratio; (3) Net profit; (4) Variable cost
Q.10 Profit/Volume ratio of X Ltd. is 50%, while its margin of safety is 40%. If sales of
the company are Rs. 50 lakh find out its (i) break-even sales and (ii) net profit.
[Hint: Margin of Safety (in terms of %)= Actual Sales – Break even sales]
Actual Sales
Q.11 The profit/volume ratio of X Ltd. is 50% and the margin of safety is 40%. You are
required to calculate the net profit if actual sale is Rs. 1,00,000.
Q.12 The ratio of variable cost of sales is 70%. The break-even occurs at 60% of the
capacity sales. Find the break even sales when fixed costs are Rs. 90,000. Also compute
profit at 75% of the capacity sales.
Q.13 The following figures are extracted from the books of X Ltd. for 2007-08:
Direct material Rs. 2,05,000
Direct labour Rs. 75,000
Fixed overheads Rs. 60,000
Variable overheads Rs. 1,00,000
Sales Rs. 5,00,000
Calculate the break-even point (B.E.P.). What will be the effect of BEP of an increase of
10% in: (i) fixed expenses; and (ii) variable expenses?
Q.14 A Ltd. maintains a margin of safety of 37.5% with an overall contribution to sales
ratio of 40%. Its fixed costs amount to Rs. 5 lakh. Calculate the following:
(i) Break-even sales; (ii) Total sales; (iii) Total variable cost; (iv) current profit; (v) New
“margin of safety” if the sales volume is increased by 7½%.
Q.15 The trading results of PJ Ltd. for the two years have been:
Year Sales Rs. Profits Rs.
2007 5,40,000 12,000
2008 6,00,000 30,000
Compute the following:
(i) P/V ratio; (ii) Fixed costs; (iii) Break-even sales;(iv) Margin of safety at a profit
of Rs. 48,000 (v) Variable costs during the two year.
Q.16 Following figures relating to the performance of a company of the year 2007 and
2008 are available. Assuming that (i) the ratio of variable cost to sales and (ii) the fixed
costs are the same for both the years, ascertain:
(a) The profit-volume ratio, (b) the amount of the fixed costs (c) the Break-even point,
and (d) the budgeted profit for year 2009, if budgeted sales for that year are Rs. 1 crore.

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 Total Sales (Rs. in ‘000) Total Costs (Rs. in ‘000)
Year 2007 7,000 5,800
Year 2008 9,000 6,600
Q.17 S. Ltd., a multi-product company, finished following data relating to year 2007:
1st half of the year 2nd half of the year
Sales Rs. 45,000 Rs. 50,000
Total cost Rs. 40,000 Rs. 43,000
Assuming that there is no change in prices and variable costs and that the fixed expenses
are incurred equally in the two half year periods, calculate for the year 2007:
(i) the profit volume ratio, (ii) the fixed expenses
(iii) the break-even sales, and (iv) the percentage of margin of safety to total sales.
Q.18 A company wants to buy a new machine to replace one, which is having frequent
breakdown. It received offers for two models M1 and M2. Further details regarding these
models are given below:
M1 M2
Installed capacity (units) 10,000 10,000
Fixed overhead per annum (Rs.) 2,40,000 1,00,000
Estimated profit at the above capacity (Rs.) 1,60,000 1,00,000
The product manufactured using this type of machine (M 1 or M2) is sold at Rs. 100 per
unit. You are required to determine:
(a) Break-even level of sales for each model.
(b) The level of sales at which both the models will earn the same profit.
(c) The model suitable for different levels of demand for the product.
Q.19 Two competing companies ABC Ltd. and XYZ Ltd. produce and sell the same type
of product in the same market. For the year ended March 2008, their forecasted profit and
loss accounts are as follows:
Particulars ABC Ltd XYZ Ltd.
Rs. Rs. Rs. Rs.
Sales 2,50,000 2,50,000
Less: Variable Cost of Sales 2,00,000 1,50,000
Fixed Costs 25,000 75,000
2,25,000 2,25,000
Forecasted net operating profits 25,000 25,000
You are required to compute: P/V Ratio (2) Break-even sales volume
You are also required to state which company is likely to earn greater profits in condition
of: (a) low demand, and (b) high demand.
Q.20 From the following data, calculate (i) P/V Ratio; (ii) Profit when sales are Rs.
20,000 and (iii) New break-even point if selling price is reduced by 20%
Fixed expenses Rs. 4,000

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Break-even point Rs. 10,000
Q.21 A company has a fixed cost of Rs. 20,000. It sells two products – A and B, in the
ratio of 2 units of A and 1 unit of B. Contribution is Re.1 per unit of A and Rs. 2 per unit
of B. How many units of A and B would be sold at break-even point?
Q.22 A company budgets for a production of 1,50,000 units. The variable cost per unit is
Rs. 14 and fixed cost is Rs. 2 per unit. The company fixes its selling price to fetch a profit
of 15% on cost.
(a) What is the break-even point?
(b) What is profit-volume ratio?
(c) If it reduces its selling price by 5%, how does the revised selling price affect the
break-even point and the profit-volume ratio?
(d) If a profit increase of 10% is desired more than the budget, what should be the sale at
the reduced prices?
Q.23 From the following data, calculate:
(i) Break-even point expressed in amount of sales in rupees;
(ii) Number of units that must be sold to earn a profit of Rs. 60,000 per year.
(iii) How many units must be sold to earn a net income of 10% of sales?
Rs.
Sales price 20 per unit
Variable manufacturing costs 11 per unit
Variable selling costs 3 per unit
Fixed factory overheads Rs. 5,40,000 per year
Fixed selling costs Rs. 2,52,000 per year
Q.24 A company is intending to purchase a new plant. There are two alternative choices
available.
Plant X: The operation of this plant will result in a fixed cost of Rs. 4,80,000 and variable
costs of Rs. 5 per unit;
Plant Y: The purchase of this plant will result in a fixed cost of Rs. 5,20,000 and variable
costs of Rs.4 per unit.
Compute the cost break-even point and state which plant is to be preferred and when.
Q.25 X Ltd. a retail dealer in garments is currently selling 24,000 shirts annually. It
supplies the following details for the year ended 31st March:
Selling price per shirt Rs. 400
Variable cost per shirt Rs. 250
Fixed cost:
Staff salaries for the year Rs.12,00,000
General office costs for the year Rs. 8,00,000
Advertisement costs for the year Rs. 4,00,000
As a Cost Accountant of the firm you are required to answer the following each part
independently:

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(i) Calculate the break-even point and margin of safety in sales revenue and number of
shirt sold.
(ii) Assume that 20,000 shirts were sold in a year. Find out the net profit of the firm.
(iii) If t is decided to introduce selling commission of Rs. 30 per shirt, how many shirts
would require to be sold in a year to earn a net income of Rs. 1,50,000.
(iv) Assuming that for the year 2009 an additional staff salary of Rs. 3,30,000 is
anticipated and price of a shirt is likely to be increased by 15%, what should be the break-
even point in number of shirts and sales revenue?
Q.26 Indian Plastics make plastic buckets. An analysis of their accounting reveals:
Variable cost per bucket Rs. 20
Fixed cost Rs. 50,000 for the year
Capacity 2,000 buckets per year
Selling price per bucket Rs. 70
Required: (i) Find the break-even point
(ii) Find the number of buckets to be sold to get a profit of Rs. 30,000
(iii) If the company can manufacture 600 buckets more per year with an additional fixed
cost of Rs. 2,000, what should be the selling price maintain to the profit per bucket as at
(ii) above?

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 Management Accounting – Assignment III
Chapter 1-3
Q.1 Value chain and classification of costs Classify each of the cost items (a–h) as one of
the business functions of the value chain shown in Exhibit 1-2 (p. 7). Burger King, a
hamburger fast food restaurant, incurs the following costs:
a. Cost of oil for the deep fryer
b. Wages of the counter help who give customers
the food they order
c. Cost of the costume for the King on the Burger
King television commercials
d. Cost of children’s toys given away free with kids’
meals
e. Cost of the posters indicating the special “two
cheeseburgers for $2”
f. Costs of frozen onion rings and French fries
g. Salaries of the food specialists who create new
sandwiches for the restaurant chain
h. Cost of “to-go” bags requested by customers who
could not finish their meals in the restaurant
Q.2 Garnicki Foods makes frozen dinners that it sells through grocery stores. Typical
products include turkey dinners, pot roast, fried chicken, and meat loaf. The managers at
Garnicki have recently introduced a line of frozen chicken pies. They take the following
actions with regard to this decision. Classify each action as a step in the five-step
decision-making process (identify the problem and uncertainties, obtain information,
make predictions about the future, choose among alternatives, implement the decision,
evaluate performance, and learn).
a. Garnicki performs a taste test at the local shopping mall to see if consumers like the
taste of its proposed new chicken pie product.
b. Garnicki sales managers estimate they will sell more meat pies in their northern sales
territory than in their southern sales territory.
c. Garnicki managers discuss the possibility of introducing a new product.
d. Garnicki managers compare actual costs of making chicken pies with their budgeted
costs.
e. Costs for making chicken pies are budgeted.
f. Garnicki decides to make chicken pies.
g. The purchasing manager calls a supplier to check the prices of chicken.
Q.3 A series of independent situations in which a firm is about to make a strategic
decision follow.
1. For each decision, state whether the company is following a low price or a
differentiated product strategy.
2. For each decision, discuss what information the management accountant can provide
about the source of competitive advantage for these firms.
a. Roger Phones is about to decide whether to launch production and sale of a cell phone
with standard features.

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b. Computer Magic is trying to decide whether to produce and sell a new home computer
software package that includes the ability to interface with a sewing machine and a
vacuum cleaner. There is no such software currently on the market.
c. Christina Cosmetics has been asked to provide a “store brand” lip gloss that will be
sold at discount retail stores.
d. Marcus Meats is entertaining the idea of developing a special line of gourmet bologna
made with sun dried tomatoes, pine nuts, and artichoke hearts.
Q.4 Costs involved in the process are listed below. For each cost below, indicate whether
it is a direct variable, direct fixed, indirect variable or indirect fixed cost, assuming “units
of production of each kind of figurine” is the cost object.
Costs: a.
a. Clay
b. Paint
c. Packaging materials
d. Depreciation on machinery and
molds
e. Rent on factor
f. Insurance on factory
g. Painters
h. Painting Department manager
i. Baking Department manager
j. Materials handlers
k. Custodian in factory
l. Night guard in factory
m. Machinist (running the baking
machine)
n. Machine maintenance
personnel
o. Maintenance supplies for
factory
p. Cleaning supplies for factory

Q.5 If the cost object were “Baking Department” rather than output, which costs above
would now be direct instead of indirect costs?
Q.6 Variable costs, fixed costs, relevant range Yumball Candies manufactures jaw-
breaker candies in a fully automated process. The machine that produces candies was
purchased recently and can make 4,000 per month. The machine costs $6,000 and is
depreciated using straight line depreciation over ten years assuming zero residual value.
Rent for the factory space and warehouse, and other fixed manufacturing overhead costs
total $1,000 per month.
Yumball currently makes and sells 3,000 jaw-breakers per month. Yumball buys just
enough materials each month to make the jaw-breakers it needs to sell. Materials cost 10
cents per jawbreaker.
Next year Yumball expects demand to increase by 100%. At this volume of materials
purchased, it will get a 10% discount on price. Rent and other fixed manufacturing
overhead costs will remain the same.

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1. What is Yumball’s current annual relevant range of output?
2. What is the annual fixed manufacturing cost within the relevant range? What is the
variable manufacturing cost?
3. What will Yumball’s relevant range of output be next year? How if at all, will fixed
and variable manufacturing costs change next year?
Q.7 Total and unit cost, decision making Graham’s Glassworks makes glass flanges for
scientific use. Materials cost $1 per flange, and the glass blowers are paid a wage rate of
$20 per hour. A glass blower blows 10 flanges per hour. Fixed manufacturing costs for
flanges are $20,000 per period. Period (non manufacturing) costs associated with flanges
are $10,000 per period, and are fixed.
1. Graph the fixed, variable and total manufacturing cost for flanges, using units (number
of flanges) on the x-axis.
2. Assume Graham’s Glassworks manufactures and sells 5,000 flanges this period. Their
competitor, Fred’s Flasks, sells flanges for $8.25 each. Can Graham sell below Fred’s
price and still make a profit on the flanges?
3. How would your answer to requirement 2 differ if Graham’s Glassworks made and
sold 10,000 flanges this period? Why? What does this indicate about the use of unit cost
in decision making?
Q.8 CVP exercises The Super Donut owns and operates six doughnut outlets in and
around Kansas City. You are given the following corporate budget data for next year:
Revenues $10,000,000
Fixed costs $ 1,800,000
Variable costs $ 8,000,000
Variable costs change with respect to the number of doughnuts sold.
Compute the budgeted operating income for each of the following deviations from the
original budget data. (Consider each case independently.)
1. A 10% increase in contribution margin, holding revenues constant
2. A 10% decrease in contribution margin, holding revenues constant
3. A 5% increase in fixed costs
4. A 5% decrease in fixed costs
5. An 8% increase in units sold
6. An 8% decrease in units sold
7. A 10% increase in fixed costs and a 10% increase in units sold
8. A 5% increase in fixed costs and a 5% decrease in variable costs
Q.9 The Doral Company manufactures and sells pens. Currently, 5,000,000 units are sold
per year at $0.50 per unit. Fixed costs are $900,000 per year. Variable costs are $0.30 per
unit.
1. Consider each case separately.
a. What is the current annual operating income?
b. What is the present breakeven point in revenues?
2. Compute the new operating income for each of the following changes:
a. A $0.04 per unit increase in variable costs
b. A 10% increase in fixed costs and a 10% increase in units sold
c. A 20% decrease in fixed costs, a 20% decrease in selling price, a 10% decrease in
variable cost per unit, and a 40% increase in units sold
3. Compute the new breakeven point in units for each of the following changes:

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 a. A 10% increase in fixed costs
b. A 10% increase in selling price and a $20,000 increase in fixed costs
Q.10 Suppose Lattin Corp.’s breakeven point is revenues of $1,500,000. Fixed costs are
$600,000.
1. Compute the contribution margin percentage.
2. Compute the selling price if variable costs are $15 per unit.
3. Suppose 80,000 units are sold. Compute the margin of safety in units and dollars.

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 Management Accounting– Assignment IV
Key factor
Q.1 The following particulars are obtained from costing records of a factory.
Product A Product B
(per unit) (per unit)
Rs. Rs.
Selling Price 200 500
Material (Rs. 20 per litre) 40 160
Labour (Rs. 10 per hour) 50 100
Variable Overhead 20 40
Total Fixed Overheads –Rs. 15,000
Comment on the profitability of each product when:
(a) Raw material is in short supply;
(b) Production capacity is limited;
(c) Sales quantity is limited;
(d) Sales value is limited;
(e) Only 1,000 litres of raw material is available for both the products in total and
maximum sales quantity of each product is 300 units.
Q.2 A manufacturer produces three products whose cost data are as follows:
X Y Z
Direct materials (Rs./unit) 32.00 76.00 58.50
Direct Labour:
Department. Rate / hour (Rs.) Hours Hours Hours
1 2.50 18 10 20
2 3.00 5 4 7
3 2.00 10 5 20
Variable overheads (Rs.) 8 4.50 10.50
Fixed overheads: Rs. 4,00,000 per annum.
The budget was prepared at a time, when market was sluggish. The budgeted quantities
and selling prices are as under:
Product Budgeted quantity Selling Price/unit
(Units) (Rs.)
X 19,500 135
Y 15,600 140
Z 15,600 200
Later, the market improved and the sales quantities could be increased by 20 per cent for
product X and 25 per cent each for product Y and Z. The sales manager confirmed that
the increased sales could be achieved at the prices originally budgeted. The production
manager stated that the output could not be increased beyond the budgeted level due to
the limitation of direct labour hours in department 2.
Required: (i) Prepare a statement of budgeted profitability.

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 (ii) Set optimal product mix and calculate the optimal profit.
Acceptance of sales order
Q.3 X Company manufactures cookware. Expected annual volume of 1,00,000 sets per
year is well below its full capacity of 1,50,000. Normal selling price is Rs. 40 per set.
Manufacturing cost is Rs. 30 per set (Rs 20 variable and Rs. 10 fixed). Total fixed
manufacturing cost is Rs. 10,00,000. Selling and administrative expenses are expected to
be Rs. 5,00,000 (Rs. 3,00,000 fixed and Rs. 2,00,000 variable). A departmental store
offers to buy 25,000 sets of Rs. 27 per set. No extra selling and administrative costs
would be caused by the order. Further, the acceptance of this order will not affect regular
sales. Should the offer be accepted?
CVP Analysis
Q.4 A company has developed a new product. The sales volume of the new product was
estimated to be between 15,000 and 20,000 units per month at a price of Rs. 20 per unit.
Alternatively, if the selling price is reduced to Rs. 18 per unit, the sales volume will be
between 24,000 and 36,000 units per month. If the production is maintained below
20,000 units per month, the variable manufacturing cost will be Rs. 16.50 per unit and the
fixed costs Rs. 48,500 per month. If the production exceeds 20,000 units per month, the
variable manufacturing cost will be reduced to Rs. 15.50 per unit, but the fixed costs will
increase to Rs. 64,500 per month. The company paid Rs. 40,000 as fee for market survey
and in addition incurred a cost of Rs. 60,000 in developing the new product.
In the event of taking up this new line of business, it will be necessary to use the building
space, which has been let out for a rental of Rs. 5,600 per month.
You are required to analyze the Potential Profitability of the proposal of the company at
different levels of output and make suitable recommendations relating to the price and
volume of output to be set.
Q.5 X Ltd. has estimated the unit variable cost of a product to be Rs. 10 and the selling
price as Rs. 15 per unit. Budgeted sales for the year are 20,000 units.
Estimated fixed costs are as follows:
Fixed Cost per annum (Rs.) Probability
50,000 0.1
60,000 0.3
70,000 0.3
80,000 0.2
90,000 0.1
What is the probability that the company will equal or exceed its target profit of Rs.
25,000 for the year?
Q.6 X manufactures lighters. He sells his products at Rs. 20 each, and makes profit of Rs.
5 on each lighter. He worked 50% of his machinery capacity at 50,000 lighters. The cost
of each lighter is as under:
Rs.
Direct Material 6
Wages 2
Works Overhead 5 (50% fixed)
Sales Expenses 2 (25% variable)
His anticipation for the next year is that the cost will go up as under:

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Fixed charges 10%
Direct Labour 20%
Material 5%
There will not be any change in selling price. There is an additional order for 20,000
lighters in the next year. What is the lowest rate he can quote for the additional order so
that he can earn the same profit as the current year?
Q.7 X Ltd. is currently buying a component from a local supplier at Rs. 15 each. The
supply is tending to be irregular. Two proposals are under consideration:
a) Install a semi-automatic machine for manufacturing this component, which would
involve an annual fixed cost of Rs. 9 lakh and a variable cost of Rs. 6 per
manufactured component.
b) Install an automatic machine for manufacturing this component. Annual fixed cost Rs.
15 lakh and variable cost Rs. 5 per manufactured component.
Determine (i) Annual volume required, in each case, to justify a switch over from outside
purchase to own manufacture (ii) Annual volume required to justify selection of the
automatic machine instead of semi-automatic (iii) If annual requirement is 5,00,000
components (It is expected to rise at the rate of 20% annually), would you recommend
automatic or semi-automatic?
Q.8 XY Ltd., Nasik, is currently operating at 80 per cent capacity. The profit and loss
account shows the following:
(Rs. in lakhs)
Sales 640
Less: Cost of Sales:
Direct Materials 200
Direct Expenses 80
Variable Overheads 40
Fixed Overheads 260 580
Profit 60
The Managing Director has been discussing an offer from Middle East of a quantity,
which will require 50 per cent capacity of the factory. The price is 10 per cent less than
the current price in the local market. Order cannot be split. You are asked by him to find
out the most profitable alternative. The factory capacity can be augmented by 10 per cent
by adding facilities at an increase of Rs. 40 lakh in fixed cost.
Q.9 The following is the summarized Trading Account of a manufacturing concern,
which makes two products, X and Y.
Summarized Trading Account for the four months to 30 April 2008
X Y Total
Rs. Rs. Rs.
Sales 10,000 4,000 14,000
Less:
Cost of sales X Y
*Direct Costs
Labour 3,000 1,000
Material 1,500 1,000 4,500 2,000 6,500

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 5,500 2,000 7,500
Indirect costs
* Variable Expenses 2,000 1,000 3,000
3,500 1,000 4,500
+ Fixed Expenses
Common to both X & Y 1,250 1,250 2,500
Net profit 2,250 (-) 250 2,000
* These costs tend to carry in direct proportion to physical output.
+ These costs tend to remain constant irrespective of the physical output of X and Y.
It has been the practice of the concern to allocate these cost equally between X and Y.
Following proposals have been made by Board of directors for your consideration as
financial adviser:
1. Discontinue Product Y
2. As an alternative to (1) reduce the price of Y by 20 per cent (It is estimated that
the demand will then increase by 40 per cent).
3. Double the price of X (It is estimated that this will reduce the demand by three-fifths).
Make suitable recommendation after evaluating each of the proposals.
Q.10 A Ltd. manufactures three different products and the following information has
been collected from the books of accounts.
S T Y
Sales mix (Amt.) 35% 35% 30%
Selling price Rs. 30 40 20
Variable cost Rs. 15 20 12
Total fixed cost Rs. 1,80,000
Total sales Rs. 6,00,000
The company has currently under discussion, a proposal to discontinue the manufacture
of product Y and replace it with product M, when the following results are anticipated:
S T M
Sales mix (Amt.) 50% 25% 25%
Selling price Rs. 30 40 30
Variable cost Rs. 15 20 15
Total fixed costs Rs. 1,80,000
Total sales Rs. 6,40,000
Will you advise company to changeover to production of M? Give reasons.
Shut down or continue
Q.11 X Ltd. has the following annual budget for the year ending on June 30, 2008.
Production capacity 60% 80%
Costs (Rs. lakh)
Direct Material 9.60 12.80
Direct Labour 7.20 9.60
Factory Expenses 7.56 8.04
Administrative Expenses 3.72 3.88
Selling and Distribution Exp. 4.08 4.32

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Total 32.16 38.64
Profit 4.86 10.72
Sales 37.02 49.36
Owing to adverse trading conditions, the company has been operating during July/
September 2008 at 40% capacity, realizing budgeted selling prices.
Owing to acute competition, it has become inevitable to reduce prices by 25%
even to maintain the sales at the existing levels. The directors are considering whether or
not their factory should be closed down until the trade recession has passed. A market
research consultant has advised that in about a year’s time there is every indication that
sales will increase to 75% of normal capacity and that the revenue to be produced for a
full year at that volume could be expected to be Rs. 40 lakh.
If the directors decide to close down the factory for a year it is estimated that:
a. The present fixed costs would be reduced to Rs. 6 lakh per annum.
b. Closing down costs (redundancy payment, etc.) would amount to Rs. 2 lakh.
c. Necessary maintenance of plant would cost Rs. 50,000 per annum; and
d. On re-opening the factory, the cost of overhauling the plant, training and engagement
of new personnel would amount to Rs. 80,000.
Give your recommendations.

Management Accounting– Assignment V

Q.1 The standard material cost for 100 kgs of chemical ‘X’ is made up of:
Component A 30 kg @ Rs. 4 per kg;
Component B 40 kg @ Rs. 5 per kg; and
Component C 80 kg @ Rs. 6 per kg.
In a batch, 500 kgs of chemical ‘X’ were produced from a mix of
Component A 140 kgs (cost Rs. 688);
Component B 220 kgs (Rs. 1156); and
Component C 440 kgs. (Rs. 2660).
Calculate material variances.
Q.2 A Co. Ltd., manufactures a particular product the standard cost of which is as under:
(Calculate variances).
Material Units Price Amount
M1 100 2.00 Rs. 200
M2 200 1.70 Rs. 340
300
Less Normal wastage - 30
Production 270 Rs. 540
Actual result in a period was as follows:
Material Units Price Amount
M1 215 1.80 Rs. 387
M2 385 2.00 Rs. 770
600
Less wastage -70

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Production 530 Rs. 1157
Q.3 The standard set for a chemical mixture of a firm is:
Material Standard Mix. St. price per tonne
A 40% Rs. 20
B 60% Rs. 30
The standard loss is 10 per cent. During a period 182 tonnes of output were produced
from A 90 tonnes (Rs. 18 per tonne) and B 110 tonnes (Rs. 34 per tonne). Calculate
variance.
Q.4 A Co. manufactures a special tile of 12”×8”×½” size. The standard mix of material
used is as follows:
1200 kgs A @ 30 paise per kg
500 kg B @ 60 paise per kg and
800 kg C @ 70 paise per kg.
The mix should produce 12,000 square feet of tiles. During a period, 1,00,000 tiles were
produced from a mix of the following:
7000 kg A (paise 32 per kg);
3000 kg B (paise 65 per kg); and
5000 kg. C (paise 75 per kg). Compute variances.
Q.5 The standard set for output of a company is as under:
Material Standard Mix Standard price per kg.
A 40% Rs. 4
B 60% Rs. 3
The standard loss is 15 per cent of input. During April 2007, the company produced
1,700 kgs of finished output. The materials details are given below:
Material Opening Stock Closing Stock Purchase in April
A 35 kg. 5 kg. 800 kg. Rs. 3,400
B 40 kg. 50 kg. 1,200 kg. Rs. 3,000

Q.6 A gang of workers normally consists of 30 men, 15 women and 10 boys. The
standard hourly labour rates are – Men: 80 paise, Women: 60 paise, and boys: 40 paise.
In a normal week of 40 hours, the gang is expected to produce 2000 unit of output.
During the week ended December 31, 2007, the gang consisted of 40 men, 10 women and
5 boys. The actual wage rates were 70 paise, 65 paise, and 30 paise respectively. 4 hours
were lost due to power breakdown, Actual output 1600 units. Compute labour variances.

Q.7 A gang of workers normally consists of 10 skilled, 5 semi-skilled and 5 unskilled

workers paid at standard hurly rates 75p, 50p, and 40p respectively. In a normal working
week of 40 hours the gang is expected to produce 1,000 unit of output.
In a certain week, the gang consisted of 13 skilled, 4 semi-skilled and 3 unskilled workers
and produced 1,000 units. Actual wages Rs. 450. Actual hours worked 720. Assuming
that each worker worked the same hours, compute variances.
Q.8 The standard labour and actual labour engaged in a week for a job are as under:
Skilled Semi-skilled Unskilled
Standard No. of workers 32 12 6

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Standard hourly Rate (Rs.) 3 2 1
Actual No. of workers 28 18 4
Actual Hourly Rate (Rs.) 4 3 2
During the 40 hour working week, the gang produced 1,800 standard labour hours of
work. Compute variances.
Q.9 In a factory, 100 workers are engaged and an average rate of wages is Rs. 5 per hour.
Standard working hours per week are 40 hours and the standard output is 10 units per
hour. During a week in February, wages were paid for 50 workers @ Rs. 5 per hour, 10
workers @ Rs. 7 per hour and 40 workers @ Rs. 4 per hour. Actual output was 380 units.
The factory did not work for 5 hours due to breakdown of machinery.
Calculate – (i) Labour cost variance; (ii) Labour rate variance; (iii) Labour efficiency
variance.
Q.10 The standard labour – mix for producing 100 units a of product is:
4 skilled men @ Rs. 3 per hour for 20 hours
6 unskilled men @ Rs. 2 per hour for 20 hours
But due to shortage of skilled men, more unskilled men were employed to produce 100
units. Actual hours paid for were:
2 skilled men @ Rs. 4 per hour for 25 hours
10 unskilled men @ Rs. 2.50 per hour for 25 hours. Calculate labour variances.

Management Accounting – Assignment VI

Q.1 A factory, which expects to operate 7,000 hours, i.e., at 70% level of activity,
furnishes details of expenses as under:
Variable expenses Rs. 1,260
Semi-variable expenses Rs. 1,200
Fixed expenses Rs. 1,800
The semi-variable expenses go up by 10% between 85% and 95% activity and by 20%
above 95% activity. Construct a flexible budget for 80, 90 and 100 per cent activities.
Q.2 Action Plan Manufactures normally produce 8,000 units of their product in a month,
in their Machine Shop. For the month of January, they had planned for a production of
10,000 units. Owing to a sudden cancellation of a contract in the middle of January, they
could only produce 6,000 units in January.
Indirect manufacturing costs are carefully planned and monitored in the Machine Shop
and the Foreman of the shop is paid a 10% of the savings as bonus when in any month
the indirect manufacturing cost incurred is less than the budgeted provision.
The Foreman has put in a claim that he should be paid a bonus of Rs. 88.50 for the month
of January. The Works Manager wonders how any one can claim a bonus when the
Company has lost a sizeable contract. The relevant figures are as under:
Indirect manufacturing Expenses for a Planned expenses Actual expenses
cost normal month for January for January
Rs. Rs. Rs.
Salary of foreman 1,000 1,000 1,000

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 Indirect labour 720 900 600
Indirect material 800 1,000 700
Repairs and maintenance 600 650 600
Power 800 875 740
Tools consumed 320 400 300
Rates and taxes 150 150 150
Depreciation 800 800 800
Insurance 100 100 100
5,290 5,875 4,990
Do you agree with the Works Manager? Is the Foreman entitled to any bonus for the
performance in January? Substantiate your answer with facts and figures.
Q.3 X Ltd., a manufacturing company, having a capacity of 7 lakh units has prepared the
following cost sheet:
(Per unit) Rs.
Direct Material 30
Direct Wages 12
Factory Overheads 30 (50% variable)
Selling and Administration Overheads 18 (Two-third Fixed)
Selling price 120
During the year 2006-07, the sales volume achieved by the company was 6 lakh units.
The company has launched an expansion programme, the details of which are as under:
(i) The capacity will be increased to 12 lakh units.
(ii) The additional fixed overheads will amount to Rs. 50 lakhs upto 10 lakh units and
will increase by Rs. 25 lakh more beyond 10 lakh units.
(iii) The cost of investment of expansion is Rs. 100 lakh, which is proposed to be
financed through bank borrowings carrying interest at 15% per annum.
(iv) The average depreciation rate on the new investment is 15% based on straight line
method.
After the expansion is put through, the company has two alternatives for operations:
(i) Sales can be increased up to 10 lakh units by spending Rs. 10,00,000 on special
advertisement campaign to explore new market.
Or
(ii) Sales can be increased to 12 lakh units subject to the following:
• By an overall reduction of Rs. 10 per unit in selling price on all the units sold.
• By increasing the variable selling and administration expenses by 8%.
• The direct material costs would go down by 1.5% due to discount on bulk
purchasing.
Requirements:
I. Construct a Flexible Budget at the level of 6 lakhs, 10 lakhs and 12 lakhs unit of
production.

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II. Calculate Break Even Point before and after expansion.
III. Advise the optimum level of output for expansion.

Management Accounting – Assignment VII

Q.1 From the following information for 50% activity, calculate the costs at 85% activity
by the Graphic Method.
Output 500 units
Variable Costs per unit Rs. 5
Fixed Costs (Total) Rs. 5,000
Semi-variable Cost (50% fixed) Rs. 10,000

Q.2 The expenses for budgeted production of 10,000 units in a factory are furnished
below:
Per Unit (Rs.)
Materials 70
Labour 25
Variable Overhead 20
Fixed Overhead (Rs. 1,00,000) 10
Variable Expenses (Direct) 5
Selling Expenses (10% Fixed) 13
Distribution Expenses (20% Fixed) 7
Administration Expenses (Rs. 50,000) 5
Total Cost per unit (to make and sell) 155
Prepare a budget for production of:
(a) 8,000 units, (b) 6,000 units, and (c) indicate cost per unit at both the levels.
Assume that administration expenses are fixed for all levels of production.
Q.3 The following information relates to the productive activities of G Ltd. for three
months ended December 31, 2006.
Rs.
Fixed Expenses:
Management Salaries 2,10,000
Rent and Taxes 1,40,000
Depreciation of Machinery 1,75,000
Sundry Office Expenses 2,22,500
7,47,500
Semi-variable Expenses at 50% Capacity:
Plant Maintenance 62,500
Indirect Labour 2,47,500
Salesmen’s Salaries 72,500
Sundry Expenses 65,000
4,47,500
Variable Expenses at 50% Capacity:
Materials 6,00,000
Labour 6,40,000

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Salesmen’s Commission 95,000
13,35,000
It is further noted that semi-variable expenses remain constant between 40% and 70%
capacity, increase by 10% of the figures between 70% an 85% capacity and increase by
15% of the above figure between 85% and 100% capacity. Fixed expenses remain
constant whatever the level of activity may be. Sales at 60% capacity are Rs. 25,50,000;
at 80% capacity Rs. 34,00,000 and 100% capacity Rs. 42,50,000. Assuming that items
produced are sold, prepare a flexible budget at 60%, 80% and 100% production capacity.
Q.4 A department of Company X attains sale of Rs. 6,00,000 at 80 per cent of its normal
capacity and its expenses are given below:
Administration costs: Rs.
Office salaries 90,000
General expenses 2 per cent of sales
Depreciation 7,500
Rates and taxes 8,750
Selling costs:
Salaries 8 per cent of sales
Traveling expenses 2 per cent of sales
Sales office expenses 1 per cent of sales
General expenses 1 per cent of sales
Distribution costs:
Wages 15,000
Rent 1 per cent of sales
Other expenses 4 per cent of sales
Draw up flexible administration, selling and distribution costs budget, operating at 90 per
cent, 100 per cent and 110 per cent of normal capacity.
Q.5 Attempt the following:
1. Explain briefly Zero base budgeting.
2. Differentiate between Standard Costing and Budgetary Control.
3. Differentiate between Fixed budgets and Flexible budgets.

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