1,40,000 units ( 1,26,00,000 / 90)

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1 C.A. FINAL Solution to Q. 1 (i) Statement of the Number of Units of the Product Proposed to be Sold (ii) Selling Price per unit 90 Total Sales Revenue 1,26,00,000 Number of Units of the Product (proposed to be sold) Working Notes Selling Price per unit of the Product 1,40,000 units ( 1,26,00,000 / 90) Direct Material: A: 3.0 lbs 6 18 B: 1.5 lbs 4 6 Direct Labour: Machine Shop: 7 hrs 4 28 Assembly Section: 2.5 hrs Overhead 33 ⅓% of Direct Labour [( 28+ 8) %] 12 Total Cost per unit 72 Add: Profit 20% of Selling Price (or 25% on Cost) 18 Selling Price per unit 90 Materials A & B to be Purchased (in Rupees) Material Consumption Closing Balance A 4,35,000 (1,45,000* 3) B 2,17,500 (1,45,000* 1.5) Opening Balance Purchase Purchase Price Amount (lbs) (lbs) (lbs) (lbs) ( ) ( ) 30,000 54,000 4,11, ,66,000 66,000 33,000 2,50, ,02,000 Total 34,68,000 (*) Number of units of finished goods to be manufactured during the year = Sales + Closing Stock Opening Stock = 1,40, ,000 20,000 = 1,45,000 units 1

2 (iii) PRIME VISION / C.A. FINAL / ADVANCED MANAGEMENT ACCOUNTING / Capacity Utilisation Statement - Machine Shop & Assembly Section Machine Shop Assembly Section Hours Available # 11,04,000 (600 person 1,840 hrs.) 3,31,200 (180 persons 1,840 hrs.) Hours Required 10,15,000 (1,45,000 units 7 hrs.) 3,62,500 (1,45,000 units 2.5 hrs.) Surplus/(Deficit) Hours 89,000 (31,300) Capacity Utilization 91.94% % (#) Hours Available [5 Days 8 Hrs. 52 Weeks Idle Time ( )] Comments Above statement shows that there are 89,000 excess hours in the machine shop and also a shortage of 31,300 hours in the assembly section. If the workers are interchangeable, the assembly section should utilise the services of workers which may be moved from the machine shop to meet the production target of 1,45,000 units. If the workers are not interchangeable, the assembly section may either resort to overtime working or increase the strength of workers to achieve the budgeted production. Solution to Q. 2 Working Notes: 1) Production Budget for the Budget Period X Y Z Budgeted Qty. to be sold 9,000 15,000 12,000 Add: Budgeted Closing Stock Qty. 1,000-2,000 Total Requirement 10,000 5,000 14,000 Less: Budgeted Opening Stock Qty ,000-4,000 Budgeted Qty. to be produced 10,000 10,000 10,000 a) Statement showing the Direct Labour Hours 2 Hours Gross hrs. per worker for the budget period 624 (8 hrs. 6 days 13 weeks) Less: Hours lost due to leave & holidays Effective labour hours per worker 500 b) Statement showing the Budgeted Labour Cost for the Budget Period Budgeted hrs. required Operation A Operation B Operation C For Product X (hrs. p.u. units) 3,000-1,500 For Product Y (hrs. p.u. units) 7,000 2,000 1,000 For Product Z (hrs. p.u. units) 5,000 4,000 - Total hrs. required 15,000 6,000 2,500 Rate per hour Budgeted Labour Cost 2,40,000 1,20,000 60,000 Overall Budgeted Labour Cost = 4,20,000

3 c) No. of operatives required = Operation A = Operation B = Operation C = 15,000 = , , = 12 = 5 Total operatives required = 47 Budgetedlabourhour Budgetedhrs.perworker Solution to Q. 3 (i) Quarterly Production Budget in Quantity Q I Q II Q III Q IV Budgeted qty. to be sold 18,000 22,000 25,000 27,000 Add: Budgeted Cl. Stock Qty. 6,600 7,500 8,100 *7,400 (30% of next quarters sales) Total Requirement 24,600 29,500 33,100 34,400 Less: Budgeted Op. Stock Qty. - 5,400-6,600-7,500-8,100 Budgeted Qty. to be produced 19,200 22,900 25,600 26,300 * Since opening stock is 6,000 units whereas as per the production pattern it is supposed to be 18,000 30% = 5,400, it indicates that the company maintains a buffer stock of 600 units. Closing stock required is 8,000 units but since buffer stock is 600 units hence only 7,400 units have been provided. (ii) BEP Sales (Units) = = FixedCost Contribution p.u. 2,20,000 2,20,000 = = 40,000 units The sales in Quarter II becomes 40,000 units (18, ,000) & hence the company achieves Break Even Point in Quarter II. Solution to Q. 4 1) Sales budget for the two types of tyres Bus Tyres Bike Tyres Budgeted Qty. to be sold 12,500 60,000 Selling price per tyre 15,000 4,500 Budgeted sales amount 18,75,00,000 27,00,00,000 Overall budgeted sales amount = 45,75,00,000 2) Production budget for the two types of tyres Bus Tyres Bike Tyres Budgeted Qty. to be sold 12,500 60,000 Add: Budgeted Closing Stock Qty. 2,000 5,000 Total Requirement 14,500 65,000 Less: Budgeted Opening Stock Qty. - 2,500-6,000 Budgeted Qty. to be produced 12,000 59,000 3

4 3) Direct Material Budget (Consumption & Purchases) a) Consumption Budget Rubber Steel Belts Budgeted Qty. to be consumed For Bus Tyres (lbs per tyre 12,000) 4,20,000 54,000 For Bike Tyres (lbs per tyre 59,000) 8,85,000 1,18,000 Total Budgeted Qty. 13,05,000 1,72,000 Rate per lb Budgeted Consumption Amt. 19,57,50,000 1,72,00,000 Total Budgeted Consumption Amt. = 21,29,50,000 b) Purchases Budget Rubber Steel Belts Budgeted Qty. to be consumed 13,05,000 1,72,000 Add: Budgeted Closing Stock Qty. 60,000 6,000 Total Requirement 13,65,000 1,78,000 Less: Budgeted Opening Stock Qty. - 75,000-7,500 Budgeted Qty. to be purchased 12,90,000 1,70,500 Rate per lb Budgeted Purchase Amt. 19,35,00,000 1,70,50,000 Overall Budgeted Purchase Amt. = 21,05,50,000 4) Direct Labour Budget Moulding Dept. Finishing Dept. Budgeted Labour hrs. required For Bus Tyres (hrs. per tyre 12,000) 2,400 1,200 For Bike Tyres (hrs. per tyre 59,000) 5,900 2,950 Total hrs. required 8,300 4,150 Rate per hr Budgeted Labour Cost 53,95,000 31,12,500 Overall Budgeted Labour Cost = 85,07,500 5) Factory Overhead Budget Amount ( ) Indirect Materials 85,28,000 Indirect Labour 79,40,000 Depreciation 49,16,000 Power & Light 63,00,000 6) Cost of Goods Sold Budget 4 2,76,84,000 Amount ( ) Material Consumed (Part 3) 21,29,50,000 Direct Labour (Part 4) 85,07,500 Factory OHs (Part 5) 2,76,84,000 Factory Cost/Cost of Production of Goods Produced 24,91,41,500 Add: Opening Stock of Finished Goods 2,00,25,500 Less: Closing Stock of Finished Goods - 1,63,23,900 Cost of Production of Goods Sold 25,28,43,100

5 Solution to Q. 5 PRIME VISION / C.A. FINAL / ADVANCED MANAGEMENT ACCOUNTING / i) Production budget for the quarter period Qty. (Bags) Budgeted Qty. to be sold 50,000 Add: Budgeted Closing Stock Qty. 11,000 Total Requirement 61,000 Less: Budgeted Opening Stock Qty. - 15,000 Budgeted Qty. to be Produced 46,000 ii) Raw Material purchase budget for the said quarter Material Q Material R Empty Bags Budgeted Qty. to be consumed 1,15,000 3,45,000 46,000 (46,000 Qty. per bag of FG) Add: Budgeted Closing Stock Qty. 26,000 47,000 28,000 Total Requirement 1,41,000 3,92,000 74,000 Less: Budgeted Opening Stock Qty. - 32,000-57,000-37,000 Budgeted Qty. to be purchased 1,09,000 3,35,000 37,000 Rate per kg./bag Budgeted Purchase Amt. 1,30,800 67,000 29,600 Overall Budgeted Purchase Amt. = 2,27,400 iii) Budgeted Variable Cost per bag of finished goods Amount ( ) Material Q cost (2.5 kgs. 1.20) 3 Material R cost (7.5 kgs. 0.20) 1.50 Empty Bag Cost 0.80 Labour Cost ( 5/60 9) 0.75 Variable Mfg. Cost 0.45 Variable Selling & Adm n Expense (5% of 9) iv) Statement showing the Budgeted Net Income for the said quarter Total ( ) Per Bag ( ) a) Sales (50,000 SP p kg. 4,50,000 9 b) Total Cost (for 50,000 kgs.) Variable Cost (50, ) 3,47, Fixed Cost (30, ,000) 55, ,02, c) Profit (a b) 47,

6 Solution to Q.6 1) Production Budget in respect of 3 types of Furniture for the quarter ending : Chairs Tables Benches Budgeted Qty. to be sold 4, (+) Budgeted Closing Stock Quantity Total Requirement 4,400 1, (-) Budgeted Opening Stock Quantity (400) (100) (50) Budgeted Quantity to be produced 4,000 1,000 5,000 2) Raw Material Purchase Budget in quantity and valuation for the quarter ending : Timber Upholstery Timber to be consumed for - - Chair (4, ) 2, Tables (1, ) 1, Benches ( ) 1,250 - Upholstery to be consumed for - - Chair (4, ) - 1,000 Budgeted Qty. to be consumed 4,450 1,000 (+) Budgeted Closing Stock Quantity Total Requirement 5,100 1,260 (-) Budgeted Opening Stock Quantity (600) (400) Budgeted Quantity to be produced 4, Rate per cu. ft/sq. yds) Budgeted Purchase Amount 2,25,000 17,200 Overall Budgeted Purchase Amount Amt. ( ) Timber Cost 2,25,000 Upholstery Cost 17,200 2,42,200 Fixing & Finishing Material Cost (5% of Total) 12,110 Overall Budgeted Purchase Amount 2,54,310 3) Direct Wages Cost Budget for the quarter ending Carpenter Fixer & Finisher Time required by Carpenter - Chair (4,000 45/60) 3, Tables (1,000 60/60) 1, Benches (500 75/60) Time required by Fixer & Finisher - Chair (4,000 15/60) - 1,000 - Tables (1,000 15/60) Benches (500 30/60) Total hours required 4,625 1,500 Rate per hour Budgeted Labour Cost 27,750 7,200 Overall Budgeted Labour Cost 34,950 6

7 4) Statement showing Variable Cost of Manufacturing/Unit of three products: Chairs Tables Benches - Timber Cost (cu. ft. p.u. 50) Upholstery Cost (sq. yds. P.u. 20) Fixing & Finishing Material Cost (5% of the above) (45 mins) Carpenter Wages (Hr. p.u. 6) (12 mins) Fixer & Finisher s Wages ( 4.8) Total Variable Cost ) Statement showing the budgeted profit for the quarter ending : Amt. ( ) A) Sales Chairs (4,200 50) 2,10,000 Tables (800 85) 68,000 Benches ( ) 79,000 3,57,000 B) Total Cost - Variable Cost Chairs (4, ) 1,56,240 Tables ( ) 56,160 Benches ( ) 70,575 - Fixed Cost (8,000 3 months) 24,000 3,06,975 C) Profit (A B) 50,025 Solution to Q. 7 Working Notes 1) Break up of Production OHs (Semi Variable Cost) Units Variable Cost (@ 25* p.u.) Fixed Cost Total 10,000 2,50,000 3,50,000 6,00,000 12,000 3,00,000 3,50,000 6,50,000 2) Break up of Selling OHs (Semi Variable Cost) Units Variable Cost (@ 10* p.u.) Fixed Cost Total 10,000 1,00,000 1,20,000 2,20,000 12,000 1,20,000 1,20,000 2,40,000 Variable Cost p.u. = Diff.in Amt. = Diff.in Qty. 2,40,000-2,20,000 = 12,000-10,000 20,000 = 10* 2,000 7

8 1) Flexible Budget for the next year at 75% & 90% capacity levels 60% capacity units 75% capacity units 90% capacity units Total p.u. Total p.u. Total p.u. Materials 1,20, ,57, ,89, % 1,92, ,57, ,09, Labour 96% Production OHs Variable 3,00, ,97, ,77, Fixed 3,50, ,85, ,27, % cap = 3,50, % 90% cap = 3,50, % Adm n OHs 1,20, ,38, ,38, Selling OHs Variable 1,20, ,65, ,98, Fixed 1,20, ,29, ,29, Total Cost 13,22, ,30, ,67, ) Computation of Sales Value at 75% Capacity Amount ( ) Cost at 75% cap. level 80 16,30,100 Add: Profit 20 4,07,525 Sales Value ,37,625 3) Evaluation of Export Order Amount ( ) Sales for 3000 Export Units (3,000 92) 2,76,000 Cost for 3000 Units (18,67,600 16,30,100) 2,37,500 Incremental Profit 38,500 The export order should be accepted. Solution to Q. 8 1) Flexible Budget at various capacity levels 50,000 units 80,000 units 1,00,000 units Total p.u. Total p.u. Total p.u. a) Sales ( 40 4) 20,00, ,00, ,00, b) Variable Cost Direct Materials 6,25, ,00, ,00, ( %) Direct Wages 2,50, ,00, ,00, Variable cost of semi variable cost 25, , , Variable Factory OHs 2,50, ,00, ,00,

9 Variable Selling & Adm n OHs (2 + 4%) 1,00, ,60, ,08, ,50, ,00, ,58, c) Contribution (a b) 7,50, ,00, ,42, d) Fixed Cost Fixed cost in semi variable cost 30, , , Fixed Factory OHs (60,000 5) 3,00, ,00, ,00,000 3 Fixed Selling & Adm n OHs (60,000 6) 3,60, ,60, ,60, Interest on Investments (5,00,000 12%) , , Addl. Fixed Cost - - 2,00, ,80, Dep. on New Investment (5,00,000 10%) , , Special Advt. Campaign , ,90, ,50, ,80, e) Profit (c d) 60, ,50, , In order to earn maximum profit, the company should prefer working at 80,000 units p.a. 2) Break Even Point (Units) = At 50,000 units (Before Expansion) = At 80,000 units (After Expansion) = At 80,000 units (After Expansion) = FixedCost Contribution p.u. 6,90,000 = 46,000 units 15 10,50,000 = 70,000 units 15 10,80,000 = 94,571 units approx FixedCost Break Even Point (Value) = SellingPrice p.u. Contribution p.u. 6,90,000 At 50,000 units (Before Expansion) = 40 = 18,40, ,50,000 At 80,000 units (After Expansion) = 40 = 28,00, ,80,000 At 1,00,000 units (After Expansion) = 36 = 34,04,553 approx

10 Solution to Q. 9 WN 4: Selling Overheads Units sold Variable cost ( 20 p.u.) Fixed Cost 10 Total Cost 5,100 1,02,000 77,000 1,79,000 4,800 96,000 77,000 1,73,000 1,79,000-1,73,000 6,000 Variable Cost p.u. = = 20 5,100-4, Applicable rate for next quarter: Variable = 20 Fixed = 77, % = 96,250 Now, i) Flexible budget for next quarter at 5,500, 6,600 & 6,500 units levels. ii) 5,500 units 6,000 units 6,500 units I) Sales 5,22,500 5,70,000 6,05,150 II) Total Cost a) Direct Material A (Units 12) 66,000 72,000 78,000 B (Units 11) 60,500 66,000 71,500 b) Manufacturing Wages Variable NR (5,500 units 20.25) 1,11,375 1,11,375 1,11,375 OR - 15,188 30,375 Fixed 57,915 57,915 57,915 c) Factory Overhead Variable (Units 3) 16,500 18,000 19,500 Fixed 83,400 83,400 83,400 d) Selling Overhead Variable (Units 20) 1,10,000 1,20,000 1,30,000 Fixed 96,250 96,250 96,250 Total Cost 6,01,940 6,40,128 6,78,315 III) Profit/(Loss) (I II) (79,440) (70,128) (73,165) Statement showing the lowest price to be quoted for Government Order for 2,000 units. Amt. ( ) Direct Material A 12 B 11 Manufacturing Wages Factory Overheads 3 Selling Overheads 20 Total Cost Profit Sales

11 Note: For deciding above selling price only variable cost are considered because this being an additional order, additional fixed cost will not be incurred. Solution to Q. 10 Flexible budget showing the profit under optimistic as well as pessimistic assumption ( in lakhs) Optimistic Pessimistic I) Existing Business II) Contribution (400 30% (-) Fixed Cost (45) (45) Profit Contract A A) Contract Price B) Total Cost - Variable Cost (O = 30 60%) 18 (P = 30 60%) + 10% Fixed Cost [P = %] C) Profit (A B) III) IV) Contract B A) Contract Price 20 - B) Total Cost - Variable Cost [50% of 20) Fixed Cost 3 - C) Profit (A B) 13 - New Product A) Sales (O = 6 9) (P = 6 3) B) Total Cost - Variable Cost (O = 50% of 54) (P = (50% of 18) + 10% Fixed Cost (O = 1 9) 9 (P = (1 3) + 10% C) Profit (A B) Total Profit (I + II + III + IV)

12 Solution to Q. 11 1) Calculation of Budgeted contribution per unit for the revised budget Amount Profit desired 25,000 (+) Budgeted Fixed Cost (1,40, ,500) 1,68,500 Total Budgeted Contribution 1,93,500 Budgeted Contribution per unit (1,93,500/12,000) ) Calculation of the labour hour required per unit as per the revised budget Amount Selling Price per unit 32 (-) Contribution per unit (WN 1) (16.125) Variable Cost per unit (-) Material Cost per unit (8) Labour & Variable OHs per unit Labour & Variable OHs per hour ( ) 4.50 Budgeted Labour hour required = LabourOHsperunit LabourOHsperhour Revised Budget for the next year = = 1.75 hours 4.50 Amount Production & Sales 12,000 Price per unit 32 Variable Cost p.u. - Direct Material 8 - Direct Labour (1.75 hours 4) 7 - Variable OHs (1.7 hours 0.5) Contribution per unit Budgeted Contribution 1,93,500 Budgeted Fixed Cost (1,40, ,500) 1,68,500 Budgeted Profit 25,000 12

13 Solution to Q. 12 Cash Budget for 3 months January to March January February March Add: Less: Opening Balance 20,000 23,025 11,225 Receipts Cash Sales (10% of Sale) 4,000 5,000 6,000 Collection from Debtors (WN 1) 50,625 46,350 41,400 Total Cash Available 74,625 74,375 58,625 Payments Cash Purchases (10% of Purchases) 3,000 2,000 1,000 Payment to Creditors (WN 2) 12,600 21,150 21,600 Wages (WN 3) 21,000 22,000 23,000 Other Expenses 15,000 15,000 15,000 Purchase of Plant - 2,500 2,500 Installation Charges Closing Balance/Bank OD 23,025 11,225-4,475 Working Note: 1) Collection from Debtors Nov. Dec. Jan. Feb. Mar. Credit Sales (90% of Sales) 45,000 54,000 36,000 45,000 54,000 Collection in 1 month (50%) 22,500 27,000 18,000 22,500 Collection in 2 months (50% 22,500 27,000 18,000 (+) Penalty on collection in 2 months (5%) 1,125 1, ) Payment to Creditors 50,625 46,350 41,400 Nov. Dec. Jan. Feb. Mar. Credit Purchases (90% of Purchases) 9,000 18,000 27,000 18,000 9,000 50% Payment (in 1 month) 4,500 9,000 13,500 9,000 Less: Cash Discount on 10% Payment in 1 month , % Payment in 2 months 4,500 9,000 13,500 3) Wages 12,600 21,150 21,600 Dec. Jan. Feb. Mar. Wages 20,000 22,000 22,000 24,000 (1/2) Payment in same month 10,000 11,000 11,000 12,000 (1/2) Payment in next month 10,000 11,000 11,000 10,000 21,000 22,000 23,000 13

14 Solution to Q. 13 M/s Cash Budget for the months January to March January February March Add: Less: Opening Balance 60,000 1,50,100 1,50,100 Receipts Cash Sales (20% of Sales) 24,000 22,000 30,000 Collection from Debtors (WN 1) 1,68,000 1,32,800 1,08,000 Sale of Debentures 40, Total Cash Available 2,92,000 3,04,900 2,88,100 Payments Payment to Creditors (WN 2) 1,35,000 66,000 58,500 Wages & Salaries 24,000 24,000 24,000 Miscellaneous Expenses 21,000 30,000 24,000 Balance 1,12,000 1,84,900 1,82,960 Add: Loan Taken * 90, Less: Interest Paid (1%) Balance 2,01,100 1,84,510 - Less: Loan Repaid 51,000 34,000 5,000 Closing Balance 1,50,100 1,50,510 1,76,960 Loan Balance 39,000 5,000 - Working Note: 1) Collection from Debtors Oct. Nov. Dec. Jan. Feb. Marc. Credit Sales (80% of Sales) 1,60,000 1,60,000 1,76,000 96,000 88,000 12,000 Collection in 1 month (50%) 80,000 80,000 88,000 48,000 44,000 Collection in 2 months (30%) 4,80,000 48,000 52,800 28,800 Collection in 3 months (20%) 32,000 32,000 35,200 2) Payment to Creditors 1,68,000 1,32,800 1,08,000 Nov. Dec. Jan. Feb. Mar. Cost of goods sold (75% of sale) 1,50,000 1,65,000 90,000 82,500 1,12,500 Less: Wages & Salaries - 30,000-30,000-24,000-24,000-24,000 Raw material consumed 1,20,000 1,35,000 66,000 58,500 88,500 Raw material purchases (1 month in advance) 1,35,000 66,000 58,500 88,500? Payment to Creditors (2 months credit) 1,35,000 66,000 58,500 Notes: 1) Sales for month of October is not given in the question and hence it is assumed to be a sale as that of November. 2) It is assumed that loan will be repaid in multiples of 1,000. Since it is available also in multiples of 1,000. 3) It is assumed that loan will be taken on the 1 st day of the month where shortfall arises and will 14

15 be repaid on the last day of the month were surplus remain. Further, it is assumed that interest for the month will be paid on the last day of the same month. 4) On 1 st day of January the balance is 60,000 and the company wants to increases the minimum balance to 1,50,000 from 1 st of January itself. In that case, to cover up shortfall, it becomes necessary that a loan of 90,000 be taken on 1 st of January. Solution to Q. 14 M/s Melodies Pvt. Ltd. a) Cash Budget for 3 months January to March 2017 January February March Opening Balance 35,000 (9,100) (12,600) (+) Receipts Cash Sales 5,000 6,000 8,000 Collection from Debtors 15,000 18,000 20,000 Total Cash Available 55,000 14,900 15,400 (-) Payments Payment to Creditors 40,000 23,000 27,000 Purchase of Equipment (30,000 14,000) 16, Wages 3,000 3,000 3,000 Payment of Dividend ,000 Administration 1,500 1,500 1,500 Rent 3, Closing Balance/(O.D.) (9,100) (12,600) (31,100) b) Income Statement for 3 months ended 31 st,march 2017 Amount I. Total Sales (Credit Sales + Cash Sales) 82,000 II. Gross Profit (25% of 82,000) 20,500 III. Further Expenses Administration (1,500 3) 4,500 Rent (3, ) 900 Depreciation of Equipment (30,000 10% 3/12) 750 6,150 IV. Net Profit before Loss on Sales of Equipment (II III) 14,350 V. Loss on Sale of Equipment (15,000 14,000) 1,000 VI. Net Profit (IV V) 13,350 15

MARGINAL COSTING HOMEWORK

MARGINAL COSTING HOMEWORK A.1. HOMEWORK Statement showing the contribution per unit for the four products & their priority order for production in 2017 & 2018 A B C D A) Selling price p.u. 21.75 36.75 44.25 64.00 B) Variable cost