Prof.

Beheres Classes 1

Marginal Costing
Problem (1) Chandrashekhar Enterprises supplies you with the following data Months January 1981 February 1981 Sales. Profit Rs. Rs. 3,00,00 8,000 0 3,80,00 24,000 0

You are asked to compute: (1) Break-even point (2) Profit at sale level of Rs. 2,40,000 (3) Sales required to earn a profit of Rs. 2,40,000 and (4) M/s for 2 years. Problem (2) Sales, turnovers and costs during 2 years are as follows: Ye ar 198 0 198 1 Sales. Profit Rs. Rs. 1,50,00 1,30,00 0 00 1,70,00 1,45,00 0 0

Find out: (1) P/V ratio; (2) B.E.P.; (3) Sales to earn profit of Rs. 40,000; (4) Profit made when sales are Rs.2,50,000; (5) M/s at a profit of Rs. 50,000 and (6) Variable cost for 2 years. Problem (3) 1) Fixed Cost 2) Break Even Point 3) Profit @ 8,00,000 sales 4) Sales to earn Rs. 60,000 profit . 5) M/s for 2 years. 6) Variable Cost for 2 years. Ye ar 1st 2nd Situation 2 1st 2nd Sales. Profit Rs. Rs. 2,00,00 30,000 0 3,00,00 70,000 0 3,00,00 (-) 0 20,000 5,00,00 (+) 0 20,000

Situation 1

Problem (4) 2 years sales were Rs. 3,00,000 and Rs. 5,00,000 and 2 years profit were Rs. 30,000 and Rs. 80,000. Find out (1) Fixed cost (2) Break down point (3) Sales to earn Rs. 60,000 profit (4) 10,00,000 Sales (5) sales to earn 10% profit on sales (6) variable cost for 2 years (7) Margin of safety for 2 (8) BEP (revised) if s.p. is by 10%. (9) sales to earn profit after tax 70,000 (if tax rate is 30%). Problem (5) S. Ltd. furnishes you the following information related to the half year ended 30th June, 1980: Rs. Fixed 45,000 expenses Sales Value 1,50,0 00 Profit 30,000 During the second half of the year, the company has projected a loss of Rs. 10,000. Calculate: (1) The break even point and margin of safety for six months ending 30th June 1980. (2) Expected sales volume for second half of the year assuming that the P/V ratio and fixed expenses remain constant in the second half year also. (3) The break-even point and margin of safety for the whole year 1980. Problem (6) A company has annual fixed costs of Rs. 1,40,000. In 1975, sales amounted to Rs. 6,00,000 as compared with Rs. 4.5 lakhs in 1974 and profit in 1975 was Rs. 42,000 higher than that in the year 1974. 1) At what level of sales does the Co. break even ? 2) Determine profit or toss on a forecast sales volume of Rs. 8,00,000.

Prof. Beheres Classes 2

3) If there is a reduction in selling price by 10% in 1976 and the Co. desires to earn the same amount of profit in 75, what should be the required sales volume ?

Problem (7) Calculate: (1) The amount of fixed expenses ; (2) The number of units to Break-even; and (3) the number of units to earn a profit of Rs. 40,000. The selling price per unit can be assumed of Rs. 100. The company sold in two successive periods 7,000 units and 9,000 units and has incurred a loss of Rs. 10,000 and earned Rs.10,000 as profit respectively. Problem (8) You are given the following Information of a company: Variable cost per unit Rs.12; Fixed expenses Rs.60,000; Selling price per unit Rs. 18; Total sales Rs. 2,25,000. Find out : (a) Break-even point, profit-volume ratio & Margin of safety, (b) What should be the selling price per unit if the break even point is bought down to 6,000 units, (c) At what selling price would the sale Rs. 15,000 units yield the net profits of Rs. 45,000. Problem (9) The following data are obtained from the records of a factory: Sales 4,000 units at 25 each Materials consumed Variable over heads Labour Overheads Fixed overheads 1,00,0 00 40,000 10,000 20,000 18,000 88,000 Net 12,000 Profit

Calculate: (1) The number of units by selling which the company will neither loose nor gain anything. (2) P/V ratio and margin of safety at present level; (3) The extra units which should be sold to obtain the present profit if it is proposed to reduce the selling price by (a) 20% and (b) 25% (4) The selling price to fixed to bring down its break even points to 500 units under present conditions (5) The sales required to earn profit of Rs. 60,000 at the present selling price of Rs. 25 per unit. Problem (10) The following information is available from A Co. Ltd. in certain year. (1) Sales Rs. 1 lakh ; 2 Variable cost, Rs. 60,000; 3 Fixed cost Rs. 30,000. (a) Find out the P/V ratio. Break even point and M/s at this level. (b) Calculate the effect of; (1) 20% Increase in selling price; (2) 10% decrease in selling price; (3) 5% decrease in sales volume; (4) 10% decrease in fixed costs; (5) 10% decrease in variable costs; (6) 20% increase in SP plus, increased in fixed overheads by Rs. 10,000; (7) 20% increase in selling price accompanied by an increase of 10% in fixed costs and decrease by 10% in variable costs. Problem (11) Diamond company plans to earn Rs. 2,10,000 after income taxes in 1971. The tax rate is to assumed 60% of net income before taxes. The fixed costs for the year are estimated Rs. 4,20,000. The contribution margin is estimated at 20% of sales revenue. You are required to compute the sales revenue required to earn a net income after income taxes of Rs.2,10,000. If the contribution margin can be increased to 25 %. How much sales revenue will be required to earn a net income after income taxes of Rs, 2,10,000 ? Problem (12) From the following data draw a simple breakeven chart: Selling price per unit Trade Discount Direct material cost per unit Direct labour cost per unit Fixed Overheads Rs . Rs . Rs . Rs . 10.0 0 5% 3.00 2.00

10,0 00 Variable over heads on direct 100 labour cost % If sales are 10% and 15% above the break-even volume, determine the net profits.

Prof. Beheres Classes 3

Problem (13) The following are the budgeted data of Volga Company: Rs. Rs. Sales(15,000 units @ 75,0 Rs.5) 00 Less Fixed Costs 28,000 Variable Cost 15,000 43,0 00 Operating Profit 32,0 00 Add Other income 9,000 Less Other expenses 3,000 6,00 0 Net 38,0 Profit 00 How would you compute break-even points ? Problem (14) The budgeted sales of two companies are given : Budgeted sales (units) 10,0 10,0 00 00 Budgeted selling price (unit) 2.00 2.00 Budgeted variable Cost (unit) 1.25 1.00 Budgeted Fixed Cost 5,50 8,00 (Total) 0 0 Budgeted Capacity 80% 80% Compute the following for each of the above two companies: (i) Budgeted profit. (ii) Budgeted Break-even point. (iii) The impact of + 10% deviation in budgeted sales. (iv) Margin of safety as a % of total capacity. Problem (15) Find out the amount of profit if: (a) P/V ratio Is 30% and margin of safety is Rs.30,000 (b) P/V ratio is 30% margin of safety ratio is 33 1/3 and sales are Rs. 9,90,000. Problem (16) Cadbury Schweppes Limited, a British Chocolate and Soft Drink company, is planning to establish a subsidiary company in India to produce, Schweppes Mineral Water. Based on the estimated annual sales of 40,000 bottles of the mineral water, cost studies produced the following estimates for the Indian subsidiary: Total Annual costs Rs. Material Labour Overhead Administratio n 1,93,600 90,000 80,000 30,000 % of total Annual costs that is variable (Rs.) 100% 70% 64% 30%

The Indian production will be sold by manufacturers representatives who will receive a commission of 8 % of the sale price. No portion of the British Office expenses is to be allocated to the Indian subsidiary. Problem (17) Following information is presented by the Costing Department to the management accountant of the company. 1) Contribution 10,000 2) Fixed Cost 4,000 3) P/V Ratio 1/3 The management accountant is asked to find out the margin of safety if P/V ratio is brought down to 1/2 . Problem (18) Alcos Ltd. manufactures and sells four types of products under the brand names A, B, C and D. The sales mix is value comprises of 33 1/3% and 41 2/3% 16 2/3% and 8 1/3% of products. A, B, C, and D respectively. The total budgeted sales (100%) are

Prof. Beheres Classes 4

Rs. 60,000 per month. Operating costs are : Variable costs : Product A 60% of selling price Product B 68% -doProduct C 80% -doProduct D 40% -doFixed cost Rs. 14,700 per month. (a) Calculate the break even point for the products on an over all basis. It has been proposed to change the sales mix as follows. The total sales per month remaining Rs. 60,000. Product A B C D Percent 25% 40% 30% 5% (b) Assuming that the proposal is implemented, calculate the break even point. Problem (19) The following is the statement of a Rampha Co. for the month of November Products L M Total Rs. Rs. 60,00 60,00 1,20,0 0 0 00 42,00 30,00 72,000 0 0 18,00 30,00 48,000 0 0 36,000 12,000

Sales Variable costs Overhead Administratio n Net Profit

You are required to compute the P/V ratio for each product, and then compute the P/V ratio, break-even point -and then profit for the Company under each of the following assumptions: (i) Sales revenue divided, 60% to product L and 40% to product M (ii) Sales revenue divided 40% to product L and 60 % to product M. Also construct a profit volume chart showing the profits estimated on sales upto 1,80,000 per month for each of the sales mix provided above.

Problem (20) From the following data, calculate : (i) Break-even point expressed in amount of sales in Rs. (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 ? Sales price Variable manufacturing costs Variable selling costs Fixed factory overheads fixed selling costs Rs. 20 per unit 11 per unit 3 per unit 5,40,0 per 00 year 2,52,0 per 00 year

Problem (21) The following are the cost and the sales data of a manufacturer selling three products X, Y & Z Selling Variable cost percent of Price rupee per unit per unit Rs. Sales Rs. volume X 4 3 20 Y 5 4 40 Z 8 6 40 Capacity of the manufacturer Rs. 15,00,000 total sales volume Annual fixed cost Rs. 2,30,000 1) Final break -even point In Rupee. 2) Calculate his profit or loss at 80% of capacity. Produc ts

Prof. Beheres Classes 5

Problem (22) The sales Director of your concern requires to compute the sales volume necessary in order to: 1) Break -even (2) Make a profit of Rs. 4 per unit (3) Make a profit of 30 % of sales (4) Make a profit of Rs. 30,000 p.a. (5) Maintain the present profits in Rs. with an increase of Rs. 20,000 in fixed costs and decrease of Rs. 2 per unit in out of pocket costs. (6) Maintain the present profit per unit with the revision in costs and out of pocket costs is in 5 (7) Maintain the present percentage of profit to sales with the revision in costs and out of pocket as in . The cost data of your firm as computed by the cost Accountant are as below: Sales Out of pocket costs (Variable) Burden (Fixed) Profit Rs. 1,00,000 50,000 30,000 20,000 10,000 10,000 10,000 10,000 Units Units Units Units = = = = Rs. Rs. Rs. Rs. 10 5 3 2 per per per per unit. unit. unit. unit.

Problem (23) The Budgeted results of A Co. Ltd. include Produ ct A B C Sales Value 50,000 80,000 1,20,000 P/V ratio 50% 40% 30%

Fixed overheads for the period Rs.1,00,000 The directors are worried about the results of the Co. They have requested you to prepare a statement showing the amount of loss expected and recommend a change in the series of each product or in total mix which will eliminate the expected loss. Product (24) Sunita Manufacturing Company produces chairs. An analysis of their accounting raveals Fixed cost Variable cost Capacity Selling price Rs. 30,000 for the year. Rs. 20 per chair. Rs. 2,000 chairs per year Rs. 70 per chair

(1) Find the break-even point. (2) Find the number of chairs to be sold to get a profit of Rs. 30,000 (3) What will be the answer for (1) and (2) if selling price changes to Rs. 50 per chair? (4) If the company can manufacture 600 chairs more per year with an additional fixed cost of Rs. 2,000 what should be the selling price to maintain the profit per chair as at (2) above

Problem (25) The management of X Co. Ltd. is worried about the performance of Department A and wants to close the department. The following data has been collected: Sales Variable. Costs Fixed Costs apportioned on the bas is of sales Total Cost Profit & Loss A 40,0 00 36,0 00 6,00 0 42,0 00 2,00 0 B C 60,0 1,00,0 00 00 48,0 60,000 00 9,00 15,000 0 57,0 75,000 00 +3,0 +25,0 00 00

(a) You are required to advice management in respect of closure of Department A. (b) On

Prof. Beheres Classes 6

the above, if specific fixed costs are ascertained as follows : Dept A - Rs. 2,000; Dept B Rs. 13,000; Dept C -Rs. 5,000 and balance Rs. 10,000 as general fixed over heads. Problem (26) Two business Y Ltd., and Z Ltd. sell the same type of product in the same type of market. The budgeted profit and loss account for the coming year is as : Y Ltd. Z. Ltd. Rs. Rs. Sales 1,50,00 1,50,000 0 Less : Variable 1,20,00 1,00,000 costs 0 Add : Fixed Costs 15,000 35,000 Profit 15,000 15,000 You are required to (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, and (c) State which business is likely to earn greater profit in conditions of (i) Heavy demand (ii) low demand for the product. Also briefly give your reason. Problem (27) Given the following Information, you are required to : (a) Comment which product should be produced if labour hour is the limiting factor and idea is to produce only product. (b) Calculate the present marginal cost and contribution per unit; {c) State which of the alternative sales mix would you recommend to the management and why. Selling price Direct materials Direct wages Rs.25 Rs.8 Rs.20 Rs.6

24 labour 16 labour hrs. hrs. @ Rs. 0.25 @ Rs.0.25 hour hour

Fixed overheads: Rs. 730 and variable overheads 150% of direct wages. Alternative Sales mixes: (1) 250 units of X and Y (2) 400 units of Y and (3) 400 units of X and 100 units of Y. Problem (28) The following particulars are obtained from the records of the Co. engaged in the production of two products A and B from a certain raw material. You comment on the profitability of each product when: (a) Total sales potential in units is limited (b) Total sales potential is limited in value (c) Raw material is in short supply (d) Production capacity is the limiting factor. (e) When total availability of raw materials is 4000 kg and maximum sales potential of each product is 1,000 units, find the product mix which would yield maximum profit. Product A Product B (per unit (per unit Rs.) Rs.) Sales 100 200 materials @ Rs.10 per kg. 20 50 wages @ Rs. 6 per labour 30 60 hour Variable overheads 10 20 Total fixed overheads 10,000 Problem (29) The following particulars are extracted from-the records of Ellora Sales Ltd. Product Sales per unit Consumption material Material cost Direct wage cost Direct expenses Machinery hours used of A Rs. 100 2 Kg Rs. 10 Rs. 15 Rs. 5 Hrs. 3 B Rs. 120 3 Kg Rs. 15 Rs. 10 Rs. 6 Hrs. 2

Prof. Beheres Classes 7

Overhead expenses: Fixed Variable

Rs. 5 Rs. 15

Rs. 10 Rs. 20

Direct wage per hours Rs. 5 (a) Comment on the profitability of each product (both use the same raw material ) when (i) Total sales potential in units is limited ; (ii) Total sales potential in value is limited; (iii) Raw material is in short supply and (iv) production capacity (in terms of machine hours) is the limiting factor. (b) Assuming raw material as the key factor, availability of which is 10,000 kg and maximum sales potential of each product being 3,500 units, find out the product mix which will yield the maximum profit. Problem (30) The following set of information Is presented to you by your client B Ltd. Producing two products X and Y. X (Rs.) 20 6 40 100 150 200 Y (Rs.) 18 4 30 200 150 100

(1 )

Direct material per unit Direct wages per unit Sales price per unit (units) (units) (units)

Proposed Sales mixes: (i) (ii) (iii ) 1,600 100% of (3) Variable expenses are allocated to products at the rate of Direct Wages.

(2) Fixed expenses during the, period are expected to be Rs.

As a Cost Accountant you are required to present to the management of AB Ltd. the following: (a) The unit marginal cost and unit contribution. (b) The total contribution and resultant profit from each of the above sales mixes. (c) The proposed sales mixes to earn a profit of Rs. 300 and Rs.600 with the total sales of X and Y being 300 units. Problem (31) A company engaged in plantation activities has 200 hectares of virgin land which can be used for growing jointly or individually tea, coffee and cardamom. The yield per hectare of the different crops and their selling price per kg are as under : Yield Tea 2,000 Kg 500 Kg 100 Kg Selling price per Kg (Rs.) 20

Coffee 40 Cardamo 250 m The relevant cost data are given below: (A) Variable Cost per Kg. Tea Coffee Cardamom (Rs.) (Rs.) (Rs.) Charges 8 10 120 Material 2 2 10 s 4 1 20 Total 14 13 150 Cost (B) Fixed cost per annum Cultivation and Growing Cost Administrative Cost Land Revenue Repairs and Maintenance 10,00,0 00 2,00,00 0 50,000 2,50,00

Prof. Beheres Classes 8

Other Costs Total Costs

0 3,00,00 0 18,00,0 00

The policy of the Company is to produce and sell all the three kinds of products and the maximum & minimum area to be cultivated per product is as follows: Hectares Maximu Minimu m m Tea 160 120 Coffee 50 30 Cardamo 30 10 m Calculate the most profitable products mix and the maximum profit which can be achieved. Problem (32) On the basis of the following Information in respect of an engineering company, what is the product mix which will give the highest profit attainable Rs. Do you recommend over time working upto a maximum of 15,000 hours at twice the normal wages (overheads are ignored for the purpose of this question). Product A B C Raw material per unit (Kg) 10 6 15 Labour hours per unit @ Rs. 1 per hour (hrs) 15 25 20 Sales price per unit(Rs.) 125 100 200 Maximum production possible 6,00 4,00 3,00 units 0 0 0 1,00,000 kg raw materials are available @ Rs. 10 per kg maximum production hours are 1,84,000 with facility for a further 5,000 hours on overtime basis at twice the normal wage rate. Problem (33) The Bins and Tins Ltd. produces and markets Industrial containers and packing cases. Due to competition the company proposes to reduce the selling prices. If the present level of profit is to be maintained, Indicate the number of units to be sold if the proposed reduction in selling price is (a) 5% (b) 10% (c) 15% . The following additional information is available : Rs. Rs. Present Sales turnover (30,000 units) 3,00,0 00 Variable Cost (30,000 1,80,0 units) 00 Fixed Cost 70,000 2,50,0 00 Net Profit 50,000 Problem (34) The price structure of a cycle made by the Cycle co. Ltd. is as follow Per cycle Rs. 60 20 20 100 50 50 100

Materials Labour Variable Overheads Fixed Overheads Profit Selling Price

This is based on the manufacture of one lakh cycles per annum. The company expects that due to competition they will have to reduce selling prices, but they want to keep the total profit intact. What level of production will have to be reached, i.e. how many cycles will have to be made to get the same amount of profits, if (a) The selling price Is reduced by 10% ? (b) The selling price is reduced by 20 %

Prof. Beheres Classes 9

Problem (35) Your company manufactures a single product. The selling price is Rs. 100 per unit. Currently the capacity utilisation is 60% with the sales turnover of Rs. 6 lakhs. The company proposed to reduce the selling price by 20% but desires to maintain the same profit position by increasing the output. Assuming that the increased output could be made and sold, determine the level at which the company should operate to achieve the desired objectives. The following further data are available. (1) Variable Cost per unit Rs. 20. (2) Semi variable cost (including a variable element of Rs. 5 per unit) Rs. 60,000. (3) Fixed costs of Rs. 2,00,000 will remain constant upto 80% level. Beyond this an additional amount of Rs. 40,000 will be needed

Problem (36) Cookwell Ltd. manufactures pressure cookers the selling price of which is Rs. 300 per unit. Currently the capacity utilisation is 60% with a sales turnover of Rs. 18 lakhs. The Co. proposes to reduce the selling price by 20% but desires to maintain the same profit position by increasing the output Assuring that the increased output could be made and sold determine the level at which the Co. should operate, to achieve the desired objective. The following further data re available (i ) Variable cost per unit Rs. 60 (ii) Semi variable cost (including a variable element of Rs. 10 per unit) Rs. 1,80,000 (iii) Fixed costs Rs.3,00,000 will remain constant upto 80% level beyond this an additional amount of Rs. 60,000 will be incurred. Problem (37) Quality products Ltd, manufactures and markets a single product. The following data are available. Rs. per Unit Materials 16 Conversion 12 (Variable) Dealers margin 4 Selling Price 40 Fixed cost : Rs. 5 Lakhs. Present sales : 90,000 units. Capacity utilisation - 60 % There is acute competition. Extra efforts are necessary to sell. Suggestions have been made for increasing sales a) By reducing sales price by 5% b) By increasing dealers margin by 25% over the existing rate. Which of these two suggestions you would recommend, If the company desires to maintain the present profit. Give reasons. Problem (38) An umbrella manufacturer makes an average net profit of Rs. 2.50 per piece on a selling price of Rs. 14.30 by producing and selling 60,000 pieces or 60% of the potential capacity. His cost of sales is: Rs. Direct 3.50 material Direct wages 1.25 Works 6.25 (50% overhead fixed) Sales 0.80 (25% Overhead varying) During the current years he intends to produce the same number but anticipated that his fixed charges will got up by 10% while rates of Direct labour and Direct Material will increase by 8 % and 6% respectively. But he has no option of increasing the selling price. Under this situation he obtain for a further 20% of his capacity. What minimum price will you recommend for acceptance to ensure the manufacturer an overall profit of Rs. 1,673 lakhs? Reason out your recommendation. Problem (39) A toy manufacturer earns an average net profit of Rs. 3 per piece in a selling 60,000 pieces @ 60% of potential capacity. The break up of the cost of sales was as under : Rs. per Unit Direct Material 4 Direct Wages 1 Works 6 (50% Overhead fixed)

Prof. Beheres Classes 10

Sales 1 (75% Overheads fixed) During the year, he intends to produce the same number but anticipates that (a) Fixed expenses increase by 10% (b) Rates of direct labour increase by 20% (c) Rates of Direct Material increase by 5% (d) selling price cant be Increased. Under these circumstances he obtains an order for a further 20% of his capacity. What minimum price would be recommended for accepting the order to ensure the manufacturer an overall profit of Rs. 1,80,500. Problem (40) A manufacturer makes an average net profit of 15 per unit on a selling price of Rs. 20 each and he sells 50,000 pieces representing 50% of capacity utilization. His cost break down is: Material 7.00 Labour cost 4.00 Manufacturing & Administration 4.00 (75% O/|| fixed) Selling & distribution O/|| 2.00 (50% fixed) During the current year he intends to produce at current level of output but anticipates a rise in fixed cost by 10%. Similarly rates for direct material and labour will go up by 10%. The market can absorb a price-increase of 2.5% only. In such situation he gets an offer for an additional 15% of his capacity. What minimum price will you recommend so that the manufacturer retains the same amount of profit as he earned on 50,000 units. Give reasons for your recommendations. Problem (41) A and B are two similar plants under the same management who want them to be merged for better expansion. The details are as follows; Plant A B Capacity 100% 70% operated (Rs. In (Rs. In lakhs) lakhs) Turnover 200 210 Variable Cost 150 140 Fixed Cost 40 60 Find out : (1) The capacity of the merged plant at break even; (2) Turnover from the merged plant to give a profit of Rs. 20 lakhs. Problem (42) There are two factories under the same management. The management desires to merge these two plants. The following particulars are available : Particulars Capacity operation Sales Variable Costs fixed costs. Factory I 100% Factory II 60%

Rs. 300 Rs. 120 lakhs lakhs Rs. 220 Rs. 90 lakhs lakhs Rs. 40 Rs. 20 lakhs lakhs

You are required to calculate : What would be the capacity of the merged plant to be operated for the purpose of breaking even; AND what would be profitability on working at 73% of the Merged Capacity. Problem (43) Everest Snow Co. manufactures and sells directly to the customers 10,000 jars of Everest Snow @ Rs. 1.23 per jar. The Companys normal production capacity is 20,000 jars per month. The cost analysis of 10,000 jars shows: Direct Materials : Rs. 1,000; Direct labour Rs. 2,475; Power Rs. 140; Miscellaneous Expenses Rs. 430; Cost of jars Rs.600 and Fixed expenses Rs. 7,955. The company has received an offer from the foreign customer under different brand name for 1,20,000 jars of snow @ 10,000 jars per month @ 75 paise per jar. Whether offer should be accepted ? Problem (44) The cost of the product has been given as under : Rs.

Prof. Beheres Classes 11

Direct Material Direct Wages Factory Overhead (Fixed Rs.0.50 + Variable Rs. 0.50) Administrative expenses Selling overheads (Fixed Rs.0.25 + Variable Rs. 0.50)

5.00 3.00 1.00 0.75 0.75

10.2 5 The selling price is Rs.12. The above figures are for an output of 30,000 units. The capacity of the firm 45,000 units. A foreign customer is desirous to buy 15,000 units @ cost will reduce by Rs. 1 per unit and labour efficiency will fall by 2%. Whether the offer should be accepted or not ? If the offer is from local merchants what would have been your opinion? Problem (45) Mercury motor parts manufacturers produce various motor parts. The cost structure of a parts whose annual production is 90,000 units, is as follows: Rs. Materials 540 per unit Labour (25% 360 per fixed) unit Expenses: Variable 180 per unit Fixed 270 per unit 1,350 per unit The purchasing manager explores that a supply is ready to supply the part @ Rs. 1,080. Should the part be purchase and production stopped ? What will be your advice if the resources producing that part are used to produce a product for which the selling price is Rs.965. In the latter case material price will be Rs. 390 per units. Problem (46) Auto Parts Ltd. has an annual production of 90,000 units for a motor component. The components cost structure is given below: Rs. Materials 270 per unit Labour (25% 180 per fixed) unit Expenses: Variable 90 per unit Fixed 135 per unit 675 per unit (a) The purchase Manager has an offer from a supplier who is willing to supply the component at Rs. 540, should be component be purchased and production stopped ? (b) Assume the resources now used for this companys manufacture are to be used to produce another new product for which the selling price is Rs. 485. In the latter case material price will be Rs. 200 per unit. 90,000 Units of this product can be produced, at the same cost basis as above for labour and expenses. Discuss whether it would be advisable to divert the resources to manufacture that new product on the footing that the component presently being produced would instead of being produced be purchased from the market. Problem (47) A manufacturer working at 60% capacity gives the following date: Number of units 1,200 manufactured Direct Materials Rs.72,0 00 Direct Labour 96,000 Variable Overheads 1,20,00

Prof. Beheres Classes 12

0 Fixed Overheads 96,000 Selling price per unit 400 (a) Due to competition he is required to reduce the selling price to Rs. 360 per unit. What should be the production so that, he will earn the same amount of profit which he earns today ? (b) If the cost of materials, labour and variable overheads increase by 25% and fixed overheads Increase by 20% What should be the selling price so that he will earn the same amount of profit what he earns today by keeping the present production level, i.e. 1,200 units (c) An offer to produce a further 800 units of his product at Rs. 340 per unit is received. This will necessitate an increase in the fixed overheads by 10% and decrease marginal cost by 5% on all units manufactured. Comment whether the offer can be accepted?