Max.

marks: 10
Case-1

TEST

Max. Time: 45 Mins.

Alfa ltd. Produces a single product in its plant. This product sells for Rs.100
per unit. The standard production cost per unit is as follows:
Raw Material (5 Kgs @ Rs.8 per Kg)
Direct Labour (2 hours @ Rs 5 per hr.)
Variable manufacturing overheads
Fixed manufacturing overheads

Rs.40
Rs.10
Rs.10
Rs.20
Rs.80

The plant is currently operating at full capacity of 100000 units per year on a
single shift. This output is inadequate to meet the projected sales demand, and
the sales manager has estimated that the firm will lose sales of 40000 units next
year if the capacity is not expanded.

Wednesday, April 29, 2015

Anuj Verma

Plant capacity could be doubled by adding a second shift.

This would require additional out-of-pocket fixed
manufacturing overhead costs of Rs.1000000 annually.
Also , a night work wage premium equal to 25% of the
standard wage would have to be paid during the second
shift. However, if annual production volume were
130000 units or more, the company could take advantage
of 2% quantity discount on its raw material purchases.
You are required to advise whether it would be profitable
to add the second shift in order to obtain the sales volume
of 40000 units per year?
Wednesday, April 29, 2015

Anuj Verma

Case-2
The annual budget of ABC ltd. At 60% and 80% level of performance is as
under(Rs. in thousands):
Particulars

60%level

80%level

Direct material
Direct labour
Production overheads
Administrative overheads
Selling & Distributive o/h
Total

Rs.360
Rs.480
Rs.252
Rs.124
Rs.136
Rs.1352

Rs.480
Rs.640
Rs.276
Rs.132
Rs.148
Rs.1676

The Co. is experiencing difficulties in selling its products and is at present

operating at 50% capacity level.
The sales revenue for the year is estimated at Rs.990000. The directors are
seriously considering suspending operations till the market picks up.
Wednesday, April 29, 2015

Anuj Verma

Market research undertaken by the company reveals that in about 12 months,

the sales will pick up and the company can comfortably operate at 75% level
of performance and earn a sales income of Rs.18 lakhs in that year.
The sales personnel of the company do not want to suspend operations for fear
of adverse reactions in the market, but the directors want to decide the issue
purely on financial considerations.
If the manufacturing and other operations of the company are suspended for a
year, it is estimated that:
1.The present fixed cost could be reduced to Rs.220000 per annum.
2.The settlement cost of personnel not required would amount to Rs.150000.
3.The maintenance of plant has to go on and that would cost Rs.20000 per
annum.
4.On resuming operations, the expenditure connected with reopening after
shutdown would amount to Rs.80000.
Submit a report to the directors, and indicate therein, based on purely financial
considerations, whether it would be advisable to suspend the companys
operations in the current year.
Wednesday, April 29, 2015

Anuj Verma

Max. Marks: 10

TEST

Max. Time: 40 Mins.

Case

(Elimination of a Product line)

Avon Garments ltd. manufactures readymade garments and uses its cut-pieces
of cloth to manufacture dolls. The following statement of cost has been
prepared:
Particulars

Readymade garments

Dolls

Total

Direct material
Rs.80000
Rs.6000
Rs.86000
Direct Labour
Rs.13000
Rs.1200
Rs.14200
Variable overheads
Rs.17000
Rs.2800
Rs.19800
Fixed overheads
Rs.24000
Rs.3000
Rs.27000
Total cost
Rs.134000
Rs.13000
Rs.147000
Sales
Rs.170000
Rs.12000
Rs.182000
Profit(Loss)
Rs.36000
Rs.(1000)
Rs.35000
The cut-pieces used in dolls have a scrap value of Rs. 1000 if sold in the
market. As there is a loss of Rs.1000 in the manufacturing of dolls, it is
suggested to discontinue their manufacturing. Advise the management?
Wednesday, April 29, 2015

Anuj Verma

Max. Marks: 10
TEST
Max. Time: 40 Mins.
Q1.The following data pertain to the shop. The owner has made the following
sales forecasts for the first 5 months of the coming year:

Other data are as follows:

a)Debtors and creditors balances at the beginning of the year are Rs.30000
and Rs.14000, respectively. The balances of other relevant assets and
liabilities are :

b) 40% of sales are on cash basis. Credit sales are collected in the month
following sales.
c) Cost of goods sold is 60% of sales.
d) The only other variable cost is a 5% commission to sales agents. The
sales commission is paid in the month after it is earned.
Wednesday, April 29, 2015

Anuj Verma

e) Inventory is kept equal to sales requirements for the next two months
budgeted sales.
f) Trade creditors are paid in the following month after purchases.
g) Fixed cost are Rs.5000 per month, including Rs.2000 depreciation.
You are required to prepare a cash budget for each of the first three
months of the coming year.

Wednesday, April 29, 2015

Anuj Verma

Q2. S.V.Ltd. Manufactures a single product, the standard mix of which is:
Material A 60% at Rs.20 per Kg
Material B 40% at Rs.10 per Kg
Normal loss in the production is 20% of input. Due to shortage of
material A, the standard mix was changed. Actual results for March 2000
were:
Material A
105 Kg at Rs.20 per Kg
Material B
95 Kg at Rs.9 per Kg
Input
200 Kg
Loss
35 Kg
Output
165 Kg
Calculate:
i)Material Price Variance
ii)Material Mix Variance

Wednesday, April 29, 2015

Anuj Verma

iii) Material Usage Variance

iv) Material Yield Variance

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Anuj Verma

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Q2. The standard cost card for a product shows:

The actuals which have emerged from business operations are as follows:

Calculate appropriate material and labour variances

Wednesday, April 29, 2015

Anuj Verma

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Q2. The standard cost of a certain chemical mixture is:

Material A 35% at Rs.25 per Kg
Material B 65% at Rs.36 per Kg
A standard loss of 5% is expected in production
During a period the actual usage was:
Material A
125 Kg at Rs.27 per Kg
Material B
275 Kg at Rs.34 per Kg
Actual Output
365 Kg
Calculate:
i)Material Price Variance
ii)Material Mix Variance

Wednesday, April 29, 2015

Anuj Verma

iii) Material Cost Variance

iv) Material Yield Variance

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Anuj Verma

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Max Time: 20 Mins. TEST

Prof. Anuj Verma

Max. Marks : 10

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Prof. Anuj Verma

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Prof. Anuj Verma

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