Assignment Problems

1. Rimham Plc prepares its budgets annually and as the accountant you are responsible for
this task. The following standard data is available:
Material Component Product X (KG) Products Y(KG) Product Z (KG)
Material 1 - 18 24
Material 2 4 14 -
Material 3 12 10 6
Material 4 8 - 18
Material Price Price per Kg (in Rs)
Material 1 0.10
Material 2 0.15
Material 3 0.25
Material 4 0.05
Labour Content Product X (Hrs.) Products Y (Hrs.) Product Z (Hrs.)
Department A 2.5 1.5 3
Department B 2.5 1.5 3
Labour Rate Rate per Hour (Rs)
Department A 1.6
Department B 1.2
Additional budgeted information
Direct labour Hours 635,000
Production Overheads Rs. 1,143,000
 Production overheads are absorbed on the direct labour hour rate method.
 Administration and selling overheads are absorbed as a percentage of production costs at
the rates of 50% and 25% respectively.
 Profit is estimated at 12.5% on the budgeted selling price.
Sales at a standard selling price, for the coming year are budgeted as follows:
Products Sales in (RS)
X 800,000
Y 1,280,000
Z 2,400,000
 In order to meet the needs of an expansion programme the company considers it
necessary to increase stocks as follows:
Material 1 90,000 kg
Material 2 36,000 kg
Material 3 42,000 kg
Material 4 54,000 kg

Finished goods
Product X 5,000 Units
Product Y 10,000 Units
Product Z 10,000 Units
You are required to prepare the following:
a) A schedule giving a detailed cost and standard selling price per unit for each product.
b) The sales budget
c) The production budget
 d) Material Purchase Budget
e) Labour Budget.
f) Income statement for the budget period.
2. At the monthly senior management meeting of Himalayan Company on 1st May 2017,
various suggestions were made to improve the profit to be made by selling the firm's single
product in the last quarter of the year ending 30 th September 2017. The product is not subject
to seasonal demand fluctuations, but there are several competitors producing similar items. In
the first quarter of the year a suggestion was made that profit could be improved if the selling
price was reduced by 5 percent, and this was put into effect at the beginning of the second
quarter. As the new price undercut that of the rival firms, demand increased, and the firm's
breakeven point was reduced.

The following suggestions have now been raised:

i) Differentiate the product form its rivals by giving it a more distinctive shape, colour and packaging.
This would increase material costs per unit by Rs. 2, but selling price would not be raised. Demand
is then predicted to raise by 10 percent;
ii) Improve the quality of the product by strengthening it and giving it a one-year guarantee- material
costs would than increase by Re 1 per unit and labour cost by Rs. 2 per unit. Selling price would
raise by Rs. 3 per unit, and demand increase by 7 percent;
iii) Further reduce the selling price by 10 percent- demand to raise by 20 percent;
iv) Pay commission plus salaries instead of fixed salaries only to all sales staff. Variable selling cost
would then rise by Rs. 1.5 per unit, but fixed cost will fall by Rs. 16,000 per quarter;
v) Subcontract the making of some components, and close the department responsible, making six
staff redundant at an estimated cost to the firm of Rs. 30,000. 40,000 components are currently
made per quarter. Each components variable cost is Rs. 5. They can be bought from a recently
established firm for Rs. 6 per unit. The department's share of the firm's fixed costs is 20 percent and
Rs. 10,000 fixed costs per quarter would cease to arise if the department were to be closed.

Data for: First Quarter Second Quarter

Number of units produced and sold 15,000 18,000
Rs. Rs.
Selling Price per unit 20 18
Material per unit 6 6
Labour per unit 5 5
Variable factory overhead per unit 3 3
Variable selling costs per unit 2 2
Fixed factory overhead 60,000 60,000
Fixed selling and administrative overhead 50,000 50,000
Required:
a) Calculate the profit earned for each quarter with contribution per unit.
b) Determine the breakeven in units and in Rs for each quarter.
c) Draw the profit might be made in last quarter after the suggestions were implemented.
d) Discuss the implications for the firm of undertaking suggestions (i) - (iv).
e) Discuss how breakeven analysis is useful to the senior management of the firm.
3. Northwood Company manufactures basketballs. The company has a ball that sells for Rs.
2,500. At present, the ball is manufactured in a small plant that relies heavily on direct labour
workers. Thus, variable costs are high, totaling Rs. 1,500 per ball, of which 60% is direct
labour cost. Last year, the company sold 3,000 of those balls with the following results:
Particulars Amounts (Rs.)
Sales (3,000 balls) 75,00,000
Variable expenses 45,00,000
Contribution Margin 30,00,000
Fixed Expenses 21,00,000
Net Operating Income 9,00,000
Required:
1) Compute CM Ratio and Break-even point in Balls and in Rs.
2) Due to increase in labour Rates, the company estimates that variable cost will increase by
Rs. 300 per ball in next year. If this change takes place and the selling price per ball
remains constant, what will be the new CM Ratio and break-even point?
3) What will be the selling price per ball to remain at original BEP after changing in
variable cost?
4) Refer to original data the company is discussing the construction of new automated
manufacturing plant, by which variable cost will reduced by 40% and fixed cost will be
doubled, than what will be the CM Ration and BEP?
4. Gandaki Noodles is considering to producing a new product named 'Khaja'. Estimated sales
with their respective probability at different situation for coming year are as follows:
State of Nature Sales in Probability
Cartoon
Most likely 15,000 0.20
Favourable 12,000 0.40
Average 10,000 0.20
Weak 8,000 0.15
Poor 6,000 0.05
Other related data:
Selling price per cartoon: Rs. 3,00
Variable cost Per cartoon: Rs. 180
Fixed cost per year : Rs. 9,00,000
Required: a) Break even sales in Cartoon
b) Expected mean sales in cartoon and in Rs.
c) Standard deviation about the expected sales in cartoon and in Rs.
d) Standard deviation of profit.
e) probability of sales being i) at least break-even ii) more than 5500 cartoons iii) less
than 14,000 cartoon, iv) ranging between 8,000 to 18,000.
f)probability of profit being i) more than Rs. 500,000 ii) less than 250,000 iii) loss Rs.
50,000 or less.
g) Probability of sales revenue being i) at least Rs 25,00,000 ii) Rs. 25,00,000 and
above iii) Rs. 30,00,000 or less.
5. Spreadwell Paint Company (SPC) manufactures two high quality based paints, namely oil-
based and a latex paint. Both are manufactured in natural white colour only. SPC sells the
white base paints to franchised retail paint and decorating stores where pigments are added to
 tint (colour) the paint as per the customer desires. The oil-based paint is made with organic
solvents such as mineral spirits or turpentine. It requires 1.5 liter of such materials per liter of
paint with the cost of Rs. 16 per liter. The latex paint is made with water; synthetic resin
particles which cost Rs 10 per liter (require 1.2 liter per liter of paint) are suspended in the
water, and dry and harden when exposed to the air.
SPC uses the same processing equipment to produce both paints in different production runs.
Between batches, the vats and other processing equipment must be washed and cleaned with
the chargeable cost of Rs. 8.4 and Rs. 6.4 per liter of product oil-based and a latex paint
respectively.
Labour charge per liter of output of both the product is Rs. 12. After analyzing the company's
entire operations, SPC's accountant and production manager have identified activity cost pool
and accumulated annual budgeted overhead cost is as follows:

Activity Cost Pools Estimated Overheads (Rs.)

Purchasing 240,000
Processing (Weighing and mixing, thinning and drying, straining) 14,00,000
Packaging (half liters, liters, 5-liters) 580,000
Testing 240,000
Storage and inventory control 180,000
Washing and cleaning equipment 560,000
Total annual budgeted overhead 32,00,000

Following further analysis, activity cost drivers were identified and their expected use by product
and activity were scheduled as follows:
Activity Cost Cost Drivers Expected cost Expected use of drivers per
Pool driver per products
activity Oil-based Latex
Purchasing Purchase order 150 order 80 70
Processing Liter processed 100,000 liter 40,000 60,000
Packaging Containers filled 40,000 containers 18,000 22,000
Testing Number of test 400 tests 210 190
Storing Avg. stock 1,800 liters 1,040 760
Washing Number of batches 80 batches 35 45
SPC has budgeted 40,000 liters of oil-based paint and 60,000 liters of latex paint for processing
during the year.
Required: a) Prepare a schedule showing overhead rate per activity.
b) Prepare a schedule showing overhead cost each product.
c) Compute cost per unit for each product.
d) Calculate the selling price per unit if the company charges 20% profit on sales.
6. Actual sales of last two months and budgeted sales for coming five months of Aakarti
Company are as follows:
Nov Dec Jan Feb Mar Apr May
Months Actual Actual Budgeted Budgeted Budgeted Budgeted Budgeted
Sales Units 12,000 15,000 20,000 25,000 30,000 35,000 40,000
Sales: Selling price per unit is Rs. 30. 20% of sales will be in cash and rest on Credit. 50% of
credit sales will be realized in the month of sale net of 2% cash discount, 30% in next month
 and remaining 18% in next following month of sales. 2% will be the bad debts.
Purchases: product need only one raw material, consumption rate is 2 units, and purchase price
is Rs 5 per unit. All purchase are on credit, 50% of which will be paid on same month with
net of 1% cash discount and remaining purchase will be paid on next month of purchase.
Actual purchase of December was Rs. 265,000.
Inventory: Finished goods: one and half times of next month's sales.
Raw materials: 80% of production needs of next months.
Wages: product needs two processing in two different departments before it is converted into
finished goods. Labour hour need for department A will be 1 hour @ Rs. 3; department B
will need 0.8 hours @ Rs. 5 per hour.
Manufacturing Overheads:
Items Fixed Variable
Indirect material and labour Rs. 12,000 pm Rs. 2
Depreciation Rs. 5,000 pm -
Rent and supplies Rs. 3,000 pm - Rs.
Others Rs. 5,000 pm 1
Operating costs: selling and distribution expenses will be 10% of sales.
Expenses Payments: All expenses including wages will be paid in the month of occurrences.
Assets Purchase: the company will buy a new machine in the month of January at Rs 2,00,000.
The company has a policy of maintaining minimum cash balance of Rs. 20,00 and beginning
cash balance on January was also the same amount. Company has a agreement with bank for
short term lending. All the borrowings will be in a multiple of Rs. 5,000 and repayments
would be in a multiple of Rs. 2,000. Rate of interest will be 12% p.a. Amount of interest is
paid for the loan repaid with the repayment amount to a rounded value nearest of Rs. 100.
Required: a) Sales Budget for the first three months.
b) Production budget for the first three months.
c) Material consumption and purchase budget.
d) Labour hour and cost budget.
e) Manufacturing overhead budget.
f) Selling and distribution overhead budget.
g) Cash receipt and disbursement budget.
h) Budgeted income Statement.
i) Budgeted Balance Sheet at the end of 31st March.