MEA ASSIGNMENT

2.]Goldman Company Limited operates on a system of Flexible

budgets. With the aid of the following information, you are required to
prepare flexible budget at 80%, 90% and 100%level of activity showing
the profits that would result at these levels:
i
The present sale of 8,00,000 units at Rs. 10 each is at the normal
level of 80%. If the output is increased to 90%, the selling price
will be reduced by 2.5% and if the output reached 100%, the
original selling price will be reduced by 5% in order to reach a
wider market.
ii
The prime cost per unit is Rs. 5 made up of Direct Materials Rs.
3.50, Direct Labour Rs. 1.25 and Direct Expenses Rs. 0.25. If
output reaches 90% level of activity and above, a saving of 5%
can be effected in the purchase price of raw materials.
iii
Variable Overhead-Salesmens commission will be 5% of the sales
value.
iv
Semi-variable overhead at normal level of activity are:
Supervision
Power
Heat and light
Maintenance
Salesmen expense
Indirect labour
Transport costs

Rs.
Rs.
Rs.
Rs.
Rs.
Rs.

80,000
70,000
40,000
50,000
60,000
1,00,000
Rs. 2,00,000

Solution

Units
Direct material
Direct labor
Direct expense
Prime cost
Fixed overheads
Variable
sales
overheads
Semi
variable
overheads
Cost of goods sold
Total sales
Profit

80% capacity

90% capacity

Rs.10/unit
800000
2800000
1000000
200000
4000000
2000000
400000

Rs.9.75/unit
900000
2992500
1125000
225000
4342500
2000000
438750

100%
capacity
Rs.9.5/unit
1000000
3325000
1250000
250000
4825000
2000000
475000

600000

630000

660000

7000000
8000000
1000000

7411250
8775000
1363750

7960000
9500000
1540000

Working notes
Direct material
For 80% capacity
Direct material cost is rs.3.5
Therefore direct labor cost = 800000x3.5=2800000
For 90% capacity

MEA ASSIGNMENT
Direct material cost is rs.3.5x0.95=3.325
Therefore direct labor cost = 900000x3.325=2992500
For 100% capacity
Direct material cost is rs.3.5x0.95=3.325
Therefore direct labor cost = 1000000x3.325=3325000

Direct labor
For 80% capacity
Direct labor cost is rs.1.25
Therefore direct labor cost = 800000x1.5=1000000
For 90% capacity
Direct labor cost is rs.1.25
Therefore direct labor cost = 900000x1.5=1125000
For 100% capacity
Direct labor cost is rs.1.25
Therefore direct labor cost = 1000000x1.5=1250000
Direct expense
For 80% capacity
Direct labor cost is rs.0.25
Therefore direct labor cost = 800000x0.5=200000
For 90% capacity
Direct labor cost is rs.0.25
Therefore direct labor cost = 900000x0.5=225000
For 100% capacity
Direct labor cost is rs.0.25
Therefore direct labor cost = 1000000x0.5=250000
Sales revenue
For 80% capacity
10x800000=8000000
For 90% capacity
10x0.975x900000=8775000
For 100% capacity
10x0.95x1000000=9500000
Variable overheads 5% of sales revenue
For 80% capacity
800000x0.05=400000
For 90% capacity

MEA ASSIGNMENT
900000x0.05=438750
For 100% capacity
1000000x0.05=475000
Semi variable overheads (increases 10% per 10% increase in capacity)
80% capacity
90% capacity
100% capacity
80000
84000
88000
70000
73500
77000
40000
42000
44000
50000
52500
55000
60000
63000
66000
100000
105000
110000
200000
210000
220000
TOTAL
600000
630000
660000

MEA ASSIGNMENT

Que. No. 4. The following data are available in a manufacturing company

for a yearly period.
Rs. (lakhs)
Fixed expenses:
Wages

and

Salaries

9.5
Rent, rates and taxes
6.6
Depreciation
7.4
Sunday administrative expenses
6.5
Semi variable expenses at 50% of capacity:
Maintenance and repairs
3.5
Indirect labour
7.9
Sales department salaries, etc.
3.8
Sundry
administrative
salaries
2.8
Variable expenses (at 50% of capacity)
Material
21.7
Labour
20.4
Other Expenses
7.9
Total cost
98
Assume that the fixed expenses remains constant for all level of
production: semi variable expenses remains constant between 45% and
65% of capacity, increasing by 10% between 65% and 80% capacity and
by 20% between 80% and 100% Capacity.
Sales at various levels are:
Rs
(lakhs)
50% capacity
100
60% capacity
120
75% capacity
150
90% capacity
180
100% capacity
200
Prepare a flexible budget for the year and forecast the profit at 60%, 75%,
90% and 100% capacity.
Ans.
Flexible Budget
Present Capacity 50%
Variable expenses
1. Material
2. Labour
3. Other Expenses
Total Variable expenses
Semi variable expenses

50%
Rs.
(lakhs)
21.7
20.4
7.9
50

60%
Rs.
(lakhs)
26.04
24.48
9.48
60

75%
Rs.
(lakhs)
32.55
30.6
11.85
75

90%
Rs.
(lakhs)
39.06
36.72
14.22
90

100%
Rs.
(lakhs)
43.4
40.8
15.8
100

MEA ASSIGNMENT
1.
Maintenance
and
repairs
2. Indirect labour
3.
Sales
department
salaries, etc
4. Sundry administrative
salaries
Total
semi
variable
expenses
Fixed expenses
1. Wages and Salaries
2. Rent, rates and taxes
3. Depreciation
4. Sunday administrative
expenses
Total fixed expenses
Total Cost
Sales
Profit

3.5

3.5

3.85

4.2

4.2

7.9
3.8

7.9
3.8

8.69
4.18

9.48
4.56

9.48
4.56

2.8

2.8

3.08

3.36

3.36

18

18

19.8

21.6

21.6

9.5
6.6
7.4
6.5

9.5
6.6
7.4
6.5

9.5
6.6
7.4
6.5

9.5
6.6
7.4
6.5

9.5
6.6
7.4
6.5

30
98
100
2

30
108
120
12

30
124.8
150
25.2

30
141.6
180
38.4

30
151.6
200
48.4

Working Notes.
For 60%
Variable expenses
For,
50%
Material Cost
21.7 lakhs
So,
60%
Material Cost
?
Therefore,
Material Cost For 60% = ( 21.7 60 ) 50
= 26.04 lakhs
Similar is the case for Labour amd other expenses.
Therefore, Total variable expenses = material + labour + other expenses
= 60 lakhs
2. Semi variables expenses are constant for 45% to 65% .
So, it is same as 50%.
Total semi variable expenses = 18 lakhs.
3. Fixed expenses
Fixed expenses are same for all capacity. So, it will be constant for all
capacity.
Total fixed expenses = 30 lakhs
Total cost = Total variable expenses + Total semi variable expenses +
Total fixed expenses
= 60 + 18 + 30
= 108 lakhs
Sales for 60% Capacity was = 120 lakhs
Therefore, Profit = 120 108
= 108 lakhs.
For 70% Capacity.
Variables expenses for 75% , 90% and 100% can be calculated as similer
to 50% and 60%.

MEA ASSIGNMENT
Semi variables expenses.
As given in question there is increase in semi variable expenses by 10%
between 65% and 80%
So,
Earlier Maintenance and repairs cost was 3.5 lakhs
After increase by 10% it will be = 3.5 (110100)
= 3.85 lakhs
Similarly other expenses can be calculated for semi variable expenses.
For 90% Capacity.
As given in question there is increase in semi variable expenses by 20%
between 80% and 100%
So,
Earlier Maintenance and repairs cost was 3.5 lakhs
After increase by 20% it will be = 3.5 (120100)
= 4.2 lakhs
Similarly other expenses can be calculated for semi variable expenses.
Similarly above condition is same for 100% capacity. So semi variables
expenses will be same as 90% capacity.

MEA ASSIGNMENT

Q1.] Hind General Corporation produces only one product which had the
following Costs.
Variable Manufacturing cost : Rs 4 per unit.
Fixed Manufacturing Cost : Rs 200000 per year
The normal capacity is set of 200000 units and sold percent of them at a
proce of Rs. 7 per unit . In 2002 , the company producesd 2100000 units
and sold 215000 units at the same price.
You are required to prepare income statement for 2001 and 2002 based on
absorption costing and marginal costing.
Marginal Costing Statement
Per Unit
Value
2001 (Rs.)
(Rs.)
12,60,000
Sales
7
.00
8,00,000.
Variable Cost
4
00
Cost
of
Goods
8,00,000.
Manufactured
00
Add: Beginning Inventory
4
Cost of Goods Availale for
8,00,000.
sale
00
Less: Closing Inventory
80,000.00
7,20,000.
Cost of Goods Sold
00
5,40,000.
Contribution
00
2,00,000.
Less: Fixed Cost
00
3,40,000.
Profit
00

2002 (Rs.)
15,05,000
.00
8,40,000.
00
8,40,000.
00
80,000.00
9,20,000.
00
60,000.00
8,60,000.
00
6,45,000.
00
2,00,000.
00
4,45,000.
00

Absorption Costing

Sales

Per Unit
2001
2002
Value(Rs.)
12,00,000 15,05,000
7
.00
.00

MEA ASSIGNMENT
Less: Variable Cost

Fixed Cost

Cost
of
Manufactured

Goods

Add: Beginning Inventory

Cost of Good available for
sale
Less: Ending Inventory
Cost of Good Sold
Profit

8,00,000.
8,40,000.
00
00
2,00,000.
2,00,000.
00
00
10,00,000 10,50,000
.00
.00
1,00,000.
00
10,00,000 11,50,000
.00
.00
1,00,000.
75,000.00
00
9,00,000. 10,75,000
00
.00
3,60,000.
4,30,000.
00
00

13.] A Company producing a single product sells it at Rs. 50 per unit

variable cost is Rs 35 and fixed cost amounts to Rs 12 lakh per annum.
With this data you are required to calculate the following treating each
independently from other.
a)P/V Ratio Break even sales.
b) New Break Even Sales if the Variable cost increases by Rs. 3 per unit,
without increase in selling price
c) Increase in sales required if the profits are to be increased by Rs 24
lakhs.
d) Percentage increase/ Decrease in sales volume units off set
(i)An increase of Rs. 3 in the variable cost per unit.
(ii) a 10% increase in selling price without affecting existing profit
quantum.
(iii) Quantum of advertisement expenditure permissible to increase sales
by 1.2 lakhs, without affecting profit quantum.
Solution:
Sales = Rs. 50
Variable Cost = Rs 35
Fixed Cost = 12 Lakh
(a) P/V ratio = (Contribution/sales)*100
=(Sales- V.C)/ sales *100
=(15/50)*100
=30%.
BEP (Sales) =Fixed Cost / P/V Ratio
=12,00,000/30%
= 40 Lakh.
(b)New Variable Cost : 32+3 = 38

MEA ASSIGNMENT
P/V ratio = (12/50)*100 = 24%
BEP Sales = 12,00,000/.24 = 50 Lakh.
(c) Sales when profit is 24,00,000
Sales = (F.C +Profit)/ P/v Ratio
= (12,00,000+24,00,000)/.30
= 12,00,000
(d) (i) with an increase of Rs. 3 in variable cost per unit
BEP (Sales) for Variable cost 35 = 40 lakh
BEP (Sales) for Variable cost 38 = 50 lakh
Percentage increase = 10/40 lakh
=25 %
(ii) New Selling Price : 50+10% = Rs 55
For selling price of
For selling price of Rs
Rs 50
50
50
55
Selling price per unit
35
35
V.C / unit
15
20
Contribution
15/50= 0.3
20/50=0.4
PVR
12,00,000
12,00,000
Fixed Cost
BEP in Units (FC/ Contribution
80,000
60,000
per unit )
(80000-60000)/80000
0%
Change in No. of units
= 25%
Therefore change in sales volume is 25%
15] 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
= 2000 Buckets per year
Selling price per bucket = Rs 70
Required:
Find the break even point.
Find the number of bucket to be sold to get a profit of Rs 30,000
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 to
maintain the profit per bucket ?
Solution:
(i) BEP (Units) = (Fixed cost/ (Sales- VC))
= 50,000/(70-20)
= 1000 (Buckets)
(ii) Sales (Units) = (F.C +Profit)/Contribtion
= (50,000+30000)/50
= 1600 (Buckets)
(iii)
Profite Per Bucket =
30000
1600
= Rs. 18.75

MEA ASSIGNMENT
For profit/unit as per
(2) i.e. Rs. 18.75
with added F.C. of
Rs. 2000 & increased
production of 600.
F.C. = Rs. 50,000 + Rs.
2000
=Rs. 52000
Production (units) =
=2600
=2600 x 20
V.C. (Rs. ) =
=
52000
Rs. 18.75 x
Desired Profit
2600 =
48750
Y
selling
Sales
2600 Y
price
Sales - V.C. = F.C. + Profit
2600Y - 52000 = 52000 + 48750
Y = 58.75 Rs. Unit

is

Therefore, required selling price is Rs.

58.75

16.] A retail dealer in garments is currently selling 24000 shirts annually.

He supplies the following details for the year ended 31st December , 2007
Selling price per shirt
Rs. 40
Variable cost per shirt
Rs. 25
Final cost: staff salaries for the year Rs. 1,20,000
General office costs for the year
Rs. 80,000
Advertising costs for the year
Rs. 40,000
As a cost accountant of the firm, you are required to answer the following
each part independently:
(i)
Calculate the break-even point and margin of safety in sales
revenue and number of shirts sold.
(ii)
Assume 20000 shirts were sold in a year. Find out the net profit of
the firm.
(iii) If it is decided to introduce selling commission of Rs. 3 per shirt,
how many shirts would require to be sold in a year to earn a net
income of Rs. 15,000
(iv) Assuming that for the year 2008 an additional staff salary of Rs.
33,000 is anticipated, and price of a shirt is likely to be increased

MEA ASSIGNMENT
by 15% what should be the break-even point in number of shirts
and sales revenue.
Marginal Cost Statement
Particulars
Unit Price (rs.)
Sales

40

Variable Cost

25

Contribution
Salary+Office+a
dv.

Fixed Cost
Profit

Amt. (Rs.)
9,60,000.0
0
6,00,000.0
0
3,60,000.0
0
2,40,000.0
0
1,20,000.0
0

1) BEP in Units & MOS in unit & revenue

Contribution
Sales
3,60,000.00
9,60,000.00

PVR =
PVR =
PVR =

0.375
Fixed Cost
PVR
2,40,000.00
0.375

BEP in Rs. =
BEP in Rs. =
BEP in Rs. =

6,40,000.00

Fixed Cost
Contrinution Per
unit
2,40,000.00
15.00

BEP in Units =
BEP in Units =
BEP in Units =

OS =

16000
M Total sales -BEP
in Rs.
= 9,60,000 6,40,000
= 3,00,000

MOS in Units =

MOS in Rs./Selling Price

= 3,00,000/40

MEA ASSIGNMENT
= 7500 Units
2) Profite when 20000 units sold
Sales =
Earned Profit =
Earned Profit =
Earned Profit =

Rs.
8,00,000

20,000 x 40 =
(salesxPVR) - FC
(8,00,000x0.375) -240000
Rs. 60,000

3) Sale in Units when net income is Rs. 15,000 & selling

commission of Rs. 3 per shirt
Profite =
Rs. 15,000
New
Selling
Expnses =
Rs. 3Y

Y no of unit
sold

Sales - V.C. = F.C. + Profit

40Y - 3Y - 600000 = 240000 +
15000
37Y =
855000
Y=
23108.10811
Sale in Unit =
23108
4) BEP in Rs. & unit when Additional staff salaryof Rs.
33,000 & increase in selling price by 15%
Marginal Cost Statement
Particulars
Unit Price (rs.)
Sales

40 + 15%

Variable Cost

25

Contribution
Fixed Cost

Salary+Office+a
dv.+ 33,000

Profit

Amt. (Rs.)
11,04,000.
00
6,00,000.0
0
5,04,000.0
0
2,73,000.0
0
2,31,000.0
0

1) BEP in Units & MOS in unit & revenue

PVR =
PVR =

Contribution
Sales
5,04,000.00
11,04,000.00

PVR =

0.456521739

BEP in Rs. =

Fixed Cost

MEA ASSIGNMENT

BEP in Rs. =
BEP in Rs. =

BEP in Units =
BEP in Units =
BEP in Units =

PVR
2,73,000.00
0.4565
5,98,028.48

Fixed Cost
Contrinution Per
unit
2,73,000.00
21.00
13000