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Management Accounting
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Illustration 11.3: The Sales Director of a manufacturing company reports that next
Budgetary Control year he expects to sell 50,000 units of a particular product.
The Production Manager consults the storekeeper and casts his figures as follows :
Illustration-11.1: X Y Z & Co. Ltd. manufactures two products X and Y and sells Two kinds of raw materials, A and B are required for manufacturing the product.
them through two divisions East and West. For the purpose of submission of sales Each unit of the product requires 2 units of A and 3 units of B. The estimated opening
budget to the budget committee the following information has been made available : balances at the commencement of the next year are :
Budgeted sales for the current year were : Finished product .... .... .... .... 10,000 units
Product East West Raw Material A .... .... .... .... 12,000 units
X 400 at Rs.9 600 at Rs.9 Raw Material B .... .... .... .... 15,000 units
Y 300 at Rs.21 500 at Rs.21 The desirable closing balance at the end of the next year are :
Actuals sales for the current year were : Finished product .... .... .... .... 14,000 units
Product East West Raw Material A .... .... .... .... 13,000 units
X 500 at Z 9 700 at Z 9 Raw Material B .... .... .... .... 16,000 units
Y 200 at Z 21 400 at Z 21 Draw up a quantitative chart showing Materials Purchase Budget for the next year.
Adequate market studies reveal that Product X is popular but under priced. It is observed [Production: 54,000 Units; Purchase of A: 1,09,000 Units; Purchase of B: 1,63,000 Units]
that if price of X is increased by Re.1, it will find a ready market. On the other hand Y
is over priced to customers and market could absorb more if sales price of Y be Illustration 11.4: The following are the estimates sales of a company for eight months
reduced by Re.1. ending 30th November 2016 :
The management has agreed to give effect to the above price changes. Months Sales in units
From the information based on these price changes and reports from salesmen, the April .... .... .... .... 12,000
following estimates have been prepared by divisional managers : May .... .... .... .... 13,000
Percentages increase in sales over budget is : June .... .... .... .... 9,000
Product East West July .... .... .... .... 8,000
X +10% + 5% August .... .... .... .... 10,000
Y + 20% + 10% September .... .... .... .... 12,000
With the help of an intensive advertisement campaign the following additional sales October .... .... .... .... 14,000
above the estimated sales of divisional managers are possible : November .... .... .... .... 12,000
Product East West As a matter of policy, the company maintains the closing balance of finished goods
X 60 70 and raw materials as follows :
Y 40 50 Stock item Closing balance of a month
You are required to prepare a Budget for sales incorporating the above estimates and Finished Goods 50% of the estimated sales for the next month
also show the budgeted and actual sales of the current year. Raw Materials Estimated consumption for the next month
[Actual Profit: Rs.23,400; Current Budget Profit: Rs.25,800; Future Budget Profit: Rs.32,000] Every unit of production requires 2 kgs of raw material costing 5 per kg.
Prepare Production Budget (in units) and Raw Material Purchase Budget (in units
Illustration-11.2: Prepare a Production Budget for three months ending March 31,
and cost) of the company for the half year ending 30 th September 2016.
2012, for a factory producing four products, on the basis of the following information:
[Total Production: 65,000 units; Total Purchase: 1,31,000 kgs of Rs.6,55,000]
Type of Estimated Stock Estimated Sales Desired Closing
Product on January 1 during Jan. to March Stock on March 31 Illustration 11.5: P Ltd. manufactures two products using one type of material and
(units) (units) (units) (units) one Grade of labour. Shown below is an extract from the company’s working papers
A 2.000 10,000 3,000
for the next period’s budget :
B 3,000 15.000 5,000
C 4,000 13,000 3,000
D 3,000 12,000 2,000
[Units Produced for A:11,000; B: 17,000; C: 12,000; D: 11,000]
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Particulars Product A Product B Calculate the cost of factory overhead items given above at 1,40,000 units of
Budgeted sales (unit) 3,600 4,800 production.
Budgeted material consumption per product 5 kgs 3 kgs [Rs.8,95,000]
(Budgeted material cost Rs.12 per kg)
Standard time allowed per product 5 hours 4 hours Illustration 11.8: You are requested to prepare a Sales Overhead Budget from the
(Budgeted wage rate Rs.8 per hour) estimates given below : Rs.
Overtime premium is 50% and is payable, if a worker works for more than 40 hours Advertisement 2,500
a week. There are 90 direct workers. The target productivity ratio (or efficiency ratio) Salaries of the Sales department 5,000
for the productive hours worked by the direct workers in actually manufacturing the Expenses of Sales department 1,500
products is 80%. In addition the non-productive downtime is budgeted at 20% of the Counter Salesmen’s salaries and dearness allowance 6,000
productive hours worked. Commission to counter salesmen is 1% on their sales and Travelling salesmen’s
There are twelve (5 days) weeks in the budget period and it is anticipated that sales commission is 10% on their sales & expenses are 5% on their sales.
and production will occur evenly throughout the whole period. It is anticipated that The sales during the period were estimated as follows :
stock at the beginning of the period will be : Counter Sales Travelling Salesmen’s Sales
Product A: 1,020 units; Product B: 2,400 units; Raw Material 4,300 kgs (a) Rs.80,000 Rs.10,000
The target closing stock, expressed in terms of anticipated activity during budget (b) Rs.1,20,000 Rs.15,000
period are : (c) Rs.1,40,000 Rs.20,000
Product A : 15 days sales; Product B : 20 days sales [(a) Rs.17,300; (b) 18,450; (c) 19,400]
Raw Material : 10 days consumption
Illustration 11.9: Prepare a cash budget for the months of May, June and July 2016
You are required to calculate :
on the basis of the following information :
(a) Material purchases budget
(b) Wages budget for the direct workers, showing the quantities and values, for the Income and Expenditure Forecasts (Figures in Rupees)
next period Month Credit Credit Wages Manufacturing Office Selling
[Material Purchase: 30,000 kgs; Total Labour Hours: 50,100; Total Wages: Rs.4,28,400] Sales Purchases Expenses Expenses Expenses
March 60,000 36,000 9,000 4,000 2,000 4,000
Illustration 11.6: From the following average figures of previous quarters, prepare a April 62,000 38,000 8,000 3,000 1,500 5,000
manufacturing overhead budget for the quarter ending on 31.03.2016. The budgeted May 64,000 33,000 10,000 4,500 2,500 4,500
output during this quarter is 4,000 units. June 58,000 35,000 8,500 3,500 2,000 3,500
Fixed Overheads : Rs.20,000 July 56,000 39,000 9,500 4,000 1,000 4,500
Variable Overheads : Rs.10,000 (varying @ Rs. 5 per unit) August 60,000 34,000 8,000 3,000 1,500 4,500
Semi-variable Overheads : Rs.10,000 (40% fixed and 60% varying @ Rs.3 per unit)
Additional Infromation :
[Rs.56,000]
(a) Cash balances on 1st May, 2012 Rs. 8,000.
(b) Plant costing Rs.16,000 is due for delivery in July, payable 10% on delivery and
Illustration 11.7: The budget manager of Alankar Cosmetics Limited, is preparing a
the balance after three months
budget for the accounting year starting from 01.07.2016 :
(c) Advance Tax of Rs. 8,000 each is payable in March and June
As part of the budget operations, some items of factory overhead costs have been
(d) Period of credit allowed (i) by suppliers — two months and (ii) to customers—
estimated by him under specified conditions of volume as follows :
one month
Volume of Production (in units) : 1,20,000 1,50,000
(e) Lag in payment of manufacturing — 1/2 months
Expenses : Rs. Rs.
(f) Lag in payment of office and selling expenses — one month
Indirect Materials 2,64,000 3,30,000
[Closing Cash Balance — May: Rs.13,750; June: Rs.12,250; July: Rs.16,900]
Indirect Labour 1,50,000 1,87,500
Maintenance 84,000 1,02,000
Illustration 11.12: With the following data for a 60% activity, prepare a budget for
Supervision 1,98,000 2,34,000
80% and 100% activity.
Engineering Services 94,000 94,000
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(a) Production at 60% capacity is 600 units Maintenance 84,000 1,02,000

(b) Material cost is Rs.100 per unit. Supervision 1,98,000 2,34,000
(c) Labour cost is Rs.40 per unit Depreciation on Plant & Equipment 90,000 90,000
(d) Expenses are Rs.10 per unit. Engineering Services 94,000 94,000
(e) Factory Expenses are Rs.40,000 (40% Fixed). Total manufacturing Overhead 9,70,000 11,50,000
(f) Administration Expenses are Rs.30,000 (60% Fixed). Normal capacity of production of company is 1,25,000 units.
[60%: Rs.1,60,000; 80%: Rs.2,02,000; 100%: Rs.2,44,000] Prepare a Budget of total cost at 1,40,000 units of output.
[Rs.28,55,000]
Illustration 11.13: A department of AXY company attains sales of Rs.6,00,000 at
80% of its normal capacity, Its expenses are given below : Illustration 11.16: For production of 10,000 Electrical Automatic Irons, the following
Administration Costs : are budgeted expenses : Per unit (Rs.)
Office salaries .... .... .... .... Rs.90,000 Direct Materials .... .... .... .... 60
General expenses .... .... .... .... 2% of sales Direct Labour .... .... .... .... 30
Depreciation .... .... .... .... Rs.7,500 Variable Overheads .... .... .... .... 25
Rent and rates .... .... .... .... Rs.8,750 Fixed Overheads .... .... .... .... 15
Selling Costs : Variable Expenses (Direct) .... .... .... .... 5
Salaries .... .... .... .... 8% of sales Selling Expenses (10% Fixed) .... .... .... .... 15
Travelling expenses .... .... .... .... 2% of sales Administration Expenses (Rs.50,000 Fixed) .... .... .... .... 5
Sales office .... .... .... .... 1% of sales Distribution Expenses (20% Fixed) .... .... .... .... 5
General expenses .... .... .... .... 1% of sales Total Cost of sales per unit .... .... .... .... 160
Distribution Costs : Prepare a budget for the production of 6,000, 7,000 and 8,000 irons, showing distinctly
Wages .... .... .... .... Rs.15,000 marginal cost and total cost.
Rent .... .... .... .... 1% of sales [Marginal Costs: Rs.8,25,000; Rs.9,62,500; Rs.11,00,000
Other expenses .... .... .... .... 4% of sales Fixed Costs: Rs.2,25,000; Rs.2,25,000; Rs.2,25,000
Draw up Flexible Administration Selling and Distribution Costs Budget, Operating at Total Costs: Rs.10,50,000; Rs.11,87,500; Rs.13,25,000]
90 percent, 100 percent and 110 percent of normal capacity.
[Administration Cost Budget: Rs.1,19,750; Rs.1,21,250; Rs.1,22,750 Illustration 11.17: Goodluck Ltd. is currently operating at 75% of its capacity. In the
Selling Cost Budget: Rs.81,000; Rs.90,000; Rs.99,000 past two years, the level of operations were 55% and 65% respectively. Presently,
Distribution Cost Budget: Rs.249,500; Rs.1,21,250; Rs.1,22,750] the production is 75,000 units. The company is planning for 85% capacity level during
2016-2017. The cost details are as follows :
Illustration 11.14: The Budget Manager of Jaypee Electricals Ltd. is preparing a 55% 65% 75%
flexible budget for the accounting year commencing from 18th April, 2016. The Rs. Rs. Rs.
company produces one product, a component PEEKAY. Direct material costs Rs. 7 Direct Materials 11,00,000 13,00,000 15,00,000
per unit. Direct labour averages Rs.2.50 per hour and requires 1.60 hours to produce Direct Labour 5,50,000 6,50,000 7,50,000
one unit of PEEKAY. Salesmen are paid a commission of Re.1 per unit sold. Fixed Factory Overheads 3 10,000 3,30,000 3,50,000
selling and administration expenses amount to Rs.85,000 per year. Selling Overheads 3,20,000 3,60.000 4,00,000
Manufacturing overheads has been estimated in the following amounts under specified Administrative Overheads 1,60 000 1,60,000 1,60,000
conditions of volume. 24,40,000 28,00,000 31,60,000
Volume of Production (in units) 1,20,000 1,50,000 Profit is estimated @ 20% on sales.
Expenses Rs. Rs. The following increases in costs are expected during the year :
Indirect Material 2,64,000 3,30,000 Direct Materials .... .... .... .... 8%
Indirect Labour 1,50,000 1,87,500 Direct Labour .... .... .... .... 5%
Inspection 90,000 1,12,500 Variable Factory Overheads .... .... .... .... 5%
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Variable Selling Overheads .... .... .... .... 8% Q-3: The cost of an article at a capacity level of 5,000 units is given under A below.
Fixed Factory Overheads .... .... .... .... 10% For a variation of 25% in capacity above or below this level, the individual expenses
Fixed Selling Overheads .... .... .... .... 15% vary as indicated under B below :
Administrative Overheads .... .... .... .... 10% Rs. Type of Cost
Prepare flexible budget for the period 2016-2017 at 85% level of capacity. Also Material Cost 25,000 100% varying
ascertain profit and contribution. Labour Cost 15,000 100% varying
[Variable Cost: Rs.32,74,200; Fixed Cost: Rs.5,11,000 Power 1,250 80% varying
Profit: Rs.9,46,300; Sales: Rs.47,31,500] Repairs and maintenance 2,000 75% varying
Stores 1,000 100% varying
Inspection 500 20% varying
PRACTICAL PROBLEMS Depreciation 10,000 100% varying
Administration Overhead 5,000 25% varying
Q-1: Production costs of a factory for a year are as follows : Rs. Selling Overhead 3,000 50% varying
Direct Wages .... .... .... .... 80,000 62,750
Direct Materials .... .... .... .... 1,20,000 Cost per unit 12.55
Production Overheads, Fixed .... .... .... .... 40,000 Find the unit cost of the product under each individual expenses at production levels
Production Overheads, Variable .... .... .... .... 60,000 of 4,000 units and 6,000 units.
During the fourthcoming year it is anticipated that : [For 4,000 units: per unit cost Rs.12.88; Total Cost Rs.51,480
(a) Average rate for direct labour remuneration will fall from Rs. 3 per hour to Rs.2.50 For 6,000 units: per unit cost Rs.12.33; Total Cost Rs.74,020]
per hour.
(b) Production efficiency will remain unchanged. Q-4: A Limited company is engaged in the business of manufacturing standard toys.
(c) Direct labour hour will increase by 33 1/3%. It has prepared a Six Monthly budget, which shows the following particulars :
The purchase price per unit of direct materials and other materials and services Sales .... .... .... .... 80,000 units @ Rs.20 per unit
which comprise overheads will remain unchanged. Draw up a budget and compute a Variable Costs :
factory overhead rate, the overheads being absorbed on a direct wage basis. Manufacturing .... .... .... .... Rs.6 per unit
[Budget Rs. 3,08,889, Overheads rate 112.5%] Selling .... .... .... .... Re.1 per unit
Distribution .... .... .... .... Re. 0.25 per unit
Q-2: Jamuna Printing Co. Private Limited ended with the following Profit/Loss during Semi-Variable Costs :
the year 2016 : (Figures in lakh of Rs.) Manufacturing .... .... .... .... Rs.60,000
Sales 35.58 Selling .... .... .... .... Rs.30,000
Less Expenses : Administration .... .... .... .... Rs.16,000
Raw Materials .... .... .... .... 7.42 Fixed Costs :
Stores .... .... .... .... 4.88 Manufacturing .... .... .... .... Rs.60,000
Expenses .... .... .... .... 20.40 Selling .... .... .... .... Rs.40,000
Interest .... .... .... .... 2.00 Administration .... .... .... .... Rs.80,000
Depreciation .... .... .... .... 2.00 36.70 It is decided to provide a plastic tray along with sales of toys. It is estimated this
Loss for the year 1.12 gesture on thepart of the Company would boost up the sales from 80,000 units to
1,00,000 units.
The press had been working at 60% of capacity during 2016. Of the expenses of
The above proposal would involve an additional expenditure. The same is estimated
Rs.20.40 lakhs, 25% is variable.
as under :
In 2017 production/sales volume at 80% of capacity is expected to be achieved.
Semi-variable cost :
Fixed cost is however expected to increase by Rs.1.20 lakhs. Draw the 2017 Budget.
Manufacturing .... .... .... .... Rs.4,000
. [Budgeted Profit Rs.3,74,000]
Selling .... .... .... .... Rs.4,000
Administration .... .... .... .... Rs.2,000
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Fixed Costs : (g) Direct Labour Budget was Rs.50 per unit and variable overheads were Rs.100
Manufacturing .... .... .... .... Rs.10,000 per unit.
You are required to prepare a statement showing : (h) Indirect Labour Budget was Rs.6,000 per month.
(i) Comparative cost of production; (ii) Profitability. (i) Depreciation was provided uniformly at Rs.3,000 per month.
State also the factors which the management should take into account while arriving (j) The fixed overheads budget was Rs.6,000 per month during off-season and
at the final decision. Rs.7,000 during the season. Out of this. the quarterly premium for fire insurance
[Total Cost Rs.8,66,000 and Rs.10,31,000; Profit Rs.7,34,000 and Rs. 9,69,000] amounting to Rs.600 was payable in the first month of each quarter.
(k) Dividends for the year 2015, amounting to Rs.20,000 were expected to be declared
Q-5: ABC Ltd. a newly started company wishes to prepare cash budget from January. in March 2016 and payments were to be spread between March and April.
Prepare a cash budget for the first six months from the following estimated revenue (l) A machine was sold for Rs.10,000 in December 2015 on 3 months credit.
and expenses : (m) The company had overdraft arrangements with the State Bank of Jaipur and
Months Total Sales Materials Wages Production Selling Bikaner upto Rs.50,000
Purchased Overheads Overheads [Closing Balances Jan. Rs. 6,410; Feb.Rs.12,797.50; March Rs. 30 597.50]
Jan. 20,000 20,000 4,000 3,200 800
Feb. 22,000 14,000 4,400 3,300 900 Q-7: Based on the following information prepare a Cash Budget for ABC Ltd.
Mar. 28,000 14,000 4,600 3,400 900
April 36,000 22,000 4,600 3,500 1,000 Particulars 1st Quarter 2nd Quarter 3rd Quarter 4th Quarter
May 30,000 20,000 4,000 3,200 900 (Rs.) (Rs.) (Rs.) (Rs.)
June 40,000 25,000 5,000 3,600 1,200 Opening cash balance 10,000 ? ? ?
Cash balances on 1 st January was and Rs.10,000. A new machinery is to be installed Collection from customers 1,25,000 1,50,000 1,60,000 2,21,000
at Rs.20,000 on credit, to be repaid by two equal instalments in March and April. Payments :
Sales Commission @ 5% on total sales is to be paid within a month following actual Purchase of materials 20,000 35,000 35,000 54,200
sales. Rs.10,000 being the amount of 2nd call may be received in March. Share Other expenses 25,000 20,000 20,000 17,000
premium amounting to Rs.2,000 is also obtainable with the 2nd call. Salary and wages 90,000 95,000 95,000 1,09,200
Period of credit allowed by suppliers .... .... .... .... 2 months Income tax 5,000 - - -
Period of credit allowed to customers .... .... .... .... 1 month Purchase of machinery - - - 20,000
Delay in payment of overheads .... .... .... .... 1 month The company desires to maintain a cash balance of Rs.15,000 at the end of each
1
Delay in payment of wages .... .... .... .... /2month quarter. Cash can be borrowed or repaid in multiples of 500 at an interest of 10% p.a.
Assume cash sales to be 50% of total sales. Management does not want to borrow cash more than what is necessary and wants
[Closing Balances : Jan: Rs.18,000; Feb: Rs.29,800; March: Rs.27,000 to repay as early as possible. In any event, loans cannot be extended beyond four
April: Rs.24,700; May: Rs.33,100; June: Rs.36,000] quarters.Interest is computed and paid when the principal is repaid. Assume that
borrowing take place at the beginning and repayments are made at the end of the
Q-6: From the information given below, prepare a Cash Budget of the Jaipur quarters.
Refrigerators Pvt. Ltd. for the quarter January - March 2016 : [Cash Balance at the end of quarter : Rs. 15,000: Rs.15,000; Rs.15,325: Rs.23,825]
Dec. ’15 Jan. ’16 Feb.’16 March ’16 April ’16
(a) Sales Budget 60 units 60 units 65 units 75 units 80 units
(b) Selling Price per unit Rs.1,000 Rs.1,000 Rs.1,000 Rs.1,000 Rs.1,000
(c) Off-season discount 20% 20% 10% - -
(d) End of Month Inventory 10 units 12 units 15 units 25 units 25 units ••••••••••••••••••••••
(e) Half the sales proceeds are collected in the month of sale and the other half in
the month following.
(f) Materials, amounting to Rs.300 per unit manufactured are purchased one month
in advance of manufacture and paid for in cash earning 5% cash discount on half
of the material purchased.
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Marginal Costing
STATEMENT OF COSTS INCURRED
Illustration 12.1: Following information relates to a factory manufacturing fans : 2002 2003 2004
Production Direct Labour Other Fixed Costs Total Direct Materials (Rs.) 1,00,000 1,44,000 1,27,200
Materials Variable Direct Labour (Rs.) 1,50,000 2,16,000 1,74,000
Cost Direct Labour Hours (Hrs.) 1,00,000 1,44,000 1,16,000
Units Rs. Rs. Rs. Rs. Rs. Direct Expenses (Rs.) 48,000 72,000 70,000
500 1,000 750 500 1,000 3,250 Factory and Admn. Overheads (Rs.) 72,000 72,000 70,000
1,000 2,000 1,500 1,000 1,000 5,500 Variable Selling Costs (Rs.) 2,50,000 3,00,000 3,40,000
1,500 3,000 2,250 1,500 1,000 7,750 Fixed Selling Costs (Rs.) 50,000 50,000 50,000
2,000 4,000 4,000 3,000 2,000 10,000 Selling price is Rs.20 per unit. Fixed costs are to be recovered on actual activity.
2,500 5,000 3,750 2,500 1,000 12,250 [Cost of Stock per unit: 2002 - Rs.5.96; 2003 - Rs.6.17; 2004 - Rs.5.95
Show the effect of per unit cost of production through a chart and calculate the Total Variable Cost: 2002 - Rs.5,48,000; 2003 - Rs.6,70300; 2004 - Rs.7,35,100
marginal cost of production. Total Profit: 2002 - Rs.3,00,000; 2003 - Rs.4,70,700; 2004 - Rs.4,64,900]

Illustration 12.2: From the following data prepare statements of cost according to Illustration 12.4:
marginal costing systems : Months of 2012 Production (Units) Semi Variable Expenses (Rs.)
Product A Product B Product C July 50 150
Rs. Rs. Rs. August 30 132
Sales 30,000 60,000 80,000 September 80 200
Direct Material 12,000 25,000 36,000 October 60 170
Direct Labour 8,000 10,000 14,000 November 100 230
Factory Overheads : December 70 190
Fixed 6,000 8,000 6,000 During the month of January, 2013 the production is 40 units only. Calculate the
Variable 2,000 3,000 5,000 amount of fixed, variable and total semi-variable expenses for January, 2013.
Administration Overheads : [Total Method - Fixed: Rs.80 & Variable: Rs.60
Fixed 1,000 2,000 2,000 Range Method - Fixed: Rs.90 & Variable: Rs.56
Selling Overheads : Graph Method - Fixed: Rs.85 (approx) & Variable: Rs.60 (approx)
Fixed 2,000 2,000 3,000 Least Square Method - Fixed: Rs.84.4 (approx) & Variable: Rs.58 (approx)]
Variable 1,000 3,000 3,000
[Contribution: A-Rs.48,000; B-Rs.7,000; C-Rs.19,000; D-Rs.22,000 Illustration 12.5: Comment on the relative profitability of the following two products.
Net Profit: A-Rs.16,000; B-Rs.2000 (Loss); C-Rs.7000; D-Rs.11,000] Particulars Product A Product B
Materials (Rs.) 200 150
Illustration 12.3: From the following costs, production and sales data of ‘X Co., Wages (Rs.) 100 200
prepare comparative income statements for the three years under the marginal Fixed Overheads (Rs.) 350 100
costing method. Indicate the unit cost for each year under each method. Also, evaluate Variable Overheads (Rs.) 150 200
closing stocks. The company produces a single article for sale. Round up the unit Profit (Rs.) 200 350
costs to two decimal places. 1,000 1,000
Output per week (Units) 200 100
STATEMENT OF PRODUCTION AND SALES
[P/V Ratio - Product A: 55%; Product B: 45%]
2002 2003 2004
Opening Stock - - 10,000
Illustration 12.6: A company manufactures and markets three products A, B and
Units produced 50,000 70,000 60,000
C. All the three products are made from the same set of machines. Production is
Units Sold 50,000 60,000 66,000
limited by machine capacity. From data given below indicate priorities for products,
Closing Stock - 10,000 4,000
A, B and C with a view to maximising profits.
 (13) (14)

Particulars Product A Product B Product C

Rs. Rs. Rs. Illustration 12.9: From the following data, calculate :
Raw material cost per unit 2.25 3.25 4.25 (i) P/V Ratio
Direct labour cost per unit 0.50 0.50 0.50 (ii) Profit when sales are 20,000
Other variable cost per unit 0.30 0.45 0.71 (iii) New Break-even-point if selling price is reduced by 20%
Selling price per unit 5.00 6.00 7.00 Details are :
Machine time per unit [Minutes] 39 20 28 Fixed Expenses ... ... ... ... Rs. 4,000
In the following year the company faces extreme shortage of raw materials. It is Break Even Point ... ... ... ... Rs. 10,000
noted that 3 kgs., 4 kgs. and 5 kgs. of raw materials are required to produce one unit [(a): 40%; (b): Rs.4,000; (c): Rs.16,000]
of A, B and C respectively. How would product priorities change ?
[Contribution per unit - A: Rs.1.95; B: Rs.1.80; C: Rs.1.54 Illustration 12.10: Given the following information :
Contribution per minute - A: Rs.0.05; B: Rs.0.09; C: Rs.0.055 Fixed Cost ... ... ... ... Rs.4,000
Contribution per Kg. - A: Rs.0.65; B: Rs.0.45; C: Rs.0.31 Break even Sales ... ... ... ... Rs. 20,000
P/V Ratio - A: 39%; B: 30%; C: 22%] Profit ... ... ... ... Rs.1,000
Selling price per unit ... ... ... ... Rs.20
Illustration 12.7: The following particulars are obtained from costing records of a You are required to calculate :
factory : (i) Sales and marginal cost of sales, and
Particulars Product A Product B (ii) New break-even point if selling price is reduced by 10%.
(per unit) (per unit) [Sales: Rs.25,000; Marginal Cost: Rs.20,000; New BEP: Rs.36,000]
Selling Price 200 500
Material (Rs.20 per litre) 40 160 Illustration 12.11: From the following data calculate :
Labour (Rs.10 per hour) 50 100 (i) Break-even point expressed in amount of sales in rupees.
Variable Overhead 20 40 (ii) How many units must be sold to earn a net income of 10% of sales ?
Total fixed overheads are Rs.15,000. Selling price ... ... ... ... Rs. 20 per unit
Variable Cost ... ... ... ... Rs. 12 per unit
Comment on the profitability of each product when :
Fixed Cost ... ... ... ... Rs. 2,40,000
(a) Raw material is in short supply
[(i) Rs.6,00,000; (ii) 40,000]
(b) Production capacity is limited
(c) Sales quantity is limited
Illustration 12.12: Find out P/V Ratio if fixed Cost is Rs.10,000 and Break-even
(d) Sales value is limited
Sales are Rs.25,000.
(e) Only 1,000 litres of raw material is available for both the products in total and
[40%]
maximum sales quantity of each product is 300 units.
[(a) Contribution per litre - Product A: Rs.45; Product B: Rs.25
Illustration 12.13: The sales turnover and profit of M/s. A Ltd. during the two years
(b) Contribution per hour - Product A: Rs.18; Product B: Rs.20
2012 and 2013 were as follows :
(c) Contribution per unit - Product A: Rs.90; Product B: Rs.200
Year Sales (Rs.) Profit (Rs.)
(d) Profit Volume Ratio - Product A: 45%; Product B: 40%
2012 4,50,000 60,000
(e) Combination of Products - Product A: 300 units; Product B: 50 units]
2013 5,10,000 75,000
You are required to calculate :
Illustration 12.8: A factory manufacturing sewing machines has the capacity to
(i) Profit-Volume Ratio
produce 500 machines per num. The marginal (variable) cost of each machine is
(ii) Sales at which company will neither lose nor gain anything
Rs.200 and each machine is sold for Rs.250. Fixed overheads are Rs.12,000 per
(iii) Sales required to earn a profit of Rs.1,20,000
annum. Calculate the break-even points for output and sales and show what profit
(iv) The profit made when sales are Rs.7,50,000
will result if output is 90% of capacity ?
[(i) 25%; (ii) Rs.2,10,000; (iii) Rs.6,90,000; (iv) Rs.1,35,000]
[BEP: Rs.60,000 or 240 units; Profit at 90% Capacity: Rs.10,500]
 (15) (16)

Illustration 12.14: XYZ.Co. Ltd. produced and sold 1 000 toys, last year at a price of Material .... .... .... .... Rs.10.00
Rs.500 each. The cost structure per toy is as follows : Rs. Labour Cost .... .... .... .... Rs.3.00
Materials .... .... .... .... 100 Overheads (60% fixed) .... .... .... .... Rs.5.00
Labour .... .... .... .... 50 Selling price per bucket .... .... .... .... Rs.20.00
Variable Overheads .... .... .... .... 25 If it is decided to work the factory at 50% capacity, the selling price falls by 3%. At
175 90% capacity, the selling price falls by 5% accompanied by a similar fall in the prices
Fixed Overheads .... .... .... .... 200 of material. You are required to calculate the profit at 50% and 90% capacities and
375 also calculate break-even points for the same capacity productions.
Profit .... .... .... .... 125 [For 50% Capacity - Profit: Rs.25,000; BEP: 6,818 Units
Sale Price .... .... .... .... 500 For 90% Capacity - Profit: Rs.71,250; BEP: 6,667 Units]
Due to heavy competition, the price has to be reduced to Rs.425 for the coming
Illustration 12.19: A company is intending to purchase a new plant. There are
year. Assuming that there will be no change in costs, find out how many toys shall
following two alternative choices available :
be sold to ensure the same amount of total profit as last year.
[1,300 Units] Plant A : The operation of this plant will result in a fixed cost of Rs.40,000 and
variable costs of Rs.4 per unit.
Illustration 12.15: A company annually manufactures and sells 20,000 units of a Plant B : The purchase of this plant will result in a fixed cost of Rs.60,000 and
product, the selling price of which is Rs.50 and profit earned is Rs.10 per unit. variable costs of Rs.3 per unit.
The analysis of cost of 20,000 units is : Compute the cost break-even point and state which plant is to be preferred and
Materials Cost .... .... .... .... Rs. 3,00,000 when.
Labour Cost .... .... .... .... Rs. 1,00,000 [Break Even Point: 20,000 Units]
Overheads (50% Variable) .... .... .... .... Rs. 4,00,000
You are required to compute : Illustration 12.20: Vijendra Hard Chrome Products manufactures and sells four
(i) Break-even Sales in Units and in Rupees types of products under the brand names of A, B, C, and D
(ii) Sales to earn a Profit of Rs. 3,00,000 The sales mix in value comprises 33 1/3%, 412/3%, 162/3% and 81/3% of A, B, C and D
(iii) Profit when Rs. 15,000 units are sold respectively. The total budgeted sales are Rs.60,000 per month
[(i) 10,000 Units or Rs.5,00,000; (ii) 25,000 Units or Rs.12,50,000; (iii) Rs.1,00,000] Operative costs of the enterprise are as follows :
Product A .... .... .... 60% of sale price
Illustration 12.16 & 12.17: The following figures are available from the records of Product B .... .... .... 68% of sale price
MK Enterprises as at 31st March, 2007 and 2008 : Product C .... .... .... 80% of sale price
Year Sales (Rs. in lakh) Profit (Rs. in lakh) Product D .... .... .... 40% of sale price
Sales 150 200 Fixed Costs .... .... .... Rs.14,700 per month
Profit 30 50 The firm proposes to change the sales mix for the next month as follows and it is
Calculate : estimated that total sales would be maintained at the same level as the current month:
(i) The P/V Ratio and Total Fixed expenses Product A 25% Product C 30%
(ii) The break-even level of sales Product B 40% Product D 5%
(iii) Sales required to earn a profit of Rs.90 lakhs You are required to calculate :
(iv) Profit or loss that would arise if the sales were Rs. 280 lakhs (i) Break-even point for the products on an overall basis for the current month
[(i) 40% & Rs.30 lakh; (ii) Rs.75 lakh; (iii) Rs.300 lakh; (iv) Rs.82 lakh] (ii) Break-even point for the products on an overall basis for the next month assuming
that the proposal is implemented
Illustratio 12.18: A factory engaged in manufacturing plastic buckets is working to (iii) Explain the shift in the break-even point to a new position
40% capacity and produces 10,000 buckets per annum. [(i) Overall BEP: Rs.42,000; A: Rs.14,000; B: Rs.17,500; C: Rs.7,000; D: Rs.3,500
The present cost break-up for one bucket is as under : (ii) Overall BEP: Rs.46,226]
 (17) (18)

Illustration 12.21: From the following figures calculate the break-even point by Particulars A Ltd. B Ltd.
drawing a break-even chart : Rs. Rs.
Production Fixed Cost Variable Cost Selling Price Sales 1,00,000 1,00,000
Units Rs. Rs. per unit Rs. per unit Total Cost 80,000 80,000
10,000 20,000 2 2.50 Fixed Cost 30,000 50,000
20,000 20,000 2 2.50 Variable Cost 50,000 30,000
30,000 20,000 2 2.50 Profit 20,000 20,000
40,000 20,000 2 2.50 [Margin of Safety - A Ltd.: Rs.40,000; B Ltd.: Rs.28,571
50,000 20,000 2 2.50 Break Even Point- A Ltd: Rs.60,000; B Ltd. Rs.71,429; P/V Ratio- A Ltd: 50%; B Ltd: 70%]
60,000 20,000 2 2.50
[Break Even Point: Rs.1,00,000 and 40,000 Units] Illustration 12.27: 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, 2012
Illustration 12.22: From the following calculate : their forecasted profit and loss accounts are as follows :
(a) Contribution per Unit
Particulars ABC Ltd. XYZ Ltd.
(b) Margin of safety
Rs. Rs.
(c) Volume of Sales to earn a profit of Rs.24,000
Sales 2,50,000 2,50,000
Details are :
Less : Variable Cost
Total Fixed Costs .... .... .... Rs. 18,000
Fixed Costs 2,00,000 1,50,000
Total Variable Costs .... .... .... Rs. 30,000
25,000 2,25,000 75,000 2,25,000
Total Sales .... .... .... Rs. 50,000
Forecasted Net Profit before tax 25,000 25,000
Units Sold .... .... .... Rs.20,000
[(a) Rs.45,000; (b) Rs.5,000; (c) 42,000 Units] You are required to compute :
(a) P/V Ratio
Illustration 12.23: A company earned a profit of Rs.30,000 during the year 2016. If (b) Break-even Sales volume.
the marginal cost an ening price of a product are Rs.8 and Rs.10 per unit respectively, You are also required to state which company is likely to earn greater profits in
find out the amount of ‘Margin of Safety’. conditions of : (a) low demand, and (b) high demand.
[Rs.1,50,000] [P/V Ratio - ABC: 20%; XYZ: 40%; Fixed Cost - ABC: Rs.1,25,000; XYZ: Rs.1,87,500
In low demand ABC Ltd is better and in high demand XYZ Ltd is better]
Illustration 12.24: From the following data, compute Break Even Sales and Margin
of Safety : Rs. Illustration 12.28: The following information is obtained from XY & Co. for 2012 :
Sales .... .... .... 10,00,000 Sales .... .... .... Rs.20,000
Fixed Costs .... .... .... 3,00,000 Variable .... .... .... Rs.10,000
Profit .... .... .... 2,00,000 Fixed Costs .... .... .... Rs.6,000
[Break Even Sales: Rs.6,00,000; Margin of Safty: Rs.4,00,000] (a) Find the P/V Ratio, break-even point, and margin of safety at this level
(b) Calculate the effect of :
Illustration 12.25: Prepare a break-even chart from the following information : (i) 20% decrease in fixed costs
Total Fixed Cost .... .... .... Rs.60,000 (ii) 10% increase in fixed costs
Fixed Costs .... .... .... Rs.30,000 (iii) 10% decrease in variable costs
Sales .... .... .... Rs.1,00,000 (iv) 10% increase in selling price
[Break Even Sales: Rs.42,875] (v) 10% increase in selling price together with an increase of fixed overheads
by Rs.1,200
Illustration 12.26: Calculate Margin of Safety, Profit Volume Ratio and Break Even (vi) 10% decrease in sales price
Point from the following data :
 (19) (20)

(vii) 10% decrease in sales price accompanied by 10% decrease in variable Q-2: Breakdown of cost per unit at an activity level of 10,000 units of Zenith Razors
costs. is as follows : Rs.
[(a) P/V Ratio: 50%; BEP: Rs.12,000; MOS: Rs.8,000 Raw Materials .... .... .... .... 10.00
(b-i) P/V Ratio: 50%; BEP: Rs.9,600; MOS: Rs.10,400 Direct Labour .... .... .... .... 8.00
(b-ii) P/V Ratio: 50%; BEP: Rs.13,200; MOS: Rs.6,800 Chargeable Expenses .... .... .... .... 2.00
(b-iii) P/V Ratio: 55%; BEP: Rs.10,909; MOS: Rs.9,091 Variable Overheads .... .... .... .... 4.00
(b-iv) P/V Ratio: 54.55%; BEP: Rs.11,000; MOS: Rs.11,000 Fixed Overheads .... .... .... .... 6.00
(b-v) P/V Ratio: 54.55%; BEP: Rs.13,200; MOS: Rs.8,800 Total Cost per unit .... .... .... .... 30.00
(b-vi) P/V Ratio: 44.44%; BEP: Rs.13,500; MOS: Rs.4,500 Selling Cost per unit .... .... .... .... 32.00
(b-vii) P/V Ratio: 50%; BEP: Rs.12,000; MOS: Rs.6,000] Profit per unit .... .... .... .... 2.00
How many units must be sold to break-even ?
Illustration 12.29: The overall P/V ratio of ABC Ltd. is 60%. The marginal cost of
product X is estimated as Rs.50. Determine the selling price for product X. [7,500 units]
[Rs.125]
Q-3: From the following information find out profit earned during the year using the
Illustration 2.10: PCT Ltd. provides you the following information for the year 2018: marginnal costing technique :
First Half (Rs.) Second Half (Rs.) Fixed Cost .... .... .... .... Rs.5,00,000
Sales 20,000 30,000 Variable Cost .... .... .... .... Rs.5 per unit
Cost 12,800 16,800 Selling Price .... .... .... .... Rs.10 per units
(i) The amount of profit/loss when sales for the next year are Rs.60,000. Output Level .... .... .... .... 1,50,000 units
(ii) The amount of sales required to earn a profit of 10% on sales. [Profit 2,50,000]
(iii) The amount of profit for the year 2019 assuming anticipated 10% increase in
selling price but 20% decrease in physical sales volume and fixed costs. Q-4: From the following information, calculate the break-even point and the turnover
[(i): Rs.26,400; (ii) Rs.19,200; (iii): Rs.20,320] required to earn, a profit of Rs.36,000 :
Fixed Overheads .... .... .... .... Rs.1,80,000
Variable Cost per unit .... .... .... .... Rs.2.00
PRACTICAL PROBLEMS Selling Price .... .... .... .... Rs.20.00
If the company is earning a profit of Rs.36,000 express the margin of safety available
Q-1: The following are the maintenance costs incurred in a machine shop for six
to it.
months with corresponding machine hours :
[Break Even Point: 10,000 units or Rs.2,40,000; Margin of Safety: Rs.40,000]
Month Machine Hours Maintenance Costs (Rs.)
January 2,000 300
Q-5: Following information are given for the manufacturing of a product :
February 2,200 320
Fixed Expenses .... .... .... .... Rs. 4,00,000
March 1,700 270
Materials .... .... .... .... Rs.10 per unit
April 2,400 340
Labour .... .... .... .... Rs.5 per unit
May 1,800 280
Direct Expenses :
June 1,900 290
Fuel .... .... .... .... Rs.3 per unit
Total 12,000 1,800
Carriage Inwards .... .... .... .... Rs.2 per unit
Analyse the maintenance cost which is semi-variable into fixed and variable elements.
Selling price .... .... .... .... Rs.40
[Fixed Cost Rs.100; Variable Cost Re.0.10 per hour under high and low points method]
Calculate Break-even Point in terms of units. Also find out new Break-even Point if
selling price is reduced by 10% per unit.
[Old BEP: 20,000 units; New BEP: 25,000 units]
 (21) (22)

Q-6: A company budgets a production of 10,000 units. The variable cost is estimated
at Rs.2 per unit. The fixed costs are estimated Rs.40,000. The selling price is fixed
to earn a profit of 25% on cost. You are required to :
(i) Compute break-even point in terms of units and sales; and
(ii) Compute how many units must be produced and sold to earn a profit of Rs.60,000
[(i) 7,273 units or Rs.54,547.50; (ii) 18,182 units]
Q-10: The selling price of a product was Rs.200 per unit, as against its variable
cost of Rs.100 per unit. The total fixed costs were Rs. 2,00,000. Calculate the effect
of a reduction in price by Rs.40 per unit, on the P/V ratio, Break-even Point and
Margin of Safety, if 4,000 units were produced and sold.
[Old - P/V Ratio: 50%; BEP: Rs.4,00,000; MOS: Rs.4,00,000
New - P/V Ratio: 37.5%; BEP: Rs.5,33,333; MOS: Rs.1,06,667]

Q-7: Sale of a product amounts to 200 units per month at Rs.10 per unit. Fixed
overhead is Rs.400 per month and variable cost Rs.6 per unit. There is a proposal to
reduce prices by 10%. Calculate the present and future P/V Ratio and find, by applying
P/V Ratio, how many units be sold to maintain total profit.
[Old P/V Ratio: 40%; New P/V Ratio: 33.3%; Units to maintain old profit: 267 (approx)]
Q-11: The fixed overhead is Rs.30,000 and the Profit-volume ratio is 20%. Find out
the amount of sales on a profit of Rs.15,000. Also calculate the Break-even point
and decide to what extent the break-even point should be shifted when the profit
volume ratio changes to 40%.
[Sales: Rs.2,25,000; BEP: Rs.1,50,000; New BEP: Rs.75,000]

Q-8: From the following data, calculate : Q-12: A company earned a profit of Rs.60,000 during the year 2017-18. If the marginal
(i) Break-even point expressed in amount of sales in rupees; cost and selling price of a product are Rs.8 and Rs.10 per unit respectively, find out
(ii) Number of units that must be sold to earn a profit ofRs.60,000 per year; the amount of margin of safety.
(iii) How many units must be sold to earn a net income of 10% of sales ? [30,000 units or Rs.3,00,000]
Sales .... .... .... .... Rs.20 per unit
Variable manufacturing costs .... .... .... .... Rs.11 per unit Q-13: A company has a P/V ratio of 40 per cent. By what percentage must sales be
Variable selling costs .... .... .... .... Rs.3 per unit increased to offset :-
Fixed factory overheads .... .... .... .... Rs.5,40,000 per year (i) 10 per cent reduction in selling price
Fixed selling costs .... .... .... .... Rs.2,52,000 per year (ii) 20 per cent reduction in selling price
[(i) 20% (ii) 60%]
[(i) Rs.26,40,000; (ii) 1,41000 units; (iii) 1,98,000 units]
Q-14: (a) The Cost Accountant of X Co. Ltd. furnishes you the following information:
Q-9: The following miscellaneous information regarding the operations of 2016 has Fixed cost for the year .... .... .... .... Rs.40,000
been made available from the records of Acme Corporation : Rs. New Profit for the year .... .... .... .... Rs.50,000
Sales .... .... .... .... 1,00,000 P/V Ratio .... .... .... .... 30%
Direct materials used .... .... .... .... 40,000 What is the amount of sales made during the year ?
Direct labour .... .... .... .... 15,000
(b) What will be the selling price per unit when variable cost per unit is Rs.8.40 and
Fixed manufacturing overhead .... .... .... .... 20,000
Profit Volume Ratio is 40% ?
Fixed selling and administration expenses .... .... .... .... 10,000
[(a) Rs.3,00,000; (b) Rs.14]
Gross profit .... .... .... .... 20,000
Net loss .... .... .... .... 5,000
Q-15: R.S. Manufacturing Ltd. budgets production of 3,00,000 units at a Variable
There are no beginning or ending inventories.
Cost of Rs.10 each. The fixed costs are Rs.20,00,000. The Selling Price is fixed to
It is required to calculate :
yield 20% profit on cost.
(i) Variable selling and administration expenses
You are required to calculate :
(ii) Contribution margin in rupees
(i) Profit Volume Ratio
(iii) Variable factory overhead
(ii) Break-Even Production Units
(iv) Break-even point in rupee sales
[(i) 50%; (ii) 2,00,000 units]
(v) Factory cost of goods sold
[(i) 15,000; (ii) Rs.25,000; (iii) 5,000; (iv) Rs.1,20,000; (v) 80,000]
 (23) (24)

Q-16: From the particulars given below, calculate : Q-20: Modern Sports Ltd. has for the past several years produced boxing gloves
(i) Break-even Sales which are sold at Rs.28 per pair. Higher costs in recent years have made
(ii) Margin of Safety management to consider about the adequacy of this selling price.
(iii) Sales to earn a profit of Rs.4,000 The labour rate was increased from Rs.1.75 per hour to Rs.2.25 per hour and the
Selling Price .... .... .... .... Rs.20,000 cost of leather has gone up from Rs.1.10 to Rs. 2.15 per square foot during the last
Total Cost .... .... .... .... Rs.16,000 five years. Fixed expenses have increased 25% from the level of Rs.18,000 five
Variable Cost .... .... .... .... Rs.20,000 years ago. Over the same period variable overhead has increased by 30% or Rs.3
per pair of gloves. Each gloves require 1.5 square feet of leather and one hour of
[(i) Rs.10,000; (ii) Rs.10,000; (iii) Rs.20,000] direct labour.
Q-17: From the following data, calculate : Calculate the selling price that the company has to charge under the new cost
(i) Break-even point in units structure to break-even at the same number of units as five years ago.
(ii) What should be the selling price per unit if the break-even point is to be brought [Rs.37.95 per pair]
down to 4,000 units ?
(iii) How many units must be sold to earn a profit of Rs.10,000 ? Q-21: The following data relate to a manufacturing company :
Direct Material .... .... .... .... Rs.4 per unit Plant capacity .... .... .... .... 4,00,000 units per annum
Direct Labour .... .... .... .... Rs.3 per unit Present utilisation .... .... .... .... 40% of Capacity
Variable Overheads .... .... .... .... 100% of Direct Labour Actuals for the year 2017 were :
Selling Price .... .... .... .... Rs.20 per unit Selling Price .... .... .... .... Rs.50 per unit
Fixed Overheads .... .... .... .... Rs.50,000 Materials Cost .... .... .... .... Rs.20 per unit
[(i) 5,000 units; (ii) Rs.22.50; (iii) 6,000 units] Variable Manufacturing Cost .... .... .... .... Rs.15 per unit
Fixed Costs .... .... .... .... Rs.27,00,000
Q-18: (i) Find out BEP sales if Budgeted Output is 80,000 units; Fixed cost is In order to improve capacity utilisation the following proposals are considered :
Rs.4,00,000; Selling price per unit is Rs. 20 and Variable Cost per unit is Rs.10 (i) Reduce Selling Price by 10%.
(ii) Calculate Selling price, if Marginal Cost is Rs.2,400 and P/V Ratio is 20% (ii) Spend additionally Rs.3,00,000 on Sales Promotion.
How many units should be made and sold to earn a profit of Rs.5,00,000 per year
(iii) Find out Margin of safety if profit is Rs.20,000 and P/V Ratio is 40%
under both the proposal.
[(i) Rs.8,00,000; (ii) Rs.3,000; (iii) Rs.5,00,000] [(i) 3,20,000 units; (ii) 2,33,334 units]

Q-19: Your company has a production capacity of 2,00,000 units per year. Normal Q-22: An analysis of Sultan Manufacturing Co. Ltd. led to the following information :
capacity utilisation is reckoned as 90%. Standard variable production costs are Rs.11 Cost Element Variable Cost (% of Sales) Fixed Costs (Rs.)
per unit. The fixed costs are Rs.3,60,000 per year. Variable selling costs are Rs. 3 Direct Material 32.8 -
per unit and fixed selling costs are Rs.2,70,000 per year. The unit selling price is 20. Direct Labour 28.4 -
In the year just ended on 30th June 2018, the production was 1,60,000 units and Factory Overheads 12.6 1,89,900
sales were 1,50,000 units. Thd closing inventory on 30.6.2018 was 20,000 units. Distribution Overheads 4.1 58,400
The actual variable production costs for the year were Rs.35,000 higher than the General Administration Overheads 1.1 66,700
standard. Budgeted Sales are Rs.18,50,000. You are required to determine :
(i) Calculate the profit for the year : (i) Break-even sales volume
(a) Applying the absorption costing method (ii) Profit at the budgeted sales volume
(b) Applying the marginal costing method (iii) Profit if actual sales :
(ii) Explain the difference in the profits between both the methods (a) drops by 10% and (b) increases by 5%
[CA Inter] [(i): (a) Rs.2,64,375; (b) Rs.2,39,375; (ii) Under valuation of closing stock [(i): Rs.15,00,000; (ii): Rs.73,500; (iii): (a) Rs.34,650; (b) Rs.92,925]
Rs.45,000 and under valuation of opening stock Rs.20,000 under marginal costing]
Q-23: Production costs of Oriental Enterprises Limited are as follows :
 (25) (26)

Activity Levels 60% 70% 80% Q-27: From the following data, recommend the most profitable product mix, presuming
Output (in units) 1,200 1,400 1,600 that direct labour hours available are only 700 :
Cost (in Rs.) Product A Product B
Direct Materials 24,000 28,000 32,000 Contribution Rs.30 Rs.20
Direct Labour 7,200 8,400 9,6000 Direct labour per unit 10 hours 5 hours
Factory Overheads 12,800 13,600 14,400 The maximum production possible for each of the products A and B is 100 units.
Works Costs 44,000 50,000 56,000 The fixed Overheads are Rs.2,000
[Product A: 20 units; Product B: 100 units; Net Profit: Rs.600]
A proposal to increase production to 90% level of activity is under consideration of
management. The proposal is not expected to involve any increase in fixed factory
Q-28: From the following particulars draw a break-even chart and find out the break-
overheads. Prepare a statement showing the prime cost, total marginal cost and
even point : Rs.
total factory cost at 90% level of activity.
Variable cost per unit .... .... .... .... 15
[Prime Cost: Rs.46,800; Marginal Cost: Rs.54,000; Works Cost Rs.62,000]
Fixed expenses .... .... .... .... 54,000
Selling price per unit .... .... .... .... 20
Q-24: The sales of Aroma Industries in the first half of 2016 amounts to Rs.2,70,000
What should be the selling price per unit, if the break-even point is to be brought
and profit earned was Rs.7,200. The sales in the second half of 2016 amounted to
down to 6,000 units ?
Rs.3,42,000 and the profit earned was Rs.20,700 for that half year.
[BEP: 10,080 units; Selling price per unit: Rs.24]
Assuming no change in fixed costs, calculate
(i) Amount of profit when sales are Rs. 2,16,000
Q-29: (a) Plot the following data on a graph and determine the break-even point :
(ii) Amount of sales required to earn a profit of Rs.36,000
Direct Labour .... .... .... .... Rs.100 per unit
[(i) Loss of Rs.2,925; (ii) Profit of Rs.4,23,600]
Direct Materials .... .... .... .... Rs.40 per unit
Variable Overheads .... .... .... .... 100% of Direct labour
Q-25: The following information is provided to you in respect of the performance of
Fixed Overheads .... .... .... .... Rs.60,000
Mathew & Co., during the first two quarters of 2016 :
Selling Price .... .... .... .... 400 per unit
Sales in Rupees Net Profit in Rupees
1st Quarter 25,00,000 2,00,000 (b) In order to increase efficiency in production, the concern instals improved
2nd Quarter 30,00,000 4,00,000 machinery which results in an increase in fixed overhead of Rs.20,000 but the variable
overhead is reduced by 40%. You are required to plot the data on the above graph
If the B.E.P. sales of the company are 20 lakhs, find out :
and to determine the new break-even point assuming that there is no change in sale
(i) Quarterly fixed cost
price.
(ii) Profit Volume Ratio
[(a) BEP in value: Rs.1,50,000; (b) New BEP in value: Rs.1 60,000]
(iii) The sales required to earn a profit of Rs.5,00,000 during the third quater
[(i) Rs.8,00,000; (ii) 40%; (iii) Rs. 32,50,000]
Q-30: From the following data draw a simple break-even chart :
Selling Price per unit .... .... .... .... Rs.10
Q-26: From the following data, which product would you recommend to be
Trade Discount .... .... .... .... 5%
manufactured in a factory, time being the key factor ?
Direct Material Cost per unit .... .... .... .... Rs.3
Per unit of A Per unit of B
Direct Labour Cost per unit .... .... .... .... Rs.2
Direct material Rs.24 Rs.14
Fixed Overheads .... .... .... .... Rs.10,000
Direct labour are Re.1 per hour Rs.2 Rs.3
Variable Overheads 100% on direct labour cost.
Variable overhead at Rs.2 per hour Rs.4 Rs.6
If sales are 10% and 15% above the break-even volume, determine the net profits.
Selling price Rs.100 Rs.110
[BEP: 4,000 units; Net Profit: Rs.1,000 and Rs.1,500]
Standard time to produce 2 hours 3 hours
[Contribution per hour : ‘A’ Rs. 35; ‘B’ Rs. 29 : Product A recommended]
 (27)

Q-31: The variable cost structure of a product manufactured by a company during

the current year is as under :
Rs. per unit
Material .... .... .... .... 120
Labour .... .... .... .... 30
Overheads .... .... .... .... 12
The selling price per unit is Rs.270 and the fixed cost and sales during the current
year are Rs.14,00,000 and Rs.40,50,000 respectively.
During the forthcoming year the direct workers will be entitled to a wage increase of
10% from the beginning of the year and the material cost, variable overhead and
fixed overhead are expected to increase by 7.5%, 5% and 3% respectively.
The following are required to be computed :
(a) New sale price in the forthcoming year if the current P/V ratio is to be maintained.
(b) Number of units that would require to be sold during the forthcoming year so as
to yield the same amount of profit in the current year, assuming that selling price
per unit will not be increased.
[(a) Rs.291 (b) 17,422 units]

Q-32: Two companies Y Ltd. and Z Ltd. sell the same type of product in the same
type of market. Their budgeted Profit and Loss accounts for the coming year are as
under.:
Particulars Y Ltd. Z Ltd.
Rs. Rs.
Sales 1,50,000 1,50,000
Less : Variable Cost
Fixed Costs 1,20,000 1,00,000
15,000 1,35,000 35,000 1,35,000
Forecasted Net Profit before tax 15,000 15,000
You are required to compute :
(a) Calculate the Break Even Point of each business
(b) Calculate the sales volume at which each of the business will earn Rs.5,000
profit
(c) State which business is likely to earn greater profits in conditions of :
(i) Heavy demand for the product
(ii) Low demand for the product; and briefly giving your reasons
[(a): Rs.75,000 & Rs.1,05,000; (b): Rs.1,00,000 & Rs.1,20,000; (c): (i) Z Ltd; (ii) Y Ltd]

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