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Solution Paper

Cost & Management Accounting Duration: 75

Details: Test – 5 Marks: 40

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ANS 1:-

The basic data given in the question can be put in the form of the following table:

Products Standard Actual

Quantity Rate Amount Quantity Rate Amount

Kg. (Rs.) (Rs.) Kg. (Rs.) (Rs.)

A 50 12 600 ? 15 ?

B ? 15 ? 70 20 1,400

On the basis of information given in the question, the missing information can be found out as
under:

Material Usage Variance = Standard Rate × (Standard Quantity of Input – Actual Quantity)

Let X be the Standard Input for Product B

Material B: - Rs. 300 = Rs. 15 (X - 70)

Or - 300 = 15X – 1,050

Or 15X = 750

Or X = 50

Hence, Standard Input for Product B is 50 Kgs.

Material Mix Variance for both product A and B is Rs. 45 adverse. The formula for Material Mix
Variance is as follows;

Standard Price per unit × (Revised Standard Quantity – Actual Quantity)

Let Y be the actual input in Kgs for product A.

 50 × 𝑌+70 − 𝑌 50 × 𝑌+ 70− 70
- Rs.45 = × Rs. 12 + × Rs. 15
100 100

- Rs. 45 = {(0.5Y + 35) –Y} 12 + {0.5Y + 35) - 70} 15

- Rs. 45 = (6Y + 420 - 12Y) +(7.5Y + 525 - 1050)

1.5Y = 60

Y = 40 Kgs

Material Variances for Product A and B can now be computed as follows:

Variances of Product A:

Material Price Variance = Actual Quantity × (Standard Price – Actual Price)

= 40 Kgs × (Rs. 12 – Rs. 15)

= Rs. 120 (A)

Material Usage Variance = Standard Price × (Standard Quantity – Actual Quantity)

= Rs. 12 × (50Kgs. - 40Kgs.)

= Rs. 120 (F)

Material Cost Variance = (Standard Cost – Actual Cost)

= (50 Kgs × Rs. 12 – 40 Kgs × 15)

= Nil

Variance of product B:

Material Price Variance = Actual Quantity × (Standard Price –Actual Price)

= 70 Kgs × (Rs. 15 – Rs. 20)

= Rs. 350 (A)

Material Cost Variance = (Standard Cost – Actual Cost)

= (50 Kgs × Rs. 15 – 70 Kgs × Rs. 20)

= Rs. 650 (A)

(8 Marks)

Ans 2:-

(a) Statement Showing Cost Elements Equivalent Units of Performance and the Actual Cost
per Equivalent Unit

Detail of Detail Details Equivalent Units

Returns of
Input
Units

Output Units Labour Overheads

% Units % Units

Returns in 200 Returns 900 100 900 100 900

Process at the Completed in
beginning March

Returns 825 Returns in 125 80 100 80 100

Started in Process at the
March end of March
 1,025 1,025 1,000 1,000

Particulars Labour Overheads

Costs: (Rs.) (Rs.)

From previous month 12,000 5,000

During the month 1,78,000 90,000

Total Cost 1,90,000 95,000

Cost per Equivalent Unit 190.00 95.00

(b) Actual cost of returns in process on March 31:

Components Numbers Stage of Rate per Return Total (Rs.)

Completion (Rs.)

Labour 125 returns 0.80 190.00 19,000

Overheads 125 returns 0.80 95.00 9,500

28,500

(c) Standard Cost per Return:

Labour = 5 Hrs × Rs. 40 per hour = Rs. 200

Overhead = 5 Hrs × Rs. 20 per hour = Rs. 100

 Rs. 300

(d) Budgeted volume for March = Rs. 98,000/Rs. 100 = 980 Returns

Actual labour rate = Rs. 1,78,000 /4000 Hrs. = Rs. 44.50 per hour

Statement Showing Output (March only) Element Wise Labour Overhead

Actual performance in March in terms of equivalent units 1,000 1,000

as Calculated above

Less: Returns in process at the beginning of March in (50) (50)

terms of equivalent units i.e.,25% of returns (200)

950 950

Variance Analysis:

Labour Rate Variance = Actual Hours × (Standard Rate – Actual Rate)

= 4,000 Hours × (Rs. 40 – Rs. 44.50)

= Rs. 18,000 (A)

Labour efficiency Variance = Standard Rate × (Standard Hours – Actual Hours)

= Rs. 40 × (4,750 Hours – 4,000 Hours)

= Rs. 30,000 (F)

Overhead Expenditure Budgeted Variance = Budgeted Overhead – Actual Overhead

= Rs. 98,000 – Rs. 90,000 = Rs. 8,000 (F)

Overhead Volume Variance = (Actual Output – Budgeted Output) × Standard Overhead per
unit of output
= (950 Units – 980 Units) × Rs. 100

= Rs. 3,000 (A)

(8 Marks)

Ans 3:-

(a) Break –Even Sales

𝐅𝐢𝐱𝐞𝐝 𝐂𝐨𝐬𝐭𝐬 𝐑𝐬.𝟑,𝟔𝟗,𝟎𝟎𝟎

= 𝐏 =
𝐑𝐚𝐭𝐢𝐨 𝟓𝟑.𝟒𝟏%
𝐕

= Rs. 6,90,882

(b) Profit earned during the last year = Sales – Total Variable Costs – Total Fixed Costs

= Rs. 9,25,000 – Rs. 4,31,000 – Rs. 3,69,000

= Rs. 1,25,000

𝐒𝐚𝐥𝐞𝐬− 𝐁𝐫𝐞𝐚𝐤 𝐞𝐯𝐞𝐧 𝐬𝐚𝐥𝐞𝐬

(c) Margin of Safety (%) = × 𝟏𝟎𝟎
𝐒𝐚𝐥𝐞𝐬

Rs .9,25,000 – Rs .6,90,882
= × 100
Rs .9,25,000

= 25.31%

(d) Profit = 90% (Rs. 925,000 – Rs. 431,000) – Rs. 369,000

= Rs. 444,600 – Rs. 369,000

= Rs. 75,600

Working Notes: (1) Calculation of Cost of Goods Sold (COGS):

COGS = Direct Material + Direct Labour + Factory O/H + General & Administration O/H

= (0.3COGS) + (0.15 COGS) +(0.10 COGS + 2,30,000) +(0.02 COGS + 71,000)}

= 0.57COGS + 3,01,000

= Rs. 3,01,000/0.43

= Rs. 7,00,000

(2) Cost of Sales = COGS + Selling & Distribution O/H

= Rs. 7,00,000 + (0.04 COS + Rs. 68,000)

= Rs. 7,68,000/0.96

= Rs. 8,00,000

(3) Calculations of Variable Costs:

Particulars Total (Rs.) Per unit (Rs.)

Direct Material 210,000 0.30

Direct Labour 105,000 0.15

Factory Overhead 70,000 0.10

General & Administration O/H 14,000 0.02

Selling & Distribution O/H 32,000 0.04

Total 4,31,000 0.61

(4) Calculation of Total Fixed Costs

 Particulars (Amount in Rs.)

Factory Overhead 230,000

Add: General & Administration OH 71,000

Add: Selling & Distribution OH 68,000

Total 369,000

𝐂𝐨𝐧𝐭𝐫𝐢𝐛𝐮𝐭𝐢𝐨𝐧
(5) P/V Ratio = × 𝟏𝟎𝟎
𝐒𝐚𝐥𝐞𝐬

Sales − Variable Costs

= × 100
Sales

Rs .185 ×5,000 units − Rs .4,31,000

= × 100
Rs .185 × 5,000 units

= 53.41%

(8 Marks)

Ans 4:-

Break Even Point (in units) = Fixed Costs / Contribution per unit = Rs. 24,00,000 / Rs. 150 =
16,000 shirts

Break Even Sales Value = 16,000 shirts x Rs. 400 = Rs. 64,00,000

Total Sales Value = 24,000 shirts x Rs. 400 = Rs. 96,00,000

Margin of Safety = Sales – B.E. Sales = Rs. 96,00,000 – Rs. 64,00,000 = Rs. 32,00,000

Margin of Safety (in units) = Rs. 32,00,000/ Rs. 400 = 8,000 shirts
1. Contribution per unit = Rs. 400 – Rs. 250 = Rs. 150

No. of shirts sold = 20,000 shirts (Rs.)

Total contribution = 20,000 x Rs. 150 = 30,00,000

Less: Fixed cost (24,00,000)

Net profit 6,00,000

2. Sales commission of Rs. 30 per unit is available cost and, therefore, revised variable cost will
be Rs. 280 per shirt.

Contribution per unit = Rs. 400 – Rs. 280 – Rs. 120

Fixed cost = Rs. 24,00,000

Add: Desired Profit = Rs. 1,50,000

Desired Contribution Rs. 25,50,000

Required sales in units = Desired Contribution / Contribution per unit

= Rs. 25,50,000 / Rs. 120 = 21,250 shirts

4. Revised Fixed Costs = Rs. 24,00,000 + Rs. 3,30,000 = Rs. 27,30,000

Revised selling price = (Rs. 400 + 15% of Rs. 400) = Rs. 460

Revised Contribution = Rs. 460 – Rs. 250 = Rs. 210 per shirt

Break Even Point (shirts) = Revised Fixed Costs / Contribution per unit
= Rs. 27,30,000 / Rs. 210 = 13,000 shirts

Sales value = 13,000 shirt x Rs. 460 = Rs. 59,80,000

(6 Marks)

Ans 5:-

Working Note:

1. Statement Showing Contribution

Sub-Assemblies ABC (Rs.) MCB (Rs.) DP (Rs.)

Selling Price per unit : (A) 520 500 350

Marginal Cost per unit:

Components

Base Board 60 60 60

IC08 160 40 40

IC12 48 120 48

IC26 16 48 64

Labour

Grade A 40 30 20

Grade B 64 48 32

Variable Production Overhead 36 24 24

Total Marginal Cost per unit: (B) 424 370 288

Contribution per unit: (C ) = (A) - (B) 96 130 62

Sales Ratio: (D) 3 4 2

Contribution × Sales Ratio : [(E) = (C ) × (D)] 288 520 124

2. Desired Contribution for the forthcoming month December, 2020

Particulars Amounts in (Rs.)

Fixed Overhead 757,200

Desired Profit 12,00,000

Desired Contribution 19,57,200

3. Sales Mix required i.e., number of batches for the forthcoming month December,2020

Sales Mix required = Desired Contribution/ Contribution × Sales Ratio

= Rs. 19,57,200/932 (Refer to Working notes 1 and 2)

= 2,100

Budget for December, 2020

(i) Sales Budget in quantity and value

Sub-Assemblies ABC MCB DP

Sales (Quantity) (2,100 × 3:4:2) (Refer to working note 3) 6,300 8,400 4,200
Selling Price per unit 520 500 350

Sales value (Rs.) 32,76,000 42,00,000 14,70,000

(ii) Production Budget in Quantity

Sub-Assemblies ABC MCB DP

Sales 6,300 8,400 4,200

Add: Closing Stock 720 1,080 2,520

(Opening Stock Less 10%)

Total Quantity Required 7,020 9,480 6,720

Less: Opening Stock (800) (1,200) (2,800)

Production 6,220 8,280 3,920

(iii) Component Usage Budget in quantity

Sub- Base
Assemblie Productio Board Component IC08 Component IC12 Component IC26
s n (1:1:1) (8:2:2) (4:10:4) (2:6:8)

49,760 (6220 × 12,440 (6220 ×

ACB 6220 6220 8) 24,880 (6220 × 4) 2)

16,560 (8280 × 82,800 (8280 × 49,680 (8280 ×

MCB 8280 8280 2) 10) 6)
 7,840 (3920 × 15,680 (3920 × 31,360 (3920 ×
DP 3920 3920 2) 4) 8)

Total 18420 74,160 123,360 93,480

(iv) Component Purchase Budget in quantity and value

Sub-Assemblies Base Board IC08 IC12 IC26

Usage in Production 18,420 74,160 123,360 93,480

Add: Closing stock 1,440 1,080 5,400 3,600

(Opening stock Less 10%)

Less: Opening Stock (1,600) (1,200) (16,000) (4,000)

Purchase (Quantity) 18,260 74,040 122,760 93,080

Purchase Price (Rs.) 60 20 12 8

Purchase value (Rs.) 10,95,600 14,80,800 14,73,120 744,640

(v) Manpower Budget showing the number of workers and the amount of wages payable

Direct labour

Sub-Assemblies Budgeted Grade A Grade B

Production
Hours per Total Hours per Total hours
unit hours unit
ACB 6,220 8 49,760 16 99,520

MCB 8,280 6 49,680 12 99,360

DP 3,920 4 15,680 8 31,360

(A) Total Hours 115,120 230,240

(B) Hours per man per month (25 days × 8 hours) 200 200

(C )Number of Workers per month: (A/B) 576 1,152

(D) Wage rate per month (Rs.) 1,000 800

(E) Wages Payable (Rs.) : (C × D) 576,000 921,000

(10 Marks)