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Assignment I

- Journal
Rs. 1,00,000 20,000 1,000 5,000 2,000

Q.1 Journalize the following relating to April 2009: Particulars 1. R. started business with 2. He purchased furniture for 3. Paid salary to his clerk 4. Paid rent 5. Received interest

Q.2 Journalize transactions of M/s X & Co. for the month of March 2009 on the basis of double entry system: 1. X introduced cash Rs. 4,00,000. 2. Cash deposited in the Citibank Rs. 2,00,000. 3. Cash loan of Rs. 50,000 taken from Y. 4. Salaries paid for the month of March 2009, Rs. 30,000 and Rs. 10,000 is still payable for the month of March 2009. 5. Furniture purchased Rs. 50,000. Q.3 Journalize the following transactions. 1. December 1, 2008, Ajit started-business with cash Rs. 4,00,000. 2: December 3, he paid into the bank Rs. 20,000. 3. December 5, he purchased goods for cash Rs. 1,50,000. 4. December 8, he sold goods for cash Rs. 60,000. 5. December 10, he purchased furniture and paid by cheque Rs. 50,000. 6. December 12, he sold goods to Arvind Rs. 40,000. 7. December 14, he purchased goods from Amrit Rs. 1,00,000. 8. December 15, he returned goods to Amrit Rs. 50,000. 9. December 16, he received from Arvind Rs. 39,600 in full settlement. 10. December 18, he withdrew goods for personal use Rs. 10,000. 11. December 20, he withdrew cash from business for personal use Rs. 20,000. 12. December 24, he paid telephone charges Rs. 10,000. 13. December 26, cash paid to Amrit in full settlement Rs. 49,000. 14. December 31, paid for stationery Rs. 2,000, rent Rs. 5,000 and salaries to staff Rs. 20,000. 15. December 31, goods distributed by way of free samples Rs. 10,000.

16. December 31, wages paid for erection of Machinery Rs. 80,000. 17. Personal income tax liability of X of Rs. 17,000 was paid out of petty cash of

18. Purchase of goods from Naveen of the list price of Rs. 20,000. He allowed 10% trade discount, Rs. 500 cash discount was also allowed for quick payment. Q 4 Transactions of Ramesh for April are given below. Journalize them. 2009 April 1 April 2 April 3 April 5 April 13 April 20 April 24 April 28 April 30 Rs. 1,00,000 70,000 5,000 1,000 1,500 2,250 1,450 50 2,150 100 8,000 500 1,000

Ramesh started business with Paid into bank Bought goods for cash Drew cash from bank for credit Sold to Krishna goods on credit Bought from Shyam goods on credit Received from Krishna Allowed him discount Paid Shyam cash Discount allowed Cash sales for the month Paid Rent Paid Salary

Assignment II - Ledger
Q. 1 Prepare the Stationery Account of a firm for the year ended December 31, 2008: 2008 January 1 April 5 November 15 December 31 Particulars Stock in hand Purchase of stationery by cheque Purchase of stationery on credit from Five Star Stationery Mart Stock in hand Rs. 480 800 1,280 240

Q.2 Prepare a ledger from the following transactions in the books of a trader Debit Balance on January 1, 2008: Cash in Hand Rs. 8,000, Cash at Bank Rs. 25,000, Stock of Goods Rs. 20,000, Building Rs. 10,000. Sundry Debtors: Vijay Rs. 2,000 and Madhu Rs. 2,000. Credit Balances on January 1, 2008: Sundry Creditors: Anand Rs. 5,000. Following were further transactions in the month of January 2008: January 1 January 4 January 8 January 12 January 15 January 18 Purchased goods worth Rs. 5,000 for cash less 20% trade discount and 5% cash discount. Received Rs. 1,980 from Vijay and allowed him Rs. 20 as discount. Purchased plant from Mukesh for Rs. 5,000 and paid Rs. 100 as cartage for bringing the plant to the factory and another Rs. 200 as installation charges. Sold goods to Rahim on credit Rs. 600. Rahim became insolvent and could pay only 50 paise in a rupee. Sold goods to Ram for cash Rs. 1,000.

Q. 3 The following data is given by Mr. S, the owner, with a request to compile only the two personal accounts of Mr. H and Mr. R, in his ledger, for the month of April 2008. 1 Mr. S owes Mr. R Rs. 15,000; Mr. H owes Mr. S Rs. 20,000. 4 Mr. R sold goods worth Rs. 60,000 @ 10% trade discount to Mr. S. 5 Mr. S sold to Mr. H goods prices at Rs.30,000. 17 Record purchase of Rs. 25,000 net from R, which were sold to H at profit of Rs. 15,000. 18 Mr. S rejected 10% of Mr. Rs goods of 4th April. 19 Mr. S issued a cash memo for Rs. 10,000 to Mr. H who came personally for this consignment of goods, urgently needed by him. 22 Mr. H cleared half his total dues to Mr. S, enjoying a % cash discount (of the payment received, Rs. 20,000 was by cheque). 26 Rs total dues (less Rs. 10,000 held back) were cleared by cheque, enjoying a cash discount of Rs. 1,000 on the payment made. 29 Close Hs Account to record the fact that all but Rs. 5,000 was cleared by him, by a cheque, because he was declared bankrupt. 30 Balance Rs Account.

Assignment III Trial Balance

Q. 1 Given below is a ledger extract relating to the business of X and Co. as on March 31, 2009. You are required to prepare the Trial Balance. Cash Account Dr. Particulars To Capital A/c To Rams A/c To Cash Sales Rs. Particulars 10,000 By Furniture A/c 25,000 By Salaries A/c 500 By Shyams A/c By Cash Purchases By Capital A/c By Balance c/d 35,500 Furniture Account Dr. Particulars To Cash A/c Rs. 3,000 Salaries Account Dr. Particulars To Cash A/c Rs. 2,500 Shyams Account Dr. Particulars To Cash A/c To Purchase Returns A/c To Balance c/d Rs. Particulars 21,000 By Purchases A/c (Credit Purchases) 500 3,500 25,000 Purchases Account Dr. Particulars To Cash A/c (Cash Purchases) To Sundries as per Purchases Rs. Particulars 1,000 By Balance c/d 25,000 Cr. Rs. 26,000 Cr. Rs. 25,000 Particulars 2,500 By Balance c/d Cr. Rs. 2,500 2,500 Particulars 3,000 By Balance c/d Cr. Rs. 3,000 3,000 Cr. Rs. 3,000 2,500 21,000 1,000 500 7,500 35,500


Book (Credit Purchases) 26,000 Purchases Returns Account Dr. Particulars To Balance c/d Rs. Particulars 500 By Sundries as per Purchases Return Book 500 Rams Account Dr. Particulars To Sales A/c (Credit Sales) Rs. Particulars By Cash A/c By Balance c/d 30,000 Sales Account Dr. Particulars To Balance c/d Rs. Particulars 30,500 By Cash A/c (Cash Sales) By Sundries as per Sales Book (Credit sales) 30,500 Sales Returns Account Dr. Particulars To Sundries as per Sales Return Book Rs. Particulars Cr. Rs. 100 100 Cr. Rs. 10,000 10,000 Cr. Rs. 500 30,000 30,500 30,000 By Sales Returns A/c Cr. Rs. 100 25,000 4,900 30,000 Cr. Rs. 500 500 26,000

100 By Balance c/d 100 Capital Account

Dr. Particulars To Cash A/c To Balance c/d Rs. Particulars 500 By Cash A/c 9,500 10,000

Q.2 From the following ledger balances, prepare a trial balance of Anuradha Traders as on March 31, 2009:
Account Head Capital Sales Purchases Sales return Discount allowed Expenses Debtors Creditors Investments Cash at bank and in hand Interest received on investments Insurance paid Rs. 1,00,000 1,66,000 1,50,000 1,000 2,000 10,000 75,000 25,000 15,000 37,000 1,500 2,500

Q.3 One of your clients, X has asked you to finalize his accounts for the year ended March 31, 2009. Till date, he himself has recorded the transactions in books of accounts. As a basis for audit, X furnished you with the following statement. Dr. Balance Xs Capital Xs Drawings Leasehold premises Sales Due from customers Purchases Purchases return Loan from bank Creditors Trade expenses Cash at bank Bills payable Salaries and wages Stock (1.4.2008) Rent and rates Sales return 564 750 2,750 530 1,259 264 256 528 700 226 100 600 264 463 98 5,454 5,454 Cr. Balance 1,556

The closing stock on March 31, 2009 was valued at Rs. 574. X claims that he has recorded every transaction correctly as the trial balance is tallied. Check the accuracy of the above trial balance.

Assignment IV Final Accounts

Q.1 From the following information, prepare a Trading Account of M/s. ABC Traders for the year ended March 31, 2009: Rs. Opening Stock Purchases Carriage Inwards Wages Sales Returns inward Returns outward Closing stock 1,00,000 6,72,000 30,000 50,000 11,00,000 1,00,000 72,000 2,00,000

Q.2 Revenue expenses and gross profit balances of M/s ABC Traders for the year ended on March 31, 2009 were as follows: Gross Profit Rs. 4,20,000, Salaries Rs. 1,10,000, Discount (Cr.), Rs. 18,000, Discount (Dr.) Rs. 19,000, Bad Debts Rs. 17,000, Depreciation Rs. 65,000, Legal Charges Rs. 25,000, Consultancy Fees Rs. 32,000, Audit Fees Rs. 1,000, Electricity Charges Rs. 17,000, Telephone, Postage and Telegrams Rs. 12,000, Stationery Rs. 27,000, Interest paid on Loans Rs. 70,000. Prepare Profit and Loss Account of M/s ABC Traders for the year ended on March 31, 2009. Q.3 Mr. X submits you the following information for the year ended March 31, 2009: Stock as on April 1, 2008 Purchases Manufacturing expenses Expenses on sale Expenses on administration Financial charges Sales Rs. 1,50,000 4,37,000 85,000 33,000 18,000 6,000 6,25,000

Gross profit is 20% of sales. Compute the net profit of Mr. X for the year ended March 31, 2009. Also prepare Trading & Profit & Loss A/c. Q.4 A book keeper has submitted to you the following trial balance of X wherein the total of debit and credit balances is not equal: Particulars Debit Balances Rs. Credit Balances Rs.

Capital Cash in hand Purchases Sales Cash at bank Fixtures & fittings Freehold premises Lighting and heating Bills receivable Returns inwards Salaries Creditors Debtors Stock (1.1.2008) Printing Bills payable Rates, taxes and insurance Discounts received Discounts allowed

8,990 885 225 1,500 65 1,075 5,700 3,000 225 1,875 190 445 24,175

7,670 30 11,060 825 30 1,890 200 21,705

You are required to: (i) Redraft the Trial Balance correctly. (ii) Prepare a Trading and Profit and Loss Account and a Balance Sheet after taking into account the following adjustments: (a) Stock in hand on 31.12.2008 was valued at Rs. 1,800 (b) Depreciate fixtures and fittings by Rs. 25. (c) Rs. 350 was due and unpaid in respect of salaries. (d) Rates and insurance had been in paid in advance to the extent of Rs. 40. Q.5 The following is trial balance extracted from the books of X as on 31 March 2009: Debit Amount Rs. Capital Account Plant and Machinery Furniture Purchases and Sales Returns 78,000 2,000 60,000 1,000 Credit Amount Rs. 1,00,000 1,27,000 750

Opening stock Discount Sundry Debtors/Creditors Salaries Manufacturing wages Carriage outwards Provision for doubtful debts Rent, rates and taxes Advertisements Cash

30,000 425 45,000 7,550 10,000 1,200 10,000 2,000 6,900 2,54,075

800 25,000 525 2,54,075

Prepare trading and profit and loss account for the year ended 31 March 2009 and a balance sheet on that date after taking into account the following adjustments: (a) Closing stock was valued at Rs. 34,220. (b) Provision for doubtful debts is to be kept at Rs. 500 (c) Depreciate plant and machinery @ 10% p.a. (d) The proprietor has taken goods worth Rs. 5,000 for personal use and additionally distributed goods worth Rs. 1,000 as samples. (e) Purchase of furniture Rs. 920 has been passed through purchases book. Q.6 From the following trial balance and other information prepare profit and loss account for the year ended 31 March 2009 and a balance sheet on that date: Debit Rs. Xs Capital Account Withdrawals of goods for personal use Balance at bank Motor Vehicle Debtors and Creditors Printing and stationery Gross Profit Provision for doubtful debts Bad debts Freehold premises Repairs to Premises General Reserve Proprietors remuneration 1,000 1,76,000 1,50,000 2,94,000 6,600 11,400 8,00,000 47,600 20,000 Credit Rs. 10,00,000 2,30,000 5,71,400 5,000 2,00,000 -

Stock Delivery expenses Administrative expenses Rates and taxes Drawings Unpaid wages Last Year Profit and Loss Account Balance

2,80,000 99,000 1,31,400 15,000 1,00,000 21,32,000

1,600 1,24,000 21,32,000

Adjustments (i) Depreciation on Motor Vehicles @ 50% (ii) Creditors include a claim for damages of Rs. 30,000 and which was settled by paying Rs. 20,000. (iii) Rates paid in advance Rs. 3,000. (iv) Provision for bad debts is to be reduced to Rs. 3,500. (v) The item of repairs to premises includes Rs. 20,000 for acquisition of capital asset. (vi) Stock of stationery in hand on 31 March 2009 is Rs. 2,200. Q.7 The following trial balance has been extracted from the books of Ms. X. Prepare the final accounts for the year ended 31 March 2009 and a balance sheet on that date: Debit Rs. Drawings Buildings Debtors and creditors Returns Purchases and sales Discount Life insurance Cash Stock (opening) Bad debts Reserve for bad debts Carriage inwards Wages Machinery Furniture Salaries 35,000 60,000 50,000 3,500 3,00,000 7,100 3,000 30,000 12,000 5,000 6,200 27,700 8,00,000 60,000 35,000 Credit Rs. 80,000 2,900 4,65,000 5,100 17,000

Bank commission Bills receivable/payable Trade expenses/Capital

2,000 60,000 13,500 15,10,000

40,000 9,00,000 15,10,000

Adjustments: (i) Depreciate building by 5%; furniture and machinery by 10% p.a. (ii) Trade expenses Rs. 2,500 and wages Rs. 3,500 have not been paid as yet. (iii) Allow interest on capital at 5% p.a. (iv) Make provision for doubtful debts at 5%. (v) Machinery includes Rs. 2,00,000 of a machine purchased an 31 December 2008. Wages include Rs. 5,700 spent on the installation of machine. (vi) Stock on 31 March 2009 was valued at Rs. 50,000. Q.8 The following is the Trial Balance of X on 31 March 2009: Debit Rs. Capital Drawings Opening Stock Purchases Freight on Purchases Wages (11 months upto 28-2-2009) Sales Salaries Postage, Telegrams, Telephones Printing and Stationery Miscellaneous Expenses Creditors Investments Discounts Received Debtors Bad Debts Provision for Bad Debts Building Machinery Furniture Commission on Sales 60,000 75,000 15,95,000 25,000 66,000 1,40,000 12,000 18,000 30,000 1,00,000 2,50,000 15,000 3,00,000 5,00,000 40,000 45,000 Credit Rs. 8,00,000 23,10,000 3,00,000 15,000 8,000 -

Interest on Investments Insurance (Year up to 31-7-2009) Bank Balance

24,000 1,50,000 34,45,000

12,000 34,45,000

Adjustments: (i) Closing Stock Rs. 2,25,000. (ii) Machinery worth Rs. 45,000 purchased on 1-10-08 was shown as Purchases. Freight paid on the Machinery was Rs. 5,000, which is included in Freight on Purchases. (iii)Commission is payable at 2% on Sales. (iv) Investments were sold at 10% profit, but the entire sales proceeds have been taken as Sales. (v) Write off Bad Debts Rs. 10,000 and create a provision for Doubtful Debts at 5% of Debtors. (vi) Depreciate Building by 2% p.a. and Machinery and Furniture at 10% p.a. Prepare Trading and Profit and Loss Account for the year ending 31 March 2009 and a Balance Sheet as on that date.

Assignment V - Financial Statement Analysis

Q.1 From the following particulars relating to AB Co. prepare a Balance Sheet as on 31.12.2009: Fixed assets / turnover ratio Debt collection period Gross profit Consumption of raw materials Stock of Raw materials Finished goods Fixed Assets to Current Assets Current Ratio Long Term loan to current Liability Capital to Reserve Value of Fixed Assets Current Ratio Current Assets/Fixed Assets Fixed Assets to turnover Gross Profit Debtors Velocity Creditors Velocity Stock Velocity Debt equity ratio Working Capital 1:2 Two months 25% 40% of cost 4 months consumption 20% of turnover at cost 1:1 2:1 1:3 5:2 Rs. 10,50,000

Q.2 From the following particulars prepare the Balance Sheet of A Ltd.: 1.50 1:2 1:1 25% 2 months 2 months 3 months 2:5 Rs. 2,00,000 1.75 1.25 9 25% 1.50 months 0.20 1.20 1.25 Rs. 12,00,000

Q.3 From the following information, you are required to prepare a Balance Sheet: Current Ratio Liquid Ratio Stock Turnover ratio (Closing Stock) Gross profit ratio Debt collection period Reserves and surplus to capital Turnover to fixed assets Fixed assets to net worth Sales for the year

Q. 4 Mr. Desai intends to supply goods on credit to A Ltd. and B Ltd. The relevant financial data relating to the companies for the year ended 30th June, 2009 are as under:

A Ltd. B Ltd. Stock 8,00,000 1,00,000 Debtors 1,70,000 1,40,000 Cash 30,000 60,000 Trade Creditors 3,00,000 1,60,000 Bank overdraft 40,000 30,000 Creditors for expenses 60,000 10,000 Total purchases 9,30,000 6,60,000 Cash purchases 30,000 20,000 Advice with reasons, as to which of the companies he should prefer to deal with. Q.5 The following is the Trading & Profit & Loss A/c of X Ltd. As on December 31, 2008: Trading & P&L Account (31.12.2008) Opening Stock Purchases G.P. Depreciation G. Expenses Directors Fees N.P. 1,30,000 Cash Sales 4,20,000 Credit Sales 60,000 Stock 13,100 G.P. 20,900 10,000 16,000 60,000 Balance Sheet as at 31 December, 2008 Share Capital Profit & Loss A/c Creditors Bank overdraft 3,60,000 Fixed Assets 24,600 Stock 1,40,000 Debtors 51,000 5,75,000 2,05,600 2,10,000 1,60,000 5,75,000

80,000 3,20,000 2,10,000 60,000


1. The rate of stock turnover is to be doubled. 2. Stock is to be reduced by Rs. 60,000 by the end of the financial year. 3. The ratio of cash sales to Credit sales is to be doubled. 4. Directors remuneration are to be increased by Rs. 15,000. 1 5. Rate of gross profit to sales is to be increased by 33 /3%. 6. The ratio of trade creditors to closing stock and the ratio of debtors to credit sales will remain the same as in the year just ended. 7. General expenses and depreciation are to remain the same. Draft budgeted Trading and Profit and loss account and balance sheet, assuming that the objectives had been achieved.

Q.6 You are given the following figures worked out from the profit and loss account and balance sheet of Z Ltd. relating to the year 2008. Prepare the balance sheet. Fixed Assets (net after writing off 30%) Fixed Assets Turnover ratio Finished goods turnover ratio Rate of gross profit to sales Net profit (before interest) to sale Fixed charges over (debenture interest 7%) Debt collection period Material consumed to sales Stock of raw materials (in terms of number of months consumption) Current ratio Quick ratio Reserves to capital Rs. 10,50,000 2 6 25% 8% 8 1 months 30% 8 2.4 1.0 0.20

Q.7 The summarized Balance Sheet of X Ltd. as at 31st December 2008 and its summarized Profit and Loss Account for the year ended on that date, are as follows. The corresponding figures of the previous year are also shown: Balance Sheet
Liabilities Share capital 60,000 shares of Rs. 100 each 60.00 Reserve & Surplus 29.25 8% Debenture Current Liabilities Provisions : Sundry Creditors Provision for Taxation Proposed Dividend Total : & 45.75 13.50 4.50 63.75 168.00 136.50 24.00 10.50 3.00 85.50 168.00 136.50 15.00 24.00 15.00 Current Assets Stock of finished goods Sundry Debtors Bank 42.75 41.25 1.50 31.50 30.00 9.00 60.00 2008 2007 Assets Fixed Assets At cost Depreciation: Property Plant 2008 2007 (Rs. in lakhs ) less 21.00 61.50 82.50 18.00 48.00 66.00 (Rs. in lakhs)

Trading & Profit and Loss Account

2008 Cost of Sales 162.00 2007 135.00 Sales (all credit) 2008 225.00 2007 180.00 (Rs. in lakhs) (Rs. in lakhs)

Gross Profit C/d Overhead Expenses Net Profit before taxation Provision for taxation Dividend-paid and Proposed Surplus for the year carried to Balance Sheet

63.00 225.00 43.50 19.50 63.00 8.25 6.00 5.25 19.50

45.00 180.00 30.00 15.00 45.00 6.30 4.50 4.20 15.00 19.50 15.00 Net profit b/d 63.00 19.50 45.00 15.00 Gross Profit b/d 225.00 63.00 180.00 45.00

You are required to interpret the above statement using significant accounting ratios. Q.8 X Ltd. has been existence for two years. Summarized Balance Sheets as on 31st December, 2007 and 31st December, 2008 are given below: Balance Sheet (Figures in lakhs of rupees)
Liabilities Equity shares of Rs. 100 each Reserves Profit & Loss A/c Loans on Mortgage Bank overdraft Creditors Provision for Taxation Proposed Dividend .60 .68 .20 6.16 2008 2 .20 .28 2.20 2007 2 .40 .04 1.60 .40 1.80 .26 .30 6.80 6.16 6.80 Assets Fixed Assets (Less Dep.) Stock Debtors Cash and Bank Balances 2008 4.16 .60 .80 .60 2007 3.96 1.20 1.60 .04

You are also given the Profit and Loss Account of the Company for the two years. Profit & Loss Account (Figures in lakhs of rupees)
2008 Interest on Loan Directors Remuneration Provision for Taxation Dividends Transfer to Reserve Balance C/F .048 .20 .68 .20 .20 .28 1.608 2007 .096 .60 .26 .30 .20 .04 1.496 1.608 1.496 Balance B/F Profit for the year after running costs & Depreciation 2008 1.608 2007 .28 1.216

Total Sales amounted to Rs. 12 lakhs in 2007 and Rs. 10 lakhs in 2008. Make a through overall analysis of this company.

Marginal Costing Assignment I

Q.1 X Ltd., manufacturers only pens where the marginal cost of each pen is Rs. 3. It has fixed costs of Rs. 25,000 per annum. Present production and sales of pens is 50,000 units and selling price per pen is Rs. 5. Any sale beyond 50,000 pens is possible only if the company reduces 20% of its current selling price. However, the reduced price applies only to the additional units. The company wants a target profit of Rs. 1,00,000. How many pens to company must produce and sell if the target profit is to be achieved? Q.2 From the following data, calculate break-even point (BEP): Selling price per unit Variable cost per unit Fixed overheads Rs. 20 Rs. 15 Rs. 20,000

If sales are 20% above BEP, determine the net profit. Q.3 If fixed costs are Rs. 4,000 variable costs Rs. 32,000 and break-even point Rs. 20,000, find: (i) Profit-volume ratio; (ii) Sales; (iii) Net profit; (iv) Margin of safety. Q.4 (i) Ascertain profit, when sales = Rs. 2,00,000 Fixed Cost = Rs. 40,000 BEP = Rs. 1,60,000 (ii) Ascertain sales, when fixed cost = Rs. 20,000 Profit = Rs. 10,000 BEP = Rs. 40,000 Q.5 From the following data, compute break-even sales and margin of safety: Sales Fixed cost Profit Selling price per unit Marginal cost per unit Fixed cost per annum Rs. 10,00,000 Rs. 3,00,000 Rs. 2,00,000 Rs. 200 Rs. 120 Rs. 8,000

Q.6 X Ltd. produces a single article. Following cost data is given about its product:

Calculate: (a) P/V ratio (b) Break-even sales (c) Sales to earn a profit of Rs. 10,000 (d) Profit at sales of Rs. 60,000 (e) New break-even sales, if sales price is reduced by 10%. Q.7 From the following data, find out (i) sales; and (ii) new break-even sales, if selling price is reduced by 10%: Fixed cost Break-even sales Profit Selling price per unit Rs. 4,000 Rs. 20,000 Rs. 1,000 Rs. 20

Q.8 From the data given below, find out: (a) P/V ratio; (b) Sales, and (c) Margin of safety Fixed cost : Rs. 2,00,000 Profit : Rs. 1,00,000 B.E. Point : Rs. 4,00,000 Q.9 If fixed costs are Rs. 24,000, margin of safety Rs. 40,000 and break-even 80,000, find out: (1) Sales; (2) Profit-volume ratio; (3) Net profit; (4) Variable cost Q.10 Profit/Volume ratio of X Ltd. is 50%, while its margin of safety is 40%. If sales of the company are Rs. 50 lakh find out its (i) break-even sales and (ii) net profit. [Hint: Margin of Safety (in terms of %) = Actual Sales Break even sales] Actual Sales Q.11 The profit/volume ratio of X Ltd. is 50% and the margin of safety is 40%. You are required to calculate the net profit if actual sale is Rs. 1,00,000. Q.12 The ratio of variable cost of sales is 70%. The break-even occurs at 60% of the capacity sales. Find the break even sales when fixed costs are Rs. 90,000. Also compute profit at 75% of the capacity sales. Q.13 The following figures are extracted from the books of X Ltd. for 2007-08: Direct material Direct labour Fixed overheads Variable overheads Sales Rs. 2,05,000 Rs. 75,000 Rs. 60,000 Rs. 1,00,000 Rs. 5,00,000

Calculate the break-even point (B.E.P.). What will be the effect of BEP of an increase of 10% in: (i) fixed expenses; and (ii) variable expenses? Q.14 A Ltd. maintains a margin of safety of 37.5% with an overall contribution to sales ratio of 40%. Its fixed costs amount to Rs. 5 lakh. Calculate the following: (i) Break-even sales; (ii) Total sales; (iii) Total variable cost; (iv) current profit; (v) New margin of safety if the sales volume is increased by 7%. Q.15 The trading results of PJ Ltd. for the two years have been: Year 2007 2008 Sales Rs. 5,40,000 6,00,000 Profits Rs. 12,000 30,000

Compute the following: (i) P/V ratio; (ii) Fixed costs; (iii) Break-even sales;(iv) Margin of safety at a profit of Rs. 48,000 (v) Variable costs during the two year. Q.16 Following figures relating to the performance of a company of the year 2007 and 2008 are available. Assuming that (i) the ratio of variable cost to sales and (ii) the fixed costs are the same for both the years, ascertain: (a) The profit-volume ratio, (b) the amount of the fixed costs (c) the Break-even point, and (d) the budgeted profit for year 2009, if budgeted sales for that year are Rs. 1 crore.

Year 2007 Year 2008

Total Sales (Rs. in 000) 7,000 9,000

Total Costs (Rs. in 000) 5,800 6,600

[P/V Ratio = Change in profit / Change in sales x 100] Q.17 S. Ltd., a multi-product company, finished following data relating to year 2007: Sales Total cost 1st half of the year Rs. 45,000 Rs. 40,000 2nd half of the year Rs. 50,000 Rs. 43,000

Assuming that there is no change in prices and variable costs and that the fixed expenses are incurred equally in the two half year periods, calculate for the year 2007: (i) the profit volume ratio, (ii) the fixed expenses (iii) the break-even sales, and (iv) the percentage of margin of safety to total sales. Q.18 A company wants to buy a new machine to replace one, which is having frequent breakdown. It received offers for two models M1 and M2. Further details regarding these models are given below: Installed capacity (units) Fixed overhead per annum (Rs.) Estimated profit at the above capacity (Rs.) M1 10,000 2,40,000 1,60,000 M2 10,000 1,00,000 1,00,000

The product manufactured using this type of machine (M1 or M2) is sold at Rs. 100 per unit. You are required to determine: (a) Break-even level of sales for each model. (b) The level of sales at which both the models will earn the same profit. (c) The model suitable for different levels of demand for the product. Q.19 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 2008, their forecasted profit and loss accounts are as follows: Particulars Sales Less: Variable Cost of Sales Fixed Costs Forecasted net operating profits ABC Ltd Rs. 2,00,000 25,000 2,25,000 25,000 Rs. XYZ Ltd. Rs. Rs. 2,50,000 1,50,000 75,000 2,25,000 25,000


You are required to compute: P/V Ratio (2) Break-even sales volume You are also required to state which company is likely to earn greater profits in condition of: (a) low demand, and (b) high demand. Q.20 From the following data, calculate (i) P/V Ratio; (ii) Profit when sales are Rs. 20,000 and (iii) New break-even point if selling price is reduced by 20%

Fixed expenses Rs. 4,000 Break-even point Rs. 10,000 Q.21 A company has a fixed cost of Rs. 20,000. It sells two products A and B, in the ratio of 2 units of A and 1 unit of B. Contribution is Re.1 per unit of A and Rs. 2 per unit of B. How many units of A and B would be sold at break-even point? Q.22 A company budgets for a production of 1,50,000 units. The variable cost per unit is Rs. 14 and fixed cost is Rs. 2 per unit. The company fixes its selling price to fetch a profit of 15% on cost. (a) What is the break-even point? (b) What is profit-volume ratio? (c) If it reduces its selling price by 5%, how does the revised selling price affect the break-even point and the profit-volume ratio? (d) If a profit increase of 10% is desired more than the budget, what should be the sale at the reduced prices? Q.23 From the following data, calculate: (i) Break-even point expressed in amount of sales in rupees; (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 Rs. 5,40,000 per year Rs. 2,52,000 per year

Q.24 A company is intending to purchase a new plant. There are two alternative choices available. Plant X: The operation of this plant will result in a fixed cost of Rs. 4,80,000 and variable costs of Rs. 5 per unit; Plant Y: The purchase of this plant will result in a fixed cost of Rs. 5,20,000 and variable costs of Rs.4 per unit. Compute the cost break-even point and state which plant is to be preferred and when. Q.25 X Ltd. a retail dealer in garments is currently selling 24,000 shirts annually. It supplies the following details for the year ended 31st March: Selling price per shirt Variable cost per shirt Fixed cost: Staff salaries for the year General office costs for the year Advertisement costs for the year Rs. 400 Rs. 250 Rs.12,00,000 Rs. 8,00,000 Rs. 4,00,000

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 shirt sold. (ii) Assume that 20,000 shirts were sold in a year. Find out the net profit of the firm. (iii) If t is decided to introduce selling commission of Rs. 30 per shirt, how many shirts would require to be sold in a year to earn a net income of Rs. 1,50,000. (iv) Assuming that for the year 2009 an additional staff salary of Rs. 3,30,000 is anticipated and price of a shirt is likely to be increased by 15%, what should be the break-even point in number of shirts and sales revenue? Q.26 Indian Plastics make plastic buckets. An analysis of their accounting reveals: Variable cost per bucket Fixed cost Capacity Selling price per bucket Rs. 20 Rs. 50,000 for the year 2,000 buckets per year Rs. 70

Required: (i) Find the break-even point (ii) Find the number of buckets to be sold to get a profit of Rs. 30,000 (iii) 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 maintain to the profit per bucket as at (ii) above? Q.27 Green Valley Hotel has annual fixed costs applicable to rooms of Rs. 15,00,000 for a 300 rooms hotel with average daily room rates of Rs. 400 and average variable cost of Rs. 60 for each room rented. The hotel operates 365 days per year. It is subject to an income-tax rate of 30 per cent. You are required to: (i) Calculate the number of rooms the Hotel must rent to earn a net income after taxes of Rs. 10,00,000 and (ii) Compute the break-even point in terms of number of rooms rented. Q.28 X Ltd. manufactures a document-reproducing machine, which has a variable cost structure as follows: Material Labour Overhead and a selling price of Rs. 90. Rs. 40 10 4

Sales during the current year are expected to be Rs. 13,50,000 and fixed overhead Rs. 1,40,000. Under a wage agreement, an increase of 10% is payable to all direct workers from the beginning of the forthcoming year, whilst material costs are expected to increase by 7%, variable overhead costs by 5% and fixed overhead costs 3%. You are required to calculate: (a) The new selling price if the current profit/volume ratio is to be maintained; and (b) The quantity to be sold during the forthcoming year to yield the same amount of profit as the current year assuming the selling price to remain as Rs. 90.

Marginal Costing Assignment II

Key factor Q.1 The following particulars are obtained from costing records of a factory. Product A Product B (per unit) (per unit) Rs. Rs. Selling Price 200 500 Material (Rs. 20 per litre) 40 160 Labour (Rs. 10 per hour) 50 100 Variable Overhead 20 40 Total Fixed Overheads Rs. 15,000 Comment on the profitability of each product when: (a) Raw material is in short supply; (b) Production capacity is limited; (c) Sales quantity is limited; (d) Sales value is limited; (e) Only 1,000 litres of raw material is available for both the products in total and maximum sales quantity of each product is 300 units. Q.2 A manufacturer produces three products whose cost data are as follows: X Direct materials (Rs./unit) Direct Labour: Department. 1 2 3 Variable overheads (Rs.) Rate / hour (Rs.) 2.50 3.00 2.00 Hours 18 5 10 8 Hours 10 4 5 4.50 Hours 20 7 20 10.50 32.00 Y 76.00 Z 58.50

Fixed overheads: Rs. 4,00,000 per annum. The budget was prepared at a time, when market was sluggish. The budgeted quantities and selling prices are as under: Product Budgeted quantity Selling Price/unit (Units) (Rs.) X 19,500 135 Y 15,600 140 Z 15,600 200 Later, the market improved and the sales quantities could be increased by 20 per cent for product X and 25 per cent each for product Y and Z. The sales manager confirmed that the increased sales could be achieved at the prices originally budgeted. The production manager stated that the output could not be increased beyond the budgeted level due to the limitation of direct labour hours in department 2. Required: (i) Prepare a statement of budgeted profitability.

(ii) Set optimal product mix and calculate the optimal profit. Acceptance of sales order Q.3 X Company manufactures cookware. Expected annual volume of 1,00,000 sets per year is well below its full capacity of 1,50,000. Normal selling price is Rs. 40 per set. Manufacturing cost is Rs. 30 per set (Rs 20 variable and Rs. 10 fixed). Total fixed manufacturing cost is Rs. 10,00,000. Selling and administrative expenses are expected to be Rs. 5,00,000 (Rs. 3,00,000 fixed and Rs. 2,00,000 variable). A departmental store offers to buy 25,000 sets of Rs. 27 per set. No extra selling and administrative costs would be caused by the order. Further, the acceptance of this order will not affect regular sales. Should the offer be accepted? Q.4 X Calculators Ltd. manufactures engineering calculators and the selling price was fixed at Rs. 400. The following are the cost particulars. Rs. Direct Material Cost 140 Direct Labour Cost 40 Variable Factory Overhead 20 Other Variable Cost 20 Fixed Overhead 5,00,000 per annum Commission 30% on selling price The company was producing only 10,000 units, since the demand was only 10,000 units. However, the company has the capacity to produce another 1,000 units without any additional fixed overheads. One of the distributors offered that he would take 1,000 units in addition to his normal quota, but at a selling price of Rs. 320 per unit. He was also prepared to accept only half of his regular commission for this transaction. The Managing Director wants you as the Management Accountant to prepare a statement to the Board of Directors with your specific recommendations. Determination of selling price Q.5 A manufacturing company has an installed capacity of 1,50,000 units per annum. Its cost structure is given below: (Per unit) Rs. Variable costs 10 Labour (Minimum Rs. 1,00,000 per month) 10 Overheads 4 Fixed overheads: Rs. 1,92,300 per annum Semi-variable overheads Rs. 60,000 per annum at 75% capacity, which increases by Rs. 4,000 per annum for every 5% increase in capacity utilization for the year as a whole. The capacity utilization for the next year is estimated at 75% for three months, 80% for six months and 90% for the remaining part of the year. If the company is planning to have a profit of 20% on the selling price, calculate the selling price per unit? Q.6 A highly skilled technician is paid Rs. 100 per hour and is fully engaged in the manufacture of a certain product which earns a contribution of Rs. 200 per hour to firm. The firm has received an order, which will require the services of the technician for 25 hours. If the material and other processing costs amount to Rs. 11,250 and mark up 20% on cost, what price should be quoted for the new order?

CVP Analysis Q.7 A company has developed a new product. The sales volume of the new product was estimated to be between 15,000 and 20,000 units per month at a price of Rs. 20 per unit. Alternatively, if the selling price is reduced to Rs. 18 per unit, the sales volume will be between 24,000 and 36,000 units per month. If the production is maintained below 20,000 units per month, the variable manufacturing cost will be Rs. 16.50 per unit and the fixed costs Rs. 48,500 per month. If the production exceeds 20,000 units per month, the variable manufacturing cost will be reduced to Rs. 15.50 per unit, but the fixed costs will increase to Rs. 64,500 per month. The company paid Rs. 40,000 as fee for market survey and in addition incurred a cost of Rs. 60,000 in developing the new product. In the event of taking up this new line of business, it will be necessary to use the building space, which has been let out for a rental of Rs. 5,600 per month. You are required to analyze the Potential Profitability of the proposal of the company at different levels of output and make suitable recommendations relating to the price and volume of output to be set. Marginal costing v. Absorption costing Q.8 X Fabrics manufactures quality napkins at its unit in Tirupur. The unit has a capacity of 60,000 napkins per month. Present monthly production for April is 40,000 napkins. Cost incurred for production is as below: (per unit). Direct material Rs. 6 No fixed cost Direct Labour Rs. 2 Fixed cost 75% Manufacturing overhead Rs. 4 Variable 25% Total Rs. 12 The marketing cost per unit is Rs. 7 (Rs. 5 is variable). Marketing costs include distribution costs and customer service costs. Present selling price is Rs. 22.50 per unit Due to a strike at its existing napkin supplier, a hotel group has offered to buy 10,000 napkins from X Fabrics @Rs. 11 per napkin for the month of June. No further sales to the hotel are anticipated. Fixed manufacturing costs and marketing costs are tied to the 60,000 napkins. The acceptance of the special order is not expected to affect the selling price to regular customers. No marketing costs involved in special order. Prepare: (i) Budgeted income statement for June. (ii) Actual income statement under absorption costing for April. (iii) Should X Fabrics accept the special order from the hotel or not?

Marginal Costing Assignment III

CVP Analysis Q.1 An enthusiastic marketing manager suggests to his managing director that only if he is permitted to reduce the selling price of a product by 20%, he would be able to achieve a 30 per cent increase in sales volume. The managing director, finding that the sales volume increase exceeds in percentage the extent of requested reduction in price, gives the clearance. You are given the following information: Present selling price per unit Rs. 7.50 Present volume of sales 2,00,000 Nos. Total variable costs Rs. 10,50,000 Total fixed costs Rs. 3,60,000 Assuming no changes in the costs pattern in the coming period. (i) Examine the consequences of the managing directors decision assuming that 30% increase in sales is realized. (ii) At what volume of sales can be present quantum of profits be sustained, after effecting the price reduction? Q.2 The sales turnover and profit during two periods were as follows: Period 1 Sales Rs. 20 lakhs Profit Period 2 Sales Rs. 30 lakhs Profit Calculate: (i) P/V Ratio, (ii) Sales required to earn a profit of Rs. 5 lakhs, and (iii) Profit when sales are Rs. 10 lakhs.

Rs. 2 lakhs Rs. 4 lakhs

Q.3 A manufacturer of a certain product has been selling exclusively in the Indian market up to now. He has just received his first export enquiry and wants to quote as competitively as the circumstances will allow. His latest Indian cost sheet is as follows: Rs. per unit Raw Materials 34 Direct Labour 13 Services (Rs. 4 per unit is variable) 6 Works Overhead (fixed) 7 Office Overhead (fixed) 2 Total Cost 62 Profit earned in India 6 Indian Selling Price 68 Management is thinking of quoting a selling price somewhere between Rs. 62 and Rs. 68 per unit for this export order. One of the directors suggests quoting an even lower price based on the principle of marginal costing. As the firms Finance Manager, you are requested to compute the lowest price the management could quote on those principles. State clearly any assumptions that you may make on the above facts, and also on any other costs or facts.

Determination of sales mix Q.4 The budgeted results for A Company Ltd., included the following: Rs. in lakhs Variable cost as % of sales value Sales: Product A 50.00 60% B 40.00 50% C 80.00 65% D 30.00 80% E 44.00 75% Fixed overheads for the period are Rs. 90 lakhs. You are asked to (a) prepare a statement showing the amount of loss expected, (b) recommend a change in the sale volume of each product which will eliminate the expected loss. Assume that the sale of only one product can be increased at a time. Profit Planning Q.5 A firm has Rs. 10,00,000 invested in its plant and sets a goal of 15% annual return on investment. Fixed costs in the factory presently amount to Rs. 4,00,000 per year and variable costs amount to Rs. 15 per unit produced. In the past year the firm produced and sold 50,000 units at Rs. 25 each and earned a profit of Rs. 1,00,000. How can management achieve their target profit goal by varying different variables like fixed costs, variable costs, quantity sold or increasing the selling price per unit. Q.6 The budget of AB Ltd. includes the following data for the forthcoming financial year: (a) Fixed expenses Rs. 3,00,000 (b) Contribution per unit Product X Rs. 6 Product Y Rs. 2.50 Product Z Rs. 4 (c) Sales forecast Product X 24,000 units @ Rs. 12.50 Product Y 1,00,000 units @ Re. 7.00 Product Z 50,000 units @ Rs. 10.00 Calculate the composite P/V ratio and composite BEP. Q.7 AB Chemicals Ltd. has two factories with similar plant and machinery for manufacture of soda ash. The Board of Directors of the company has expressed the desire to merge them and to run them as one integrated unit. Following data are available in respect of these two factories: Factory Capacity in operation Turnover Variable cost Fixed costs X 60% 120 lakhs 90 lakhs 25 lakhs Y 100% 300 lakhs 220 lakhs 40 lakhs

Find out: (a) What should be the capacity of the merged factory to be operated for break-even? (b) What is the profitability of working 80% of the integrated capacity?

(c) What turnover will give an overall profit of Rs. 60 lakhs? [Hint: Merger of plants takes place at 100% capacity level] Q.8 A company is producing an identical product in two factories. The following are the details in respect of both the factories: Selling price per unit Variable cost per unit Fixed cost Depreciation included in above Sales (units) Production capacity (units) Factory X Rs. 50 Rs. 40 Rs. 2,00,000 Rs. 40,000 30,000 40,000 Factory Y Rs. 50 Rs. 35 Rs. 3,00,000 Rs. 30,000 20,000 30,000

You are required to determine: (a) Break-even Point (BEP) for each factory individually. (b) Which factory is more profitable? (c) Cash BEP for each factory individually (Cash BEP = Fixed cost Depreciation). (d) BEP for company as a whole, assuming the present product mix. (e) BEP for company as a whole, assuming the product mix can be altered as desired. (f) Consequence on profits and BEP if products mix is changed to 2:3 and total demand remains constant. Note: BEP may be indicated in number of units.

Marginal Costing Assignment IV

Q.1 X Ltd. has estimated the unit variable cost of a product to be Rs. 10 and the selling price as Rs. 15 per unit. Budgeted sales for the year are 20,000 units. Estimated fixed costs are as follows: Fixed Cost per annum (Rs.) Probability 50,000 0.1 60,000 0.3 70,000 0.3 80,000 0.2 90,000 0.1 What is the probability that the company will equal or exceed its target profit of Rs. 25,000 for the year? Q.2 X manufactures lighters. He sells his products at Rs. 20 each, and makes profit of Rs. 5 on each lighter. He worked 50% of his machinery capacity at 50,000 lighters. The cost of each lighter is as under: Rs. Direct Material 6 Wages 2 Works Overhead 5 (50% fixed) Sales Expenses 2 (25% variable) His anticipation for the next year is that the cost will go up as under: Fixed charges 10% Direct Labour 20% Material 5% There will not be any change in selling price. There is an additional order for 20,000 lighters in the next year. What is the lowest rate he can quote for the additional order so that he can earn the same profit as the current year? Q.3 X Ltd. is currently buying a component from a local supplier at Rs. 15 each. The supply is tending to be irregular. Two proposals are under consideration: a) Install a semi-automatic machine for manufacturing this component, which would involve an annual fixed cost of Rs. 9 lakh and a variable cost of Rs. 6 per manufactured component. b) Install an automatic machine for manufacturing this component. Annual fixed cost Rs. 15 lakh and variable cost Rs. 5 per manufactured component. Determine (i) Annual volume required, in each case, to justify a switch over from outside purchase to own manufacture (ii) Annual volume required to justify selection of the automatic machine instead of semi-automatic (iii) If annual requirement is 5,00,000 components (It is expected to rise at the rate of 20% annually), would you recommend automatic or semiautomatic? Q.4 XY Ltd., Nasik, is currently operating at 80 per cent capacity. The profit and loss account shows the following:

(Rs. in lakhs)

Sales 640 Less: Cost of Sales: Direct Materials 200 Direct Expenses 80 Variable Overheads 40 Fixed Overheads 260 580 Profit 60 The Managing Director has been discussing an offer from Middle East of a quantity, which will require 50 per cent capacity of the factory. The price is 10 per cent less than the current price in the local market. Order cannot be split. You are asked by him to find out the most profitable alternative. The factory capacity can be augmented by 10 per cent by adding facilities at an increase of Rs. 40 lakh in fixed cost. Q.5 The following is the summarized Trading Account of a manufacturing concern, which makes two products, X and Y. Summarized Trading Account for the four months to 30 April 2008 X Y Total Rs. Rs. Rs. Sales 10,000 4,000 14,000 Less: Cost of sales X Y *Direct Costs Labour 3,000 1,000 Material 1,500 1,000 4,500 2,000 6,500 5,500 2,000 7,500 Indirect costs * Variable Expenses 2,000 1,000 3,000 3,500 1,000 4,500 + Fixed Expenses Common to both X & Y 1,250 1,250 2,500 Net profit 2,250 (-) 250 2,000 * These costs tend to carry in direct proportion to physical output. + These costs tend to remain constant irrespective of the physical output of X and Y. It has been the practice of the concern to allocate these cost equally between X and Y. The following proposals have been made by the Board of directors for your consideration as financial adviser: 1. Discontinue Product Y 2. As an alternative to (1) reduce the price of Y by 20 per cent (It is estimated that the demand will then increase by 40 per cent). 3. Double the price of X (It is estimated that this will reduce the demand by three-fifths). Make suitable recommendation after evaluating each of the proposals. Q.6 A Ltd. manufactures three different products and the following information has been collected from the books of accounts. S T Y

Sales mix (Amt.) 35% 35% 30% Selling price Rs. 30 40 20 Variable cost Rs. 15 20 12 Total fixed cost Rs. 1,80,000 Total sales Rs. 6,00,000 The company has currently under discussion, a proposal to discontinue the manufacture of product Y and replace it with product M, when the following results are anticipated: S T M Sales mix (Amt.) 50% 25% 25% Selling price Rs. 30 40 30 Variable cost Rs. 15 20 15 Total fixed costs Rs. 1,80,000 Total sales Rs. 6,40,000 Will you advise the company to changeover to production of M? Give reasons for your answer. Shut down or continue Q.7 X Ltd. has the following annual budget for the year ending on June 30, 2008. Production capacity 60% 80% Costs (Rs. lakh) Direct Material 9.60 12.80 Direct Labour 7.20 9.60 Factory Expenses 7.56 8.04 Administrative Expenses 3.72 3.88 Selling and Distribution Exp. 4.08 4.32 Total 32.16 38.64 Profit 4.86 10.72 Sales 37.02 49.36 Owing to adverse trading conditions, the company has been operating during July/ September 2008 at 40% capacity, realizing budgeted selling prices. Owing to acute competition, it has become inevitable to reduce prices by 25% even to maintain the sales at the existing levels. The directors are considering whether or not their factory should be closed down until the trade recession has passed. A market research consultant has advised that in about a years time there is every indication that sales will increase to 75% of normal capacity and that the revenue to be produced for a full year at that volume could be expected to be Rs. 40 lakh. If the directors decide to close down the factory for a year it is estimated that: a. The present fixed costs would be reduced to Rs. 6 lakh per annum. b. Closing down costs (redundancy payment, etc.) would amount to Rs. 2 lakh. c. Necessary maintenance of plant would cost Rs. 50,000 per annum; and d. On re-opening the factory, the cost of overhauling the plant, training and engagement of new personnel would amount to Rs. 80,000. Give your recommendations.

Marginal Costing- Assignment V

Q.1 A Ltd. manufacturing and sells four types of products. The sales mix in value comprise of: Products Percentage A1 33.1/3 A2 41.2/3 A3 16.2/3 A4 8.1/3 The total budgeted sales are Rs. 6,00,000 per month. The variable costs are: A-1 60% of selling price, A-2 68% of selling price, A-3 80% of selling price and A-4 40% of selling price. Fixed cost Rs. 1,59,000 per month. Find B.E.P. Q.2 A Company produces and sells two items A&B. Its F.C. is Rs.13,77,000 p.a. VC per unit of A Rs. 7.80. VC per unit of B Rs. 8.90. Selling price A Rs. 15, B Rs. 20, 80% of total sales revenue is realized from sale of B. Find B.E.P. What should be sales revenue to result in 9 per cent post-tax profit on sales. Tax rate 55 per cent. Marginal costing v. Differential costing Q.3 X Ltd., makers of a specialized line of toys, receives an order for 2,000 units of toy battle tanks, from a large mail-order house at a price of Rs. 3 per unit. The company sells this type of toy to its other customers at Rs. 5 each but it has surplus capacity and can take the special order without adversely affecting its regular operations for the coming month. The income statement of the company for the preceding month is as follows: Net Sales10,000 units @ Rs. 5 Costs: Direct Material: Rs. 1.50 per unit Direct Labour: Re. 1 per unit Factory Overhead (fixed) Selling and Administration Expenses (fixed) Total Costs Net Profit Rs. 50,000 Rs. 15,000 10,000 10,000 10,000 45,000 5,000

Direct material and direct labour costs to be incurred on the special order are estimated to be of the same amount per unit as for the regular business. Special tools costing Rs. 500 would be required to meet the specifications of the mail-order house. You are required to prepare a differential cost analysis for deciding about the acceptance of the order. Q.4 A company is manufacturing three products A, B and C. The data regarding cost, sales and profits are as follows:

Product A B C

Sales (units) 2,000 1,000 1,000

Selling price per unit 5 5 5

Variable cost per unit 2 3 3

Contribution per unit Rs. 3 Rs. 2 Rs. 2

The fixed costs are Rs. 5,000. The Company wants to change the sales mix from the existing proportion of 2: 1 : 1 to 2 : 2 : 1 of A, B and C respectively. You are required to calculate the number of units of each product, which the company should sell to maintain the present profit. Q.5 Two competing food vendors were located side by side at a state fair. Both occupied buildings of the same size, paid the same rent, Rs. 1,250, and charged similar prices for their foods. Vendor A employed three times as many employees as B and had twice as much income as B even though B had more than half the sales of A. Other data are as follows: Vendor A Vendor B Sales Rs. 8,000 Rs. 4,500 Cost of goods sold 50% of Sales 50% of Sales Wages Rs. 2,250 Rs. 750 Explain why vendor A is twice as profitable as Vendor B. Q.6 X Ltd. produces and markets industrial containers and packing cases. Due to competition, the company proposes to reduce the selling price. 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% and (c) 15 % The following additional information is available: Rs. Rs. Present Sales Turnover (30,000 units) 3,00,000 Variable Cost (30,000 units) 1,80,000 Fixed Costs 70,000 2,50,000 Net profit 50,000 Q.7 Following information relates to cost records of X Ltd., manufacturing spare parts: Direct Materials Per unit X Rs. 8 Y Rs. 6 Direct Wages X 24 hours @ 25 paise per hour Y 16 hours @ 25 paise per hour Variable Overheads 150% of direct wages Fixed Overheads (total) Rs. 750 Selling Price X Rs. 25 Y Rs. 20

The directors want to be acquainted with the desirability of adopting any one of the following alternative sales mixes in the budget for the next period. (a) 250 units of X and 250 units of Y (b) 400 units of Y only (c) 400 units of X and 100 units of Y (d) 150 units of X and 350 units of Y. State which of the alternative sales mixes you would recommend to the management. Discontinue of a Product line Q.8 A company manufactures three products A, B and C. there are no common processes and the sale of one product does not affect prices or volume of sale of any other. The companys budgeted profit/loss for 2008 has been abstracted thus: Total A B C Rs. Rs. Rs. Rs. Sales 3,00,000 45,000 2,25,000 30,000 Production Cost: Variable 1,80,000 24,000 1,44,000 12,000 Production Cost: Fixed 60,000 3,000 48,000 9,000 Factory Cost 2,40,000 27,000 1,92,000 21,000 Selling & Administration Costs: Variable 24,000 8,100 8,100 7,800 Fixed 6,000 2,100 1,800 2,100 Total Cost 2,70,000 37,200 2,01,900 30,900 Profit 30,000 7,800 23,100 (-) 900 On the basis of above, the board had almost decided to eliminate product C, on which a loss was budgeted. Meanwhile, they have sought your opinion. As the Companys Finance Manager, what would you advise? Give reasons for your answer. Exploring new markets Q.9 A company annually manufactures 10,000 units of a product at a cost of Rs. 4 per unit and there is home market for consuming the entire volume of production at the sale price of Rs. 4.25 per unit. In the year 2007, there is a fall in the demand for home market, which can consume 10,000 units only at a sale price of Rs. 3.72 per unit. The analysis of the cost per 10,000 units is: Materials Rs. 15,000 Wages 11,000 Fixed overheads 8,000 Variable overheads 6,000 The foreign market is explored and it is found that this market can consume 20,000 units of the product if offered at a sale price of Rs. 3.55 per unit. It is also discovered that for additional 10,000 units of the product (over initial 10,000 units) that fixed overheads will increase by 10 per cent. Is it worthwhile to try to capture the foreign market? Change v. Status quo Q.10 The following details have been furnished to you regarding two proposals, which are for consideration before a firm.

(a) Improvement in the quality of the product, which will result in an additional sale of 5,000 units at the existing price. However, this improvement in quality will result in increase in the variable cost by 10 paise per unit. (b) Reduction in the selling price of the product by 12 paise per unit. This will push up sales by 5,000 units. In both cases, the fixed expenses will increase by Rs. 1,000. The present sales of the firm are 10,000 units at the rate of Rs. 2.10 per unit. The variable cost is Rs. 1.60 per unit and the total fixed costs are Rs. 3,000. You are required to state whether it will appropriate for the firm to select any of the new proposals or should it continue with the existing scheme. Shut down or continue Q.11 A Ltd. is experiencing recessionary difficulties and as a result its directors are considering whether or not the factory should be closed down till the recession has passed. A flexible budget is complied giving the following details: Production Capacity Fixed Costs (Fixed Costs + Variable Costs) Close down Normal 40% 60% 80% 100% Rs. Rs. Rs. Rs. Rs. Rs. Factory Overheads 6,000 8,000 10,000 11,000 12,000 13,000 Administration 4,000 6,000 6,500 7,000 7,500 8,000 Overheads Selling and 4,000 6,000 7,000 8,000 9,000 10,000 distribution Overheads Miscellaneous 1,000 1,000 1,500 2,000 2,500 3,000 Direct Labour 10,000 15,000 20,000 25,000 Direct Material 12,000 18,000 24,000 32,000 Total 15,000 21,000 47,000 61,000 75,000 91,000 The following additional information has been supplied to you: (i) Present sales at 50% capacity are estimated at Rs. 30,000 per annum. (ii) Estimated costs of closing down are Rs. 4,500. In addition maintenance of plant and machinery is expected to amount to Rs. 800 per annum. (iii) Cost of reopening after being closed down are estimated to be Rs. 2,000 for overhauling of machines and getting ready and Rs. 1,400 for training of personnel. (iv) Market research investigation reveal that sales should take an upward swing to around 70% capacity at prices which would produce revenue of Rs. 1,00,000 in approximately twelve months time. You are required to advise the directors whether to close down for twelve months or continue operating indefinitely.

Q.12 A manufacturer is thinking whether he should drop one item from his product line and replace it with another. Below are given his present cost and output data: Product Price per unit Variable Cost of Sales Percentage Rs. Rs.

Book shelves 60 40 30% Tables 100 60 20% Beds 200 120 50% Total Fixed Costs per year Rs. 7,50,000 Sales last year Rs. 25,00,000 The change under consideration consists in dropping the line of tables in favour of cabinets. If this dropping and change is made the manufacturer forecasts the following cost output data: Product Price per unit Rs. 60 160 200 Variable Cost of Sales Percentage Rs. 40 50% 60 10% 120 40% Rs. 7,50,000 Rs. 26,00,000

Book shells Cabinets Beds Total Fixed Costs per year Sales this year Is this proposal to be accepted? Comment.

Standard Costing Assignment VI

Q.1 The standard material cost for 100 kgs of chemical X is made up of: Component A 30 kg @ Rs. 4 per kg; Component B 40 kg @ Rs. 5 per kg; and Component C 80 kg @ Rs. 6 per kg. In a batch, 500 kgs of chemical X were produced from a mix of Component A 140 kgs (cost Rs. 688); Component B 220 kgs (Rs. 1156); and Component C 440 kgs. (Rs. 2660). Calculate material variances. Q.2 A Co. Ltd., manufactures a particular product the standard cost of which is as under: (Calculate variances). Material Units Price Amount M1 100 2.00 Rs. 200 M2 200 1.70 Rs. 340 300 Less Normal wastage - 30 Production 270 Rs. 540 Actual result in a period were as follows: Material Units M1 215 M2 385 600 Less wastage -70 Production 530

Price 1.80 2.00

Amount Rs. 387 Rs. 770

Rs. 1157

Q.3 The standard set for a chemical mixture of a firm is: Material Standard Mix. St. price per tonne A 40% Rs. 20 B 60% Rs. 30 The standard loss is 10 per cent. During a period 182 tonnes of output were produced from A 90 tonnes (Rs. 18 per tonne) and B 110 tonnes (Rs. 34 per tonne). Calculate variance. Q.4 A Co. manufactures a special tile of 128 size. The standard mix of material used is as follows: 1200 kgs A @ 30 paise per kg 500 kg B @ 60 paise per kg and 800 kg C @ 70 paise per kg. The mix should produce 12,000 square feet of tiles. During a period, 1,00,000 tiles were produced from a mix of the following: 7000 kg A (paise 32 per kg); 3000 kg B (paise 65 per kg); and 5000 kg. C (paise 75 per kg). Compute variances.

Q.5 The standard set for output of a company is as under: Material Standard Mix Standard price per kg. A 40% Rs. 4 B 60% Rs. 3 The standard loss is 15 per cent of input. During April 2007, the company produced 1,700 kgs of finished output. The materials details are given below: Material Opening Stock Closing Stock Purchase in April A 35 kg. 5 kg. 800 kg. Rs. 3,400 B 40 kg. 50 kg. 1,200 kg. Rs. 3,000 Q.6 A gang of workers normally consists of 30 men, 15 women and 10 boys. The standard hourly labour rates are Men: 80 paise, Women: 60 paise, and boys: 40 paise. In a normal week of 40 hours, the gang is expected to produce 2000 unit of output. During the week ended December 31, 2007, the gang consisted of 40 men, 10 women and 5 boys. The actual wage rates were 70 paise, 65 paise, and 30 paise respectively. 4 hours were lost due to power breakdown, Actual output 1600 units. Compute labour variances. Q.7 A gang of workers normally consists of 10 skilled, 5 semi-skilled and 5 unskilled workers paid at standard hurly rates 75p, 50p, and 40p respectively. In a normal working week of 40 hours the gang is expected to produce 1,000 unit of output. In a certain week, the gang consisted of 13 skilled, 4 semi-skilled and 3 unskilled workers and produced 1,000 units. Actual wages Rs. 450. Actual hours worked 720. Assuming that each worker worked the same hours, compute variances. Q.8 The standard labour and actual labour engaged in a week for a job are as under: Skilled Semi-skilled Unskilled Standard No. of workers 32 12 6 Standard hourly Rate (Rs.) 3 2 1 Actual No. of workers 28 18 4 Actual Hourly Rate (Rs.) 4 3 2 During the 40 hour working week, the gang produced 1,800 standard labour hours of work. Compute variances. Q.9 In a factory, 100 workers are engaged and an average rate of wages is Rs. 5 per hour. Standard working hours per week are 40 hours and the standard output is 10 units per hour. During a week in February, wages were paid for 50 workers @ Rs. 5 per hour, 10 workers @ Rs. 7 per hour and 40 workers @ Rs. 4 per hour. Actual output was 380 units. The factory did not work for 5 hours due to breakdown of machinery. Calculate (i) Labour cost variance; (ii) Labour rate variance; (iii) Labour efficiency variance; and (iv) Idle time variance. Q.10 The standard labour mix for producing 100 units a of product is: 4 skilled men @ Rs. 3 per hour for 20 hours 6 unskilled men @ Rs. 2 per hour for 20 hours But due to shortage of skilled men, more unskilled men were employed to produce 100 units. Actual hours paid for were: 2 skilled men @ Rs. 4 per hour for 25 hours 10 unskilled men @ Rs. 2.50 per hour for 25 hours. Calculate labour variances.

Budgetary Control Assignment VII

Q.1 A factory, which expects to operate 7,000 hours, i.e., at 70% level of activity, furnishes details of expenses as under: Variable expenses Semi-variable expenses Fixed expenses Rs. 1,260 Rs. 1,200 Rs. 1,800

The semi-variable expenses go up by 10% between 85% and 95% activity and by 20% above 95% activity. Construct a flexible budget for 80, 90 and 100 per cent activities. Q.2 Action Plan Manufactures normally produce 8,000 units of their product in a month, in their Machine Shop. For the month of January, they had planned for a production of 10,000 units. Owing to a sudden cancellation of a contract in the middle of January, they could only produce 6,000 units in January. Indirect manufacturing costs are carefully planned and monitored in the Machine Shop and the Foreman of the shop is paid a 10% of the savings as bonus when in any month the indirect manufacturing cost incurred is less than the budgeted provision. The Foreman has put in a claim that he should be paid a bonus of Rs. 88.50 for the month of January. The Works Manager wonders how any one can claim a bonus when the Company has lost a sizeable contract. The relevant figures are as under: Indirect manufacturing Expenses for a Planned expenses Actual expenses cost normal month for January for January Rs. Rs. Rs. Salary of foreman 1,000 1,000 1,000 Indirect labour 720 900 600 Indirect material 800 1,000 700 Repairs and maintenance 600 650 600 Power 800 875 740 Tools consumed 320 400 300 Rates and taxes 150 150 150 Depreciation 800 800 800 Insurance 100 100 100 5,290 5,875 4,990 Do you agree with the Works Manager? Is the Foreman entitled to any bonus for the performance in January? Substantiate your answer with facts and figures. Q.3 X Ltd., a manufacturing company, having a capacity of 7 lakh units has prepared the following cost sheet:

(Per unit) Rs. Direct Material Direct Wages Factory Overheads Selling and Administration Overheads Selling price 30 12 30 (50% variable) 18 (Two-third Fixed) 120

During the year 2006-07, the sales volume achieved by the company was 6 lakh units. The company has launched an expansion programme, the details of which are as under: (i) The capacity will be increased to 12 lakh units. (ii) The additional fixed overheads will amount to Rs. 50 lakhs upto 10 lakh units and will increase by Rs. 25 lakh more beyond 10 lakh units. (iii) The cost of investment of expansion is Rs. 100 lakh, which is proposed to be financed through bank borrowings carrying interest at 15% per annum. (iv) The average depreciation rate on the new investment is 15% based on straight line method. After the expansion is put through, the company has two alternatives for operations: (i) Sales can be increased up to 10 lakh units by spending Rs. 10,00,000 on special advertisement campaign to explore new market. Or (ii) Sales can be increased to 12 lakh units subject to the following: By an overall reduction of Rs. 10 per unit in selling price on all the units sold. By increasing the variable selling and administration expenses by 8%. The direct material costs would go down by 1.5% due to discount on bulk purchasing. Requirements: I. Construct a Flexible Budget at the level of 6 lakhs, 10 lakhs and 12 lakhs unit of production. II. Calculate Break Even Point before and after expansion. III. Advise the optimum level of output for expansion.