MISC QUESTIONS FOR STUDENTS

Transcription

1 MISC QUESTIONS FOR STUDENTS Question 1: Lee Electronics manufactures four types of electronic products A, B, C and D. All these products have a good demand in the market. The following figures are given to you: A B C D Material cost (/u) Matching cost 8 per hour) Other variable costs (/u) Selling price (/u) Market demand (units) 52,000 48,500 26,500 30,000 Fixed overheads at different levels of operation are: Level of operation Total Fixed cost () (in production hours) upto 1,50,000 10,00,000 1,50,001-3,00,000 10,50,000 3,00,001-4,50,000 11,00,000 4,50,001-6,00,000 11,50,000 At present, the available production capacity in the company is 4,98,000 machine hours. This capacity is not enough to meet the entire market demand and hence the production manager wants to increase the capacity. The company wants to retain the customers by meeting their demands through alternative ways. One alternative is to sub-contract a part of its production. The sub-contract offer received is as under: A B C D Sub Contract Price(Rs/u) The company seeks your advice in terms of products and quantities to be produced and/or sub-contracted, so as to achieve the maximum possible profit. You are required to also compute the profit expected from you suggestion. SOLUTION:- Demand 52,000 48,500 26,500 30,000 A B C D Direct Material M/c Other variable Cost Total Variable Cost Selling Price Contribution(Rs./u) M/s Hours per unit Contribution(/M/chr.) Ranking III II IV I Sub-Contract Cost /u.) Contribution(/u) on ( sub contract) Page 1

2 Division1:- It is more profitable to sub-contract B, since contribution is higher subcontract. Ist Level of Operations: 1,50,000 hours, Produce D as much as possible. Hours required=30,000 units X 3 = 90,000 hours Balance hours available : 60,000 hours. Produce the next available: 60,000 hours. Produce the next best(i.e. A, since B is better outsourced) 60,000 hrs/6 hrs/u = 10,000 units of A. 1 st Level of Operation: Contribution(units) Contribution(Rs.) A Produce 10,000 units 18 1,80,000 A Outsource 42,000 units 16 6,72,000 B 48,500 units Outsource fully 30 14,55,000 C 26,500 units Outsource fully 18 D 30,000 units Fully produce 18 5,40,000 Total Contribution: 33,24,000 Less: Fixed cost 10,00,000 Net Gain 23,24,000 2 nd Level of Operation:- Both A and C increase contribution by own manufacture only by 2/- per unit. 1,50,000 hrs can produce 25,000 units of A. Contribution increases by 25,000 X 2 = 50,000. (Difference in contribution sub-contract and own manufacturing) = 2. But increase in fixed cost = 50,000. At the 2 nd level of operation, the increase in contribution by own manufacturing is exactly set up by increase in fixed costs by. 50,000/-it is a point of financial indifference, but other conditions like reliability or possibility of the sub-contractor increasing his price may be considered and decision may them but towards own manufacture. 3 rd level Additional: 1,50,000 hrs available. Unit of A that are needed = (52,000-25,000(2 nd Level) 10,000(1 st Level)} = 17,000 units X 6 hrs/u = 1,02,000 hrs. Balance 48,000 hrs are available for C to produce 6,000 units Increase in Contribution over level 1 st or 2 nd. A: 17,000 X2 = 34,000 C: 6,000 X2 =12,000 Increase in Fixed costs Additional loss =46,000 =50,000 =4,000 4 th Level Additional 1,50,000 hrs can give 1,50,000/8 = 18,750 unit of C. Increase in Contribution 18,750 X2 =37,500 Increase in cost Level 3 rd loss c/fd = (50,000) =(4,000) Level 1 st profit will order by = ( 16,500) Page 2

3 Advice: Do not expand capacities: sell maximum No. of units by operating at 1,50,000 hrs capacity (level 1 st ) and gain 23,24,000. Summary: Product Produce (units) Sub Contract (units) Contribution (Production) Contribution (Sub- Contract) Total Contribution A 10,000 42,000 1,80,000 6,72,000 8,52,000 B - 48,500-14,55,000 14,55,000 C - 26,500-4,77,000 4,77,000 D 30,000-5,40,000-5,40,000 33,24,000 Fixed Cost 10,00,000 Profit 23,24,000 Question2:- The following network gives the duration in days for each activity (i) (ii) 4 You are required to list the critical paths. Given that each activity can be crashed by a maximum of one day. Choose to crash any four activities so that the project duration reduced by 2 days. Solution:- Critical path: All are critical paths: (1) =15 (2) =15 (3) =15 (4) =15 (1) Choose 5-6 common path; Crash by 1 day (ii) Choose: 1-2, 1-3, 1-4 Or (iii) Choose 1-2, 3-5, 4-5 or (iv) Choose 2-5, 3-5, 4-5 or (v) Choose 1-3, 1-4, Question3:- X Ltd. Produces and sells a single product. Standard cost card per unit of the product is as follows:- Direct materials A 10 5 per Kg Page 3

4 B 5 6 per kg Direct wages 5 5 per hour Variable production overheads 5 12 per hour Fixed production overheads Total standard cost Standard gross profit Standard selling price A fixed production overhead has been absorbed on the expected annual output of 25,200 units produced evenly throughout the year. During the month of December, 2009, the following were the actual results for an actual production of 2,000 units: Sales 2, ,50,000 Direct materials :A 18,900 Kg 99,225 B 10,759 Kg 61,275 Direct wages 10,500 hours (actually worked 10,300 hours) 50,400 Variable production overheads 1,15,000 Fixed production overheads 56,600 Total 3,82,500 Gross profit 67,500 The material price variance is extracted at the time of receipt of materials. Material purchase were a 20, per kg. B 11, per Kg. Required: 1:- Calculate all variances. 2:- Prepare an operating statement Showing Standard gross profit. Variances and Actual gross profit. 3:- Explain the reason for the different in actual gross profit given in the question and calculated in (ii) above. Solution:- (a) (1) Material Price variance A B(At the time receipt of Materials) Material Usage variance A B Standard quantity for actual output for A B Material Mix variance=sp(rsq-aq) A =(SP AP) AQ =(5-5.25) X = 5000(A) = (6-5.70)X11500 = 3450(F) =1550(A) =(SQ-AQ)*SP =( )X 5 = 5500(F) =( )X6 = 4500 (A) =1000(F) =2000X10=20000Kg = 2000 X 5 = 10000Kg =( )X5= (F) Page 4

5 B =( )X6 = (A) =866.67(A) Revised standard quantity A =20000/30000X29650 = B = 10000/30000 X = Material yield variance =SR(AY-SY) ( )X80 = (F) SY =(2100/31500)X29650 = Labour Rate variance =(SR-AR)AH =(5-4.8) X10500 = 2100 (F) Labour efficiency variance =SR(SH-AH)=( )X 5 =1500(A) Labour idle time variance Idle hours X SR=200X5=1000(A) Variable overhead cost variance =Recovered overhead Actual overhead =(2000 X ) = 5000(F) Variable overhead exp. Variance =Standard variable overhead Actual variable overhead = X = 8600(F) Variable overhead efficiency variance Fixed overhead cost variance Fixed overhead exp. Variance Fixed overhead volume variance Recovered Standard variable overhead = = 3600(A) =Recovered overhead actual overhead =(2000 X ) = 6600(A) =Budgeted overhead Actual overhead =(2500/12X25) 56600) = 4100(A) =Recovered Budgeted overhead =( ) = 2500 (A) (iii) Reconciliation statement () () () Standard Profit (35*2000) Variances Favourable Adverse Material: Price(at the time of receipt) 1550 Mix Yield Labour: Rate 2100 Efficiency 1500 Idle time 1000 Variable overheads Expenditure 8600 Efficiency 3600 Fixed Overhead Expenditure 4100 Volume (A) Actual Profit Page 5

6 (iv) Actual gross profit given in the question is while calculated operating profit in statement is The difference amount is due to material price variance that is calculated at the time of receipt of material instead of consumption of material. MPV A = 18900X(5-5.25) = 4725(A) B = X(6-5.70) = 3225 (F) = 1500 (A) Over recovery in the operating statement is ( ) = 50, should be added in actual profit = Question 4:- The following information is provided by a firm. The factory manager wants to use appropriate average learning rate on activities, so that he may forecast costs and prices for certain levels of activity. (1) A set of very experienced people feed data into the computer for processing inventory records in the factory. The manger wishes to apply 80% learning rate on data entry and calculation of inventory. (2) A new type of machinery is to be installed in the factory. This is patented process and the output may take a year for full fledged production. The factory manager wants to use a learning rate on the workers at the new machine. (3) An operation uses contract labour. The contractor shifts people among various jobs once in two days. The labour force performs one task in 3 days. The manager wants to apply an average learning rate for these workers. You are required to advise to the manager with reason on the applicability of the learning curve theory on the above information. Solution:- The learning curve does not apply to very experienced people for the same job, since time taken can never tend to become Zero or reduce very considerably after a certain range of output. This is the limitation of the learning curve. (1) Data Entry is a manual job so learning rate theory may be applied. Calculation of inventory is a computerized job. Learning rate applies only to manual labour. (2) Learning rate should not be applied to a new process which the firm has never tried before. (3) The Workers are shifted even before completion of one unit of work. Hence learning rate will not apply Question 5:- The following information relates to a manufacturing concern: Standard Material A 24,000Kgs@ 3 per kg 72,000 Material B 12,000 4 per kg 48,000 Wages 60,000 4 per kg 2,40,000 Variable overheads 60,000 per hour 60,000 Fixed overhead 60,000 2 per hour 1,20,000 Total cost 5,40,000 Budgeted profit 60,000 Budgeted sales 6,00,000 Budgeted production (units) 12,000 Actual Sales (9,000 units) 4,57,500 Page 6

7 Material A Consumed 22, 275 Kgs. 62,370 Material B consumed 10,890 Kgs. 44,649 Wages paid(48,000 hours) 1,91,250 Fixed Overheads 1,20,900 Variable Overhead 45,000 Labour hours worked 47,700 Closing work in progress 900 units Degree of Completion: Material A & B 100 % Wage and overheads 50% You are required to: (i) Calculate all the material and labour variances. (ii) Calculate variable overhead expenditure and efficiency variances, fixed overhead expenditure and volume variances and sales price and sales volume variances. Solution:- STATEMENT OF EQUIVALENT PRODUCTION OF UNITS Particulars Materials Wages & Overheads % age units % age Units Units Completed 100% % 9000 Closing W.I.P. 100% % 450 Equivalent Units Material Variances Standard qty for actual output X std price Actual Qty X actual Price Material A 19,800@3 =59,400 22,275@2.8* =62,370 Material B 9900@4 =39,600 10,889@4.1* =44,649 29,700 99,000 33,165 1,07,019 Actual cost/actual Quantity Standard quantity for actual output=(std qty/budgeted prod)x actual output MCV =TSC TAC =99,000 1,07,019 = 8,019(A) MPV = AQ(SP AP) A = 22,275( )= 4,455(F) B = 10,890( ) = 1,089(A) 3,366(F) MUV = SP(SQ AQ) A = 3 (19,800 22,275) = 7,425(A) B = 4 (9,900 10,890) = 3,960(A) 11,385 (A) MMV=SP(RSQ AQ) A= 3{19,800 /29,700 X 33,165 22,275} = 495(A) B = 4{9,900 /29,700 X 3,165 10,890} = 660(F) 165(F) MYV = S,C per unit (S.O. for Actual Mix A.O.) = 99,000 / 9,900 {9,900 / 29,700 X 33,165 9,900} = 10 ( ,900) = 11,550 (A) Page 7

8 Labour variances: LCV = TSC TAC = 2,40,000 /12,000 X 9,450 1,91, 250 = 2,250 (A) LRV = AH(SR-AR) =48,000{4-(1,91,250 / 48,000)}= 750 (F) LITV =No. of idle hours X SR = 48,000 (47,500 / 4 )= 1,200(A) LEV = SR(SH- AH) =4{(60,000 / 12,000) X 9,450 47,700)} = 1,800 (A) (iii) Variable Overhead variances VOC = Recovered overheads Actual Overheads = 9,450 X 5-45,000 = 2,250(F) V.O.(Exp.)v = Standard V.O Actual V.O = 47,700 X 1 45,000 = 2,700(F) V.O.(eff.) V = Recovered overheads Actual Overheads 9,450X5-47,700 = 450(A) Fixed Overhead Variances FOCV = Recovered overhead Actual Overheads = (1,20,000 / 12,000) X 9,450 1,20,900 = 94,500 1,20,900 = 26,400(A) F.O. (Exp.)V =Budgeted overheads Actual Overheads = 1,20,000-1,20,900 = 900 (A) FOVV = Recovered overheads Budgeted overheads =94,500-1,20,000 = 25,500(A) Sales variance Sales Price variance = Actual unit sold (SP-AP) = 9,000{50-(4,57,500 / 9,000)} = 7,500(F) Sales volume Variance (Contribution loss) = S.R. of Profit (Budgeted Qty. Actual Qty) =(60,000 /12,000) (12,000-9,000) = 15,000(A) Question 6:- An agro products producers company is planning its production for next year. The following information is relating to the current year: Products/Crops A1 A2 B1 B2 Area occupied(acres) Yield per acre (ton) Selling price per ton() Variable cost per acre () Seeds Pesticides Fertilizers Cultivations Page 8

9 Direct Wages 4,000 4,500 5,000 5,700 Fixed overhead per annum () 53,76,000. The land that is being used for the production of B1 and B2 can be used for either crop, but not for A1 and A2. The land that is being used for A1 and A2 can be used for either crop, but not for B1 and B2. In order to provide adequate market service, the company must produce each year atleast 2000 tons each of A1 and A2 and 1,800 tons each of B1 and B2. You are required to: (i) Prepare a statement of the profit for the current year. (ii) Profit for the production mix by fulfilling market commitment. (iii) Assuming that the land could be cultivated to produce any of the four products and there was no market commitment. Calculate: Profit amount of most profitable crop and break-even point of most profitable crop in terms of acres and sales value. Solution:- Calculation of Selling Price & Contribution per acre:- Products A1 A2 B1 B2 Total Yield per acre in (tones) Selling price per tones() Sales revenue per acre() 10,000 10,000 13,500 16,200 Variable cost per acre () 4,700 5,100 5,950 6,600 Contribution per acre() 5,300 4,900 7,550 9,600 Area(acres) Total contribution() 13,25,000 9,80,000 22,65,000 24,00,000 69,70,000 Less: Fixed cost 53,76,000 Profit() 15,94,000 (ii) Profit Statement for recommended mix Products A1 A2 B1 B2 TOTAL Contribution per acre Rank Minimum Sales Requirement in acres 2000/40 = /45 = 40 Recommended Mix ( in Acres) Total Contribution () 21,20,000 2,45,000 3,02,000 48,96,000 75,63,000 Less: Fixed cost 53,76,000 Profit 21,87,000 (iv) Most profitable crop: Production should be concentrated on B2 which gives highest contribution per acres 9,600. Overall contribution if complete land is used for B2(1,000 X 9,600) = 96,00,000 Less: Fixed cost = 53,76,000 Profit: = 42,24,000 Break even point in acres for B2 = /9600 = 560 acres Break even point in sales value = 560X (270 X 60) = Rs. 90, 72,000 Page 9

10 Question7:- An oil refinery can blend three grades of crude oil to produce quality A and Quality B petrol. Two possible blending processes are available. For each production run, the older process uses 5 units of crude Q, 7 units of crude P and 2 units of crude R and produces 9 units of A and 7 units of B. The newer process uses 3 units of crude Q, 9 unit of crude P and 4 units of crude R to produce 5 units of A and 9 units of B. Because of prior contract commitments, the refinery must produce at least 500 units of A and at lease 300 unit of B for the next month. It has 1,500 units of crude Q, 1900 units of crude P and 1,000 of crude R. For each unit of A, refinery receives 60 while for each unit of B, it receives 90. Formulate the problem as linear programming model so as to maximize the revenue. Solution:- Maximize Z = 60(9x 1 +5x 2 ) + 90(7x 1 +9x 2 ) = 1170x x 2 Subject to 9x 1 + 5x commitment for A 7x 1 +9x commitment for B 5x 1 +3x availability of Q 7x 1 + 9x availability of P 2x 1 + 4x availability of R And x 1 o, x Question8:- Fruitolay had decided to increase the size of the store. It wants the information about the probability of the individual product line: Lemon, grapes & papaya. It provides the following data for the 2009 for each product line: Lemon Grapes Papaya Revenues 79, ,10, ,20, Cost of goods sold 60, ,50, , Cost of bottles returned 1, Number of purchase orders placed Number of deliveries received Hours of shell stocking time Items sold 12,600 1,10,400 30,600 Fruitolay also provides the following for the year 2009: Sr. Activity Description of Activity Total Costs Cost of allocation basis No. 1 Bottle returns Returning of empty bottles to the store 1, Direct tracing to product line 2 Ordering Placing of orders of Purchases 15, purchase orders 3 Delivery Physical delivery and the receipts of 25, deliveries merchandise 4 Self stocking Stocking of merchandise on store shelves and ongoing restocking 17, hours of time 5 Customer support Assistance provided to customers including begging and checkout 30, items sold Page 10

11 Required: (i) Fruitolay currently allocated store support costs costs(all costs other than the cost of goods sold) to the product line on the basis of the cost of goods sold of each product line. Calculate the operating income and operating income as the percentage of revenue of each product line. (ii) If Fruitolay allocates store support costs (all costs other than cost of goods sold) to the product lines on the basis of ABC system. Calculate the operating income and operating income as the percentage of revenue of each product line. (iii) Compare both the systems. Solution:- (ii) ABC System Activity Particulars Lemon Grapes Papaya Total Revenue 79,350 2,10,060 1,20,990 4,10,400 Less: Cost of goods 60,000 1,50,000 90,000 3,00,000 sold (COGS) Less: Store support 18,000 45,000 27,000 90,000 cost Operating income 1,350 15,060 3,990 20,400 Operating income% 1.70% 7.17% 3.30% 4.97% Cost Heirarchy Level Total Costs Quantity of cost allocation based Overhead allocation rate Ordering Batch Purchase orders 100 Delivery Batch delivering orders 80 Shelf stocking Output unit self stocking hours 20 Customer support Output unit 30, items sold 0.20 Particulars Cost driver Lemon Grapes Papaya Total Bottle Returns Direct 1, ,200 Ordering Purchase orders 3,600 8,400 3,600 15,600 Delivery Deliveries 2,400 17,520 5,280 25,200 Self stocking Hours of time 1,080 10,800 5,400 17,280 Customer Items sold 2,520 22,080 6,120 30,720 support Grand Total 10,800 58,800 20,400 90,000 Particulars Lemon Grapes Papaya Total Revenue 79,350 2,10,060 1,20, Less: Cost of goods 60,000 1,50,000 90, sold Less: Store support 10,800 58,800 20,400 90,000 cost Operating income 8,550 1,260 10,590 20,400 Page 11

12 Operating income % 10.78% 0.60% 8.75% 4.97% Summary Lemon Grapes Papaya Total Under Traditional 1.70% 7.17% 3.30% 4.97% costing System Under ABC system 10.78% 0.60% 8.75% 4.97% The grapes line drops sizeably when ABC is used. Although it constitutes 50% COGS. It uses a higher percentage of total resources in each activity area. Especially the high cost of customer support area. In Contrast lemon line draws a much lower percentage of total resources used in each activity area than its percentage of toal COGS. Hence under ABC, lemon is most profitable. Fruitolay can explore ways to increase sales of lemons and alos explore price increases on grapes. Operating income Ranking is highest for Grapes under Traditional system because other products bear its overheads cost, wheares under ABC a more accurate picture shows Grapes as the lowest ranking product Question9:- A Company has two manufacturing divisions A and B Division A has a capacity of 96,000 hours per annum. It manufactures two products X and Y as per the following details: X Y Direct materials Variable 80 per hour Selling price Maximum sales units 15,000 Unlimited Division B produces Z whose particulars are as under: Imported component 800 Direct materials 120 Variable 40 per hour 400 Selling price 1450 The fixed overheads amount to 30 lacs and 5 lacs per annum for division A and B respectively. With a view to minimize the dependence on imported component, the company explored the possibility of the Division B using the product X as substitutes for imported component. This is possible provided Division B spends two machine hours entailing an additional expenditure of 80 per component on modification of the product X to fit inot the product Z. The production of Z in Division B is 5000 units per annum. Division B seeks a discount of 80 so that the transfer price of product X can be set at 720 each. You are required to present division wise profitability and the profitability of the company as a whole on the basis of the following conditions: (i) Division B imports its requirement of components. (ii) (iii) Division B uses 5000 units of substitute material product X. transferred from Division A at market price of 800 per unit. Division B uses 5000 units of substitute material product X, transferred from Division A at a transfer price of 720 per unit. Page 12

13 Solution:- Products X Y Z Selling price per unit() ,450 Less: Variable Costs: () ,320 Contribution per unit() Hours required per unit Contribution per hour() Demand in units 15, Hours required to meet the 60,000 36,000 units demanded (i) When division B imports its component requirements: Division A Division B Contribution Contribution 6,50,000 X- 15,000 units X ,00,000 (5,000 units X 130) Y- 36,000 units X 20 7,20,000 Less: Fixed Costs 5,00,000 Total Contribution 34,20,000 Less: Fixed Costs 30,00,000 Profit 4,20,000 Profit 1,50,000 The profit of the company as a whole is 5,70,000 (ii) When division B buys 5,000 units of product X at 800 per unit: Division A Division B Contribution Sales revenue(5000 units X 1450) 72,50,000 X- 20,000 units X ,00,000 Less: variable cost (5,000 units X 1320) 66,00,000 Y 16,000 units X 20 3,20,000 Less: additional cost (5000 units X 80) 4,00,000 Total contribution 39,20,000 Contribution 2,50,000 Less: Fixed costs 30,00,000 Less: Fixed costs 5,00,000 Profit 9,20,000 Loss (2,50,000) Profit of the company as a whole in this case would be 6,70,000. (iii) Division B gets a product X at a transfer price 720 from Division A. Profit of Division A Profit for Division B Product Z Cost per unit Contribution X-15,000 units X ,00,000 Variable Cost of material X 720 X- 5,000 units X 100(for division B) 5,00,000 Direct materials 120 Y- 16,000 units X 20 3,20,000 Variable overheads 400 Total Contribution 35,20,000 Additional Cost 80 Page 13

14 Less: Fixed costs 30,00,000 Total Cost(A) 1320 Profit 5,20,000 Selling Price (B) 1450 Contribution(per unit){b- 130 A} Total Contribution(5,000 6,50,000 units X 130) Less: Fixed Costs 5,00,000 Profit of Division B 1,50,000 Total profit of the company as a whole is 6,70, Question10:- A Private firm employs typists on hourly piece rate basis for their daily work. Five typists A,B,C,D,E are working in that firm and their charges and speed are given below in Table A. Table B gives No of pages of different typing jobs in hand. Find the lease cost allocation of jobs. Table A Typist Rate per hour () Number of pages typed per hour A 5 12 B 6 14 C 3 8 D 4 10 E 4 11 Table B Job No. of Pages P 199 Q 175 R 145 S 298 T 178 Solution :- Cost Matrix generated for allocation of different jobs to different typists. Table 1 Job typist P Q R S T A B C D E Step2:- Subtracting the minimum element of each row from all its elements Job typist P Q R S T A Page 14

15 B C D E Step 3:- Subtracting minimum element of each column from all its elements Job typist P Q R S T A B C D E Step 4:- Since there are only 4 lines (<5) to cover all zeros, it is not optimum assignment. The minimum uncovered element is 2. We, therefore subtract uncovered element 2 from all uncovered elements add this value to all junction values and leave the other elements undisturbed. Job typist P Q R S T A B C D E Step 5. Since the minimum number of lines required to cover all the zeros is only 4 (<5) optimum assignment cannot be made at this stage also. The minimum uncovered element is 1. Reprating the usual procedure again, We get the adjoining matrix. Job typist P Q R S T A B C D E Step 6:- Minimum number of lines to cover all zeros is equal to 5. This matrix gives optimum solution. Job typist P Q R S T A B C D E Page 15

16 The optimum assignment is made in the matrix given below: Typist Job Cost () A T 75 B R 66 C Q 66 D P 80 E S 112 Total Question11:- Global Limited uses standard and marginal costing system. It provides the following details for the year relating to its production, cost and sales: Particulars Budget Actual Sales units 24,000 25,600 Sales Value 6,000 6,784 Materials 960 1,080 Labour 1,440 1,664 Variable overheads 2,400 2,592 Total variable cost 4,800 5,336 The sales budget is based on the expectation of the company s estimate of market share of 12%.The entire industry sales of the same product for the year I s2,40,000 units. Further details are as follows: Particulars Standard Actual Material price per Kg Labour rate per hour You are required to: (a) Prepare a statement reconciling the budgeted contribution with actual contribution on the basis of important material variances, labour variances, variable overhead variances and sales variances. (b) Compute market size variance and market share variance. (in ) Solution:- Sales variance Budgeted Sales 6000 Budgeted sales quantity Budgeted selling price 6000/24000 = 0.25 Actual industry sales in units Budgeted market share 12% Hence market share required: X 12% = units SQ RSQ AQ SP SQ X SP RSQ X SP AQ X SP AQ X AP Sales Market Size Variance = 1200F Page 16

17 Sales Market share variance: Sales Volume Variance Sales price variance = 800A = 400F = 384F Budgeted contribution : Sales 6000 Variable costs Contribution Units Contribution/unit 0.05 (1200/24000) SQ RSQ AQ SP SQXSP RSQ X SP AQ X SP Sales Market Size Variance: Sales Market share variance Sales volume variance =240F =160A =80F As per the requirement of the question (b) Sales Market Size Variance is 1200F Sales Market Share variance is 800A Sales Variances: Sales Gross Margin Market Size Variance 240F Sales Gross Margin Market Share Variance 160A Sales Gross Margin Volume Variance Sales Price Variance Direct Materials: 80F 384 F Budgeted Material costs 960 Budgeted units Budgeted material cost per 100 units: (960/24000) X 100 =4.00 Standard price of Material /Kg = 8 Standard requirements of materials per 100 units of output: 4/8 = 0.50Kg Actual Output = Standard requirement for actual output = 128 Kg (25600 X 0.50)/100 =1080 Actual material cost: =1080 Actual Price/Kg. =7.50 Actual Quantity of materials consumed: =144 Kg (1080/7.50) SQ AQ SP SQ X SP AQ X SP AP AQXAP Page 17

18 Usage Variance Price variance Direct Labour: Budgeted Labour costs = 128A = 72F 1440 Budgeted units Budgeted Labour cost per 100 units: =6.00 (1440/24000) X 100 Standard Labour hour rate/hour =6 Standard requirements of labour hours per 100 units of output :6/6 = 1.00 hour Actual output = Standard hours required for actual output: =256 hours (25600X 1) /100 Actual labour cost: = 1664 Actual direct labour hour rate = 6.40 Actual hours worked(1664/6.40) = 260 hours Budgeted direct labour (1440/6) = 240 hours SH AH SR SH X SR AHX SR AR AH X AR Efficiency Varaince = 24A Labour Rate variance = 104 A Variable overheads: Budgeted variable overheads 2400 Budgeted direct labour hours 240 Budgeted variable overhead rate per direct Labour hour:2400/240 = 10 A. Charged to production: 256 hours X B. Standard Cost of actual hours : 260 X C. Actual Overheads 2592 Efficiency variance A Expense variance F Contribution analysis: Budget Actual Sales Variable Costs Contribution Statement of Reconciliation between Budgeted and Actual Contribution Budgeted Contribution 1200 Page 18

19 Gross Margin Sales Volume Variance 80 Standard Contribution 1280 Sales price Variance 384 Total Contribution 1664 Cost Variances: F A Material Usage Variance 128 Material Price Variance 72 Labour Efficiency Variance 24 Labour rate variance 104 Variable OH Efficiency variance 40 Variable OH Expense Variance A Actual Contribution Question12:- A manufacturer producer two products P1 & P2 with raw material M1 & M2 Requirements and availability of raw material and labour units are given in the following table. Contribution for unit of products are given: Products Requirements permit Minimum Contribution per day P1 P2 Material M1 (Kg) Kg Material M2/Kg Kg Labour (Hr) hours (max available per day) Contribution per unit How many units of each products should be produced to maximize profit? Solution:- 15 A(2, 14) 10 5 B(6,6) C(10,0) Mathematical Formulation of the problem: Maximize Z = 50 x + 30x 2 Subject to constraints: 2x 1 + x 2 18 X 1 + x x 1 + 2x 2 34 Co ordinate of entire points A(2,14), B(6,6) C (10,2) At A(2,14), Z = 50 X X 14 = 520 Page 19

20 At B (6,6), Z = 50 X X 6 = 480 At C (10,2), Z = 50 X X 2 = 560 This solution is X 1 = 10, X 2 = 2, Max Z = Question13:- The following matrix gives the unit cost of transporting qa product from production plants P1, P2, P3 to destinations. S1, D2 and D3. Plants P1, P2 and P3 have a maximum production of 65,24 and 111 units respectively and destinations D1, D2 and D3 must receive at least 60,65 and 75 units respectively: To D1 D2 D3 Supply From P P P Demand You are required to formulate the above as a linear programming problem.(only formulation is needed. ) Solution:- Let p 1 d i be the variable to denote the number of units of product from the i th plant to the j th destination, so that P 1 d 1 = transport from plant p 1 to D 1 P 2 d 2 transport from plant p 2 to D 2 etc. Objective function Minimize Z = 400p 1 d p 1 d p 1 d p 2 d p 2 d p 2 d p 3 d p 3 d p 3 d 3. Subject to: P 1 d 1 + p 1 d 2 + p 1 d 3 65 P 2 d 1 + p 2 d 2 + p 2 d 3 24 P 3 d 1 + p 3 d 2 + p 3 d (Plant constraints) And P 1 d 1 + p 2 d 1 + p 3 d 1 60 P 1 d 2 + p 2 d 2 + p 3 d 2 65 P 1 d 3 + p 2 d 3 + p 3 d 3 75.all p 1 d 1 0 (destination constraints) Page 20