Q1.

A.
1. A
2. D
3. C
4. A
5. B
6. A
7. C
8. A
9. B
10. B

B.
A 10
B 12
C 4
D 1
E 9
F 2
G 8
H 6
I 11
j 3

Q2. 1.
(i) Computation of Cost Driver Rates
1. Overhead relating to Machinery oriented activity
Cost Driver – Machine Hour Rate
Machine Hour = (1000 X 0.5) + (1000 X 0.5) + (1200 X 2) + (14000 X 3)
Machine Hour Rate = Machine Overheads/ No. of Machine Hours
= 149700/49900 = Rs. 3 per hour
2. Overheads relating to ordering materials
Cost Driver – No. of Material orders
Rate per material order = Total order cost/ no of order
= 7680/30 = Rs. 256 per order
3. Set up Costs
Cost Driver – No. of set ups
Per set up cost = Total set up cost/ no of setup
= 17400/50 = Rs. 348 per set up
4. Administrative Overheads for spare parts
Cost driver = No. of spare parts
 Per Spare parts = 34380/36 = Rs. 955 per spare part
5. Material handling costs
Cost driver = No. of times materials handled
Per times material handle
30294/81 = Rs. 374 per material handling

Computation of Overhead cost (Amount in Rs.)

Allocation of Overheads based on cost driver
Overheads P Q R S
Machine 1500 (500X3) 15000 (5000X3) 7200 (2400 X3) 126000 (4200 X3)
Material Order 768 (3 X 256) 3072 (12 X 256) 768 (3 X 256) 3072 (12 X256)
Setup Cost 1044 (3 X 348) 6264 (18 X 348) 1740 (5 X 348) 8352 (24 X 348)
Administration 5730 (6 X 955) 14325 (15 X 955) 2865 (3 X 955) 11640 (12 X 955)
Overheads
Material Handling 2244 (6 X 374) 11220 (30 X 374) 3366 (9 X 374) 13464 (36 X 374)
cost
Total Overheads 11286 49881 15939 162528
as per activity
based costing
Overhead cost per 11.29 4.99 13.28 11.60
unit

OR
2. Working Note:
1. Profit = 20% Return on average assets employed Average Assets (Rs. In Lakhs)
Sundry Debtors 2
Inventories 5
Plant and Equipment 5
Total 12
Profit = 1200000 X 20/100 Rs. 2,40,000
2. Budgeted Sales Revenue (200000 units of Components X) (Rs. In Lakhs)
Fixed Overheads 5
Variable Cost (200000 units X Rs.1) 2
Profit 2.40
Total Sales 9.40
Selling Price per unit of Component X = Rs. 940000/200000 units = Rs. 4.70 units
Option in hand with Division A
Option I Selling 150000 units in hand in market and transfer 50000 units to division B
Option II Sell only 150000 units in the market
Statement of Profitability of Division A under Two Option
Particular Option I Option II
Sales (150000 units X Rs. 4.70) 705000 705000
Transfer of Division B (50000 units X 2) 100000 --
Total Sales Revenue 805000 705000
Less: Variable Overheads 200000 150000
Contribution 605000 555000
Less: Fixed Cost 500000 475000
Profit 105000 80000
Capital Employed 1200000 1000000
Return on Capital Employed 8.75% 8%
Analysis from the above it is observed that under Option I, Division A’s profit and ROCE is increased by
Rs. 25,000 and 0.75 % respectively.
Hence Option I is suggested for Division A.

Q3. 1.
Solution:
I. Contribution per unit = Rs. 20
II. P/V Ratio = Contribution/ PV Ratio X 100 = 20/50 X 100 = 40%
III. Break Even Sales in Rs. = Fixed Cost/ PV Ratio = 200000/40% =Rs. 500000
IV. Break Even Sales in Units = Fixed Cost / Contribution per unit = 200000/ 20 = 10000 units
V. Sales required to earn profit of Rs. 400000 = Fixed Cost + Desired / PV Ratio
= 200000 + 400000 / 40% = Rs. 1500000
VI. Profit when sales is 18000 units = Contribution – Fixed Cost = (18,000 X 20) – 200000
= Rs. 160000
Margin of Safety for sales of Rs. 700000 = Actual Sales – BEP Sales
= 700000 -500000
= Rs. 200000

OR
2. Solution
Labour Hours Available = 250 X 8 X 25 = 50000 hrs
Labour Hours Required =
Product A (5500 units X 4) = 22000 hours
Product B (5000 units X 3) =15000 Hours
Product C (6250 Units X 5) = 31250 Hours
Product D (8250 Units X 2) = 16500 Hours
Total = Rs. 84750 Hours
Step 1: Find out contribution per unit
Particulars A B C D
Selling Price Per Unit 90 71 100 86
(-) Direct Material Per Unit 30 20 40 40
(-) Direct Labour per unit 24 18 30 12
(-) Variable overhead per unit 12 9 15 6
Contribution per head 24 24 15 28
Step @.: Labours Required per unit to Produce 1 4 3 5 2
unit of Finished goods
Step 3: Contribution per unit per hour 6 8 3 14
Rank 3 2 4 1

Statement showing most profitable product mix

Product Labour Hours Units Contribution Total
Per unit Contribution
Product D 16500 8250 28 231000
Product B 15000 5000 24 120000
Product A 18500 (50000- 4625 24 111000
16500- 15000)
Total Contribution Less: Fixed Cost 462000
200000
Net Profit 262000

Q4.
Solution
Statements of Performance Evaluation
Particulars Budget Actual Variance
Sales 400 370 30 (A)
(-) Material and other (240) (218) 22 (F)
variable cost
(-) Employee Benefit (60) (60) --
Exp.
(-) Sales Promotion (20) (14) 6(F)
Operating Profit 80 78 2 (A)
Total Assets
Net Working Capital 200 206 6(F)
Fixed Assets 80 74 6(A)
Total Assets 280 280 --
Profitability Ratio:
Profit/Sales X 100 80/400 X 100 = 20% 78/370 X 100 = 21%
Return on Assets:
Profit/ Total Assets X 80/280 X 100 = 28.57% 78/280 X 100 = 27.85%
100
Comment:
The Actual sales were 30 lacs less then budget sales, however the actual profit was only 2 lakh less than
the budgeted profit which signifies that the management is very effective in controlling the cost since
the actual material cost is 22 lacs less than budgeted material cost and actual sales promotion cost is 6
lacs less than the budgeted sales promotion cost. Profitability ratio of the companies have increased
budgeted 20% whereas actual 21%. However there is a slight decrease on return on total asset budget
28.57% an actual 27.85%.