Management Accounting - Term III (MBA 2024-26)

Topic: Cost Sheet

Problem 1: Bombay Manufacturing company submits the following information on 31-3-2019.
Particulars Amount (in Rs)

Sales for the year 2,75,000

Inventories at the beginning of the year

- - Raw Materials 3,000

- Work in Progress 4,000

- Finished Goods 1,10,000

Purchase of materials 65,000

Direct Labour 6,000

Inventories at the end of the year

- - Raw Materials 4,000

- Work in Progress 6,000

- Finished Goods 8,000

Other expenses for the year

– Selling expenses 27,500

Administrative expenses 13,000

Factory overheads 40,000

Prepare Statement of Cost.

Solution 1

Cost Sheet of Bombay Manufacturing Company

Particulars Amount Amount

Materials Consumed
Opening stock of Raw materials 3000
Add: Purchases 65000
Less: Closing Stock of raw materials 4000 64000
Direct Labour 6000
Prime Cost 70000
Factory Overheads
Add: Factory Expenses 40000
Add: Opening Work in Progress 4000
Add: Closing Work in Progress 6000 38000
 Works Cost 108000
Office and Administration Overhead
Add: Administrative Expenses 13500
Cost of Production 121500
Add: Opening Stock of Finished goods 110000
Less: Closing Stock of Finished goods 8000 102000
Cost of Goods Sold 223500
Selling and Distribution Overhead
Add: Selling Expenses 27500
Cost of Sales 251000
Profit/ Loss (Balancing Figure) 24000
Sales 275000

Problem 2: From the following information prepare a cost sheet.

Raw Materials Purchased Rs. 32250

Carriage on Purchases Rs. 850

Direct Wages Rs. 18450

Factory Overheads Rs. 15000

Selling overheads Rs. 16582

Office Overheads Rs. 19250

Sales Rs. 100000

Sale of Scrap Rs. 500

Opening Stock of Finished goods Rs. 8500

Closing Stock of Finished Goods Rs. 3000

Solution:

Cost Sheet

Particulars Amount Amount

Materials Purchased 32250
Add: Carriage on Purchase 850 33100
Direct wages 18450
Prime Cost 51550
Factory Overheads
Factory Overheads 15000
Less: Sale of Scrap 500 14500
Works Cost 66050
Office and Administration Overhead
 Office Overheads 19250
Cost of Production 85300
Add: Opening Stock of Finished goods 8500
Less: Closing Stock of Finished goods 3000
Cost of Goods Sold 90800
Selling and Distribution Overhead
Add: Selling Expenses 16582
Cost of Sales 107382
Profit/ Loss (Balancing Figure) -7382
Sales 100000

Problem 3: From the following information, prepare a cost sheet for period ended on 31st March 2019.

Opening stock of raw material 12,500

Purchases of raw material 1,36,000

Closing stock of raw material 8,500

Direct wages 54,000

Direct expenses 12,000

Factory overheads 100% of direct wages

Office and administrative overheads 20% of works cost

Selling and distribution overheads 26,000

Cost of opening stock of finished goods 12,000

Cost of Closing stock of finished goods 15,000

Profit on cost 20%

Solution:

Cost Sheet for the period ended on 31st March 2019

Particulars Amount Amount

Materials Consumed
Purchases 136000
Add: Opening Stock 12500
Less: Closing stock 8500 140000
Direct wages 54000
Direct expenses 12000
Prime Cost 206000
Factory Overheads
 Factory Overheads (100% of Direct wages) 54000

Works Cost 260000

Office and Administrative overheads
Office Overheads (20% of works cost) 52000
Cost of production 312000
Add: Opening Stock of Finished Goods 12000
Less: Closing Stock of Finished goods 15000 -3000
Cost of goods sold 309000
Selling and distribution overhead
Selling overheads 26000
Cost of sales 335000
Profit (20% on cost) 67000
Sales (Balancing Figure) 402000

Problem 4:

From the following information prepare a cost sheet.

Opening stock of raw materials Rs. 15000

Closing Stock of raw materials Rs. 9500

Opening stock of finished goods Rs. 5520

Closing Stock of finished goods Rs. 9690

Opening Stock of work in progress Rs. 10000

Closing stock of work in progress Rs. 500

Purchases Rs. 62000

Carriage inward Rs. 5200

Factory rent Rs. 10000

Octroi duty Rs. 320

Productive wages Rs. 18000

Chargeable Expenses Rs. 4200

Legal Expenses Rs. 5440

Factory lighting Rs. 5800

Sale of scrap Rs. 5310

Depreciation on furniture (office) Rs. 2000

Water Charges Rs. 560

Sales Rs. 596000

Audit Fees Rs. 5000

Postage Rs. 9600

Cost of tenders Rs. 9000

Works Salary Rs. 8900

Overtime premium to labours Rs. 5000

Carriage outwards Rs. 8000

Cost of catalogues Rs.5000

Bad Debts Rs. 210

Depreciation on Plant and Machinery Rs. 1000

Warehouse Rent Rs. 5100

Advertising Expenses Rs. 6320

Canteen and Welfare expenses Rs. 1100

Leave wages Rs. 2300

Solution:

Cost Sheet

Particulars Amount Amount

Materials consumed
Purchases 62000
Add: Opening Stock 15000
Add: Carriage Inwards 5200
Add: Octroi Duty 320
Less: Closing stock 9500 73020
Productive Wages 18000
Chargeable expenses 4200
Prime Cost 95220
Factory Overheads
Factory Rent 10000
Factory lighting 5800
Water Charges 560
Works Salary 8900
Overtime premium to labours 5000
Depreciation on Plant and Machinery 1000
Canteen and welfare expenses 1100
Leave wages 2300 34660
Less: sale of scrap 5310
Add: Opening stock of work in progress 10000
Less: Closing Stock of Work in Progress 500
Works Cost 134070
Office and Administration Overheads
Legal expenses 5400
Depreciation on furniture 2000
Audit fees 5000
Postage 9600 22000
Add: opening Stock of finished Goods 5520
Less: Closing Stock of Finished goods 9690 -4170
Cost of Production 151900
Selling and Distribution Overheads
Cost of tenders 9000
Carriage outwards 8000
Cost of catalogues 5000
Bad Debts 210
Warehouse rent 5100
Advertising Expenses 6320 33630
Cost of sales 185530
Profit/ Loss (Balancing Figure) 410470
Sales 596000

Topic: CVP Analysis

Problem 1: Overlook Inn is a small bed and breakfast inn located in the Great smoky Mountains of Tennessee.
The charge is Rs. 50 per person for one nights lodging and a full breakfast in the morning. The retired couple who
own and manage the inn estimate that the variable expense per person is Rs. 20. This includes such expenses as
food, maid service and utilities. The inn’s fixed expenses total Rs. 42000 per year. The inn can accommodate 10
guests each night.

Required: 1. Contribution margin per unit of service

2. Break even point in Rs. and units

3. The number of units required to earn a target profit of Rs. 60,000 for the year.

Solution: Contribution = Sales – Variable Cost

= 50-20

= 30

Break even point (in units) = Fixed Cost/ Contribution

= 42000/30

= 1400

Break Even Point (in Rs.) = (Fixed Cost/ Contribution) * Sales

= 1400* 50

= 70000

Number of units required to earn targeted profit = (Fixed Expenses + target profit) /Contribution

= (42000+60000)/30

= 3400

Problem 2:

ABC Ltd. manufactures and sells compact discs. Price and cost data are as follows:

Selling price per unit (package of two CDs) Rs. 25

Variable Costs per unit:

Direct Material Rs. 10.5

Direct Labour Rs. 5

Manufacturing overheads Rs. 3

Selling overheads Rs. 1.3

Total Variable costs per unit Rs. 19.8

Annual fixed costs:

Manufacturing overheads Rs. 192000

Selling and Administrative overheads Rs. 276000

Total Fixed Costs Rs. 468000

Forecasted annual sales volume (120,000 units) Rs. 3000000

Required: 1. What is ABC’s BEP in units?

2. What is ABC’s BEP in sales Rs.?

3. How many units would ABC have to sell in order to earn Rs.260,000?

4. What is the firm’s MOS?

5. Management estimates that the direct labour costs will increase by 8% next year. How many units
will the company have to sell next year to reach its break- even point?

6. What is the P/V Ratio of the firm?

Solution: 1. BEP (in units) = Fixed Cost/ Contribution

= 468000/ (25-19.8)

= 90,000 units

2. BEP (in sales) = (Fixed Cost/ Contribution) * Sales

= 90,000*25

= Rs. 2250000

3. Number of units required to earn targeted profit = (Fixed Expenses + target profit) /Contribution

= (468000+260000)/5.2

= 140,000 units

4. MOS (in units) = Actual sales- BEP sales

= 120,000-90,000

= 30,000 units

MOS (in sales) = Actual sales – BEP sales

= 3000000-2250000

= 750000

5. If direct labour increases by 8%, it will become Rs. 5.4 (5+ (8% of Rs. 5)).

Therefore, the new variable cost will be Rs. 20.2 (10.5+5.4+3+1.3)

Now, new contribution = 25-20.2

= 4.8

Therefore no. of units needed to sell to attain BEP = (Fixed Cost + BEP Sales)/ Contribution

= (468000+2250000)/4.8

= 566250 units

6. P/V Ratio (before increase in DL Cost) = (Contribution/ Sales) *100

 = (5.2/25) *100

= 20.8%

P/V Ratio (after increase in DL Cost) = (New Contribution/ Sales) *100

= (4.8/25) *100

= 19.2%
 Topic: Activity Based Costing
Problem 1: MK Ltd. manufactures four products, namely A, B, C and D using the same plant and process. The
following information relates to a production period:

Product A B C D
Output in units 720 600 480 504

The four products are similar and are usually produced in production runs of 24 units and sold in batches of 12
units. The total overheads incurred by the company for the period are as follows:

Rs.
Machine operation and maintenance cost 63000
Setup costs 20000
Store receiving 15000
Inspection 10000
Material handling and dispatch 2592

During the period the following cost drivers are to be used for the overhead cost:

Cost Cost driver

Setup Receiving No. of production runs
Store receiving Requisition raised
Inspection No. of production runs
Material handling and dispatch Orders executed

It is also determined that:

• Machine operation and maintenance cost should be apportioned between setup cost, store receiving and
inspection activity in the ratio 4:3:2.

• Number of requisitions raised on store is 50 for each product and the no. of orders executed is 192, each order
being for a batch of 12 units of a product.

Calculate the total overhead cost per unit of each product using activity-based costing after finding activity wise
overheads allocated to each product.

Solution:

Computation of ABC Recovery Rate

Activity cost
Activity Pool Activity Cost Driver Quantity ABC Rate
No. of production
Setup Receiving 48000 runs 96 500
50*4 =
Store receiving 36000 Requisition raised 200 180
No. of production
Inspection 24000 runs 96 250
Material handling and dispatch 2592 Orders executed 192 13.5
Note:

Machine Operation and Maintenance Cost of Rs. 63,000 is apportioned to the first three activities in the ratio
4:3:2, i.e. Rs. 28,000, Rs. 21,000 and Rs. 14,000

Number of Production Runs and Number of Batches are computed as under:

Product A B C D
Output 720 600 480 504
Quantity per production runs 24 24 24 24
No. of Production Runs 30 25 20 21
Quantity per batch order 12 12 12 12
No. of Batches 60 50 40 42

Computation of OH Costs using ABC System

Product A B C D
500*20 = 500*21=
Set Ups 500*30= 15000 500*25 = 12500 10000 10500
180*50= 180*50=
Stores Receiving 180*50= 9000 180*50= 9000 9000 9000
250*20= 250*21=
Inspection 250*30 = 7500 250*25= 6250 5000 5250
13.5*42=
Material handling 13.5*60= 810 13.5*50= 675 13.5*40=540 567
Total Overhead Cost 32310 28425 24540 25317
Quantity 720 600 480 504
50.2321428
Per unit overhead Cost 44.875 47.375 51.125 6

Problem 2: A company manufactures several products of varying design and models. It uses a single overhead
recovery rate based on direct labour hours. The overheads incurred by the Company in the first half of the year
are as under:

Machine Operation Expenses 2025000

Machine Maintenance 375000
Salaries to Technical Staffs 1275000
Wages and Salaries of store staff 525000
During this period, the company introduced activity-based costing system and the following significant were
activities were identified:

• Receiving materials and components

• Set up of machines for production runs

• Quality inspection

It is also determined that:

• The machine operation and machine maintenance expenses should be apportioned between store and
production activity in 1:4 ratio.
• The technical staff salaries should be apportioned between machine maintenance, set up and quality
inspection in 3:4:4 ratio.

The consumption of activates during the period under review are as under:

Direct labour hours worked 80,000

Production set-ups 4,080

Material and components consignments received from suppliers 3,920

Number of quality inspection carried out 2,560

The direct wages rate is Rs. 12 per hour.

The data relating to two products manufactured by the company during the period are as under:

Product Product
P Q
Direct materials 12000 8000
Direct labour 960 100
Direct Material Consignment received 48 52
Production runs 36 24
No. of quality inspection done 30 10
Quantity produced 15000 5000

A potential customer has approached the company for the supply of 24,000 units of a component ‘R’ to be
delivered in lots of 3000 units per quarter. The job will involve an initial design cost of Rs. 60,000 and the
manufacture will involve the following per quarter.

Direct materials 12000

Direct labour 300
Direct Material Consignment received 20
Production runs 6
No. of quality inspection done 24
You are required to:

1. Calculate the cost of products P and Q based on the existing system of single overheads Recovery rate.

2. Determine the most of products P & Q using Activity Based Costing system.

3. Compute the sales values per quarter of components ‘R’ using Activity Based Costing system (considering a
mark-up of 25% on cost)

Solution:

1. Statement of Computation of Unit Cost of Product P & Q on the Existing System

Particulars P (Rs.) Q(Rs.)

Direct Material 12,000 8,000
Direct Labor Cost 11,520 1,200
(Rs.12 × 960 hr.) (Rs. 12 × 100 hr.)
Overheads 50,400 5,250
(Direct Labor Hours × Rs. 52.5 per hour)
Total Cost 73,920 14,450
Quantity Produced (units) 15,000 5,000
Cost per unit 4,928 2.89

Single Factory Direct Labor Hour Overhead Rate = 4200000/80000

= Rs. 52.50 per Direct Labor Hour

2. Workings:

Apportionment of Overheads

Particulars Receiving supplies Setups Quality Inspection Total

1 4
(Rs 20,25,000 × ( Rs. 20,25,500 × )
Machine 4,05,000 16,20,000 - 20,25,000

) 5
Operation
Expenses (1:4) 5

1 4
(Rs. 7,57,500 ×5) (Rs. 7,57,500 × 5)
Maintenance 1,51,500 6,06,000 - 7,57,000
(1:4)

4
(Rs. 12,75,000 × )
Salary of Technical 5,10,000 3,82,500 8,92,500
10
Staff ₋ (Rs. 12,75,000 ×
3 )
10
Wages & Salary of 5,25,000 - - 5,25,000
Stores Staff
Total 10,81,500 27,36,000 3,82,500 42,00,000

To identify the cost drivers for each activity and establish cost driver rates by dividing the activity costs
by a measure of cost driver usage for the period.

Calculation of Activities Cost Driver Rate

Overheads Activity Cost Driver Rate

275.89
Receiving Supplies (1081500/3920)

Setups (2736000/4080) 670.59

Quantity Inspection (382500/2560) 149.41

Thus, costs are assigned to components based on their cost driver usage. The assignments are as
follows:
 Statement of determination of the Cost of product P & Q

Particulars P (Rs.) Q (Rs.)

Direct Materials 12,000 8,000
Direct Labor @ Rs. 12 per hour 11,520 1,200
Receiving Supplies 13,243 14,346
(Rs. 275.89 × 48 Con.) (Rs. 275.89 × 52 Con.)
Performing Setups 24,141 16,094
(Rs. 670.59 × 36 Set- ups) (Rs. 670.59 × 24 Set-ups)
Quality Inspections 4,482 1,494
(Rs. 149.41 × 30) (Rs.149.41 × 10)
Total Costs 65,386 41,134
No. of Units Produced 15,000 5,000
Cost Per Unit 4.36 8.23

Calculation of Sales Value per quarter for Component ‘R’ (using ABC)

Particulars of Costs Amount (Rs.)

Direct Materials 12,000
Direct labor (@ Rs. 12 per hour) 3,600
(Rs. 12 × 300 Hr.)
Initial design Cost (Rs. 60,000 ÷ 8 Quarter) 7,500
Receiving Supplies 5,518
(Rs. 275.89 × 20 Con.)
Performing Setups 4,024
(Rs. 670.59 × 6 Set-ups)
Quality Inspections 3,586
(Rs. 149.41 × 24 QI)
Total Costs 36,228
Add: Margin 25% of Rs.36,228 9,057
Total Sales Value 45,285

Problem 3: Linux Limited manufactures three products P, Q and R which are similar in nature and are usually
produced in production runs of 100 units. Product P and R requires both machine hours and assembly hours,
whereas product Q requires only machine hours. The overheads incurred by the company during the first
quarter are as under:

Rs.

Machine Department expenses 18, 48,000

Assembly Department Expenses 6, 72,000

Setup Costs 90,000

Store receiving cost 1, 20,000

Order processing and dispatch 1, 80,000

Inspection and Quality control cost 36,000

 The data related to the three products during the period are as under:

P Q R

Units produced and sold 15000 12000 18000

Machine hours worked 30000 hrs. 48000 hrs. 54000 hrs.

Assembly hour worked

(Direct labor hours) 15000 hrs. - 27000 hrs.

Customers’ orders executed 1250 1000 1500

(In numbers)

Numbers of requisitions raised on the stores 40 30 50

Prepare a statement showing details of overheads costs allocated to each products type using activity-
based costing.
Solution:

Cost Pool Cost (Rs.) Cost driver Cost Driver Rate

(Rs.)
[A] [B] [C] = [A] ÷[B]
Machine department expenses 18,48,000 Machine Hours (1, 32,000 14.00
Hrs.)
Assembly Department Expenses 6,72,000 Assembly Hours (42,000 hrs.) 16.00
Setup Cost 90,000 No. of Production Runs 200.00
(450*)
Stores Receiving Cost 1,20,000 No. of Requisitions Raised on 1,000.00
the Stores (120)
Order Processing and Dispatch 1,80,000 No. of Customers Orders 48.00
Executed (3,750)
Inspection and Quality Control 36,000 No. of Production Runs (450*) 80.00
Cost
Total (Rs.) 29,46,000

*Number of production Run is 450 (150+ 120 +180)

Statement Showing Overheads Allocation

Particulars Cost Driver P Q R Total

of Cost
Machine Machine 4,20,000 6,72,000 7,56,000 18,48,000
Department Hours (30,000 × Rs. 14) (48,000 × Rs. 14) (54,000 × Rs. 14)
Expenses
Assembly Assembly 2,40,000 --- 4,32,000 6,72,000
Department Hours (15,000 × Rs. 16) (27,000 × Rs. 16)
Expenses
Setup Cost No. of 30,000 24,000 36,000 90,000
Production (150 × Rs. 200) (120 × Rs. 200) (180 × Rs. 200)
Runs
 Stores No. of 40,000 30,000 50,000 1,20,000
Receiving Requisitions (40 × Rs. 1,000) (30 × Rs. 1,000) (50 × Rs. 1,000)
Cost Raised on
the Stores
Order No. of 60,000 48,000 72,000 1,80,000
Processing Customers (1,250 × Rs. 48) (1,000 × Rs. 48) (1,500 × Rs. 48)
and Orders
Dispatch Executed
Inspection No. of 12,000 9,600 14,400 36,000
and Quality Production (150 × Rs. 80) (120 × Rs. 80) (180 × Rs. 80)
Control Runs
Cost
Overheads 8,02,000 7,83,600 13,60,400 29,46,000
(Rs.)

Problem 4: Fruitolay has decided to increase the size of the store. It wants the information about the
probability of the individual product lines:

Lemon, grapes and papaya. It provides the following data for the 2009 for each product line:

Lemon Grapes Papaya

Revenues Rs.79,350.00 Rs.2,10,060.00 Rs. 1,20,990.00
Cost of goods sold Rs. 60,000.00 Rs. 1,50,000.00 Rs. 90,000.00
Cost of bottles returned Rs. 1,200.00 Rs. 0 Rs. 0
Number of purchases
Orders placed 36 84 36
Number of deliveries received 30 219 66
Hours of shelf stocking time 54 540 270
Items sold 12,600 1,10,400 30,600

Fruitolay also provides the following information for the year 2009:

Sr.No Activity Description of Activity Total costs Cost allocation

Rs. basis

1. Bottle returns Returning of empty 1,200.00 Direct tracing to product

bottles to the store line
2. Ordering Placing of orders of 15,600.00 156 purchase orders
purchases
3. Delivery Physical delivery and the 25,200.00 315 deliveries
receipts of merchandise
4. Self-stocking Stocking of merchandise 17,280.00 864 hours of time
on store shelves and
ongoing restocking
5. Customer Assistance provided to 30,720.00 1,53,600 items sold
support customers including
bagging and checkout
Required:
1.Fruitolay currently allocates store support costs (all costs other than the cost of goods sold) to 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.

2.If Fruitolay allocates store support costs (all costs other than the 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.

3.Compare both the system.

Solution:

(i) Traditional Costing System

Particulars Lemon Grapes Papaya Total

Revenue 79,350 2,10,060 1,20,990 4,10,400

Less: Cost of Support sold (COGS) 60,000 1,50,000 90,000 3,00,000

Less: Store Support Cost 18,000 45,000 27,000 90,000

Operating income 1,350 15,060 3,990 20,400

Operating income % 1.70% 7.17% 3.30% 4.97%

(ii) ABC System Overhead Allocation Rate

Activity Cost Hierarchy Total Costs Quantity of Cost Allocations Overheads

Level (Rs.) Base Allocation rate
Ordering Batch 15600 156 Purchase orders Rs. 100
Delivery Batch 25200 315 delivering orders Rs. 80
self
Stocking Output unit 17280 864 self-stocking hours Rs. 20
Customer Output unit 30720 153600 items sold Rs. 0.20
Support

Store Support Cost

Particular Cost Driver Lemon Grapes Papaya Total

Bottle Returns Direct 1200 0 0 1200
Ordering Purchase orders 3600 8400 3600 15600
Delivery Deliveries 2400 17520 5280 25200
 Self-Stocking Hours of time 1080 10800 5400 17280
Customer Support Items Sold 2520 22080 6120 30720
Grand Total 10800 58800 20400 90000

Operating Income

Particulars Lemon Grapes Papaya Total

Revenue 79350 210060 120990 410400

Less: Cost of Goods sold 60000 150000 90000 300000

Less: Store support Cost 10800 58800 20400 90000

Operating income 8550 1260 10590 20400

Operating income% 10.78% 0.60% 8.75% 4.97%

Summary/Comparison

Particulars Lemon Grapes Papaya Total

Under Traditional Costing System 1.70% 7.17% 3.30% 4.97%

Under ABC System 10.78% 0.60% 8.75% 4.97%

The grapes line drops sizably 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 percentages of total COGS.
Hence under ABC, Lemon is most profitable. Fruitolay can explore ways to increase sales of lemons and also
explore price increases on grapes.

Operating Income Ranking is highest for Grapes under Traditional system because other products bear its
overheads cost, whereas under ABC a more accurate picture shows Grapes as the lowest ranking product.

Topic: Budget and Budgetary Control

Problem 1: A factory engaged in manufacturing plastic buckets is working at 40% capacity and produces 10,000
buckets per month. The present cost break - up for one bucket is as under:

Material Rs. 10
Labour Rs. 03
Overheads Rs. 5 (60% fixed)
The selling price is Rs.20 per bucket. If it is desired to work the factory at 50% capacity the selling price falls by
3%. At 90% capacity the selling price falls by 5% accompanied by a similar fall in the price of material.

You are required to prepare a statement the profit at 50% and 90% capacities and also calculate the break‐ even
points at this capacity production.

Solution:

Flexible Budget

Particulars Capacity

40% 50% 90%

Production and sales 10,000 12,500 22,500

Units

Sales price per unit 20 19.40 19.00

Sales Amount 2,00,000 2,42,500 4,27,500

Material: Rs.10 per 1,00,000 1,25,000 2,13,750

unit (at 90% ‐ Rs.9.50

per unit)

Labor 30,000 37,500 67,500

Variable overhead 20,000 25,000 45,000

Total 1,50,000 1,87,500 3,26,250

Contribution 50,000 55,000 1,01,25

0
Less: Fixed Cost 30,000 30,000 30,000

Profit 20,000 25,000 71,250

Contribution per unit 5 4.40 4.50

BEP (units) (F /C) 6,000 6,818 6,667

 Problem 2: Saurashtra Co. Ltd. wishes to arrange overdraft facilities with its bankers from
the period August to October 2019 when it will be manufacturing mostly for stock. Prepare
a cash budget for the above period from the following data given below:

Month Sales Purchases (Rs.) Wages Mfg. Exp. Office Exp. Selling
(Rs.) (Rs.) (Rs.) (Rs.) Exp. (Rs.)

June 1,80,000 1,24,800 12,000 3,000 2,000 2,000

July 1,92,000 1,44,000 14,000 4,000 1,000 4,000

August 1,08,000 2,43,000 11,000 3,000 1,500 2,000

September 1,74,000 2,46,000 12,000 4,500 2,000 5,000

October 1,26,000 2,68,000 15,000 5,000 2,500 4,000

November 1,40,000 2,80,000 17,000 5,500 3,000 4,500

December 1,60,000 3,00,000 18,000 6,000 3,000 5,000

Additional Information:

1.Cash on hand 1‐08‐2010 Rs.25,000.

2.50% of credit sales are realized in the month following the sale and the remaining 50% in the second month
following. Creditors are paid in the month following the month of purchase.

3.Lag in payment of manufacturing expenses half month.

4. Lag in payment of other expenses one month.

Solution:

Cash Budget
 Particulars August (Rs.) September (Rs.) October (Rs.)

Receipts:

Opening balance 25,000 44,500 (66,750)

Sales 1,86,000 1,50,000 1,41,000

Total Receipts(A) 2,11,000 1,94,500 74,250

Payments:

Purchases 1,44,000 2,43,000 2,46,000

Wages 14,000 11,000 12,000

Mfg. Exp. 3,500 3,750 4,750

Office Exp. 1,000 1,500 2,000

Selling Exp. 4,000 2,000 5,000

Total payments(B) 1,66,500 2,61,250 2,69,750

Closing 44,500 (66,750) (1,95,500)

Balance(A‐B)

Working Notes:

Manufacturing Expense:
Particular August September October

July (4000/2) 2000 ‐‐‐ ‐‐‐

August (3000/2) 1500 1500 ‐‐‐

September (4500/2) ‐‐‐ 2250 2250

October (5000/2) ‐‐‐ ‐‐‐‐ 2500

Total 3500 3750 4750

Sales:
Particular August September October
June (180000/2) 90000 ‐‐‐ ‐‐‐
July (192000/2) 96000 96000 ‐‐‐
August (108000/2) ‐‐‐ 54000 54000

September (174000/2) ‐‐‐ ‐‐‐‐ 87000

Total 186000 150000 141000

Problem 3: The budgeted output of a industry specializing in the production of a one product at the
optimum capacity of 6,400 units per annum amounts to Rs. 1,76,048 as detailed below:

Particulars Rs. Rs.

Fixed costs 20,688

Variable costs:

Power 1,440

Repairs etc. 1,700

Miscellaneous 540

Direct material 49,280

Direct Labour 1,02,400 1,55,360

Total cost 1,76,048

The company decides to have a flexible budget with a production target of 3,200 and 4,800 units
(the actual quantity proposed to be produced being left to a later date before commencement of the
budget period)

Prepare a flexible budget for production levels of 50% and 75%. Assuming, selling price per unit is
maintained at Rs. 40 as at present, indicate the effect on net profit.

Administrative, selling and distribution expenses continue at Rs.3,600.

Solution:

Flexible Budget

Particulars 100% 75% 50%

(i)Sales (per unit Rs.40) 2,56,000 1,92,000 1,28,000

Cost of Sales:
(a)variable costs:
Direct material 49,280 36,960 24,640
Direct Labor 1,02,400 76,800 51,200
Power 1,440 1,080 720
Repairs 1,700 1,275 850
Miscellaneous 540 405 270
Total variable costs 1,55,360 1,16,520 77,680
(b)Fixed Costs: 20,688 20,688 20,688
 (ii) Total Costs 1,76,048 1,37,208 98,368
Gross Profit(i)‐ (ii) 79,952 54,792 29,632
Less: Adm., selling and 3,600 3,600 3,600
Distribution Cost
Net Profit 76,352 51,192 26,032

Problem 4: Prepare a flexible budget for overheads on the basis of the following data. Ascertain the
overhead rates at 60% and 70% capacity.

Variable overheads: At 60% capacity (Rs)

Material 6,000

Labor 18,000

Semi‐variable overheads:

Electricity: 30,000

40% Fixed

60% variable

Repairs:

80% fixed 3,000

20% Variable 3,000

Fixed overheads:

Depreciation 16,500

Insurance 4,500

Salaries 15,000

Total overheads 93,000

Estimated direct labour hours 1,86,000

Solution:
 Flexible Budget
Items Capacity

60% 70%

Variable overheads: Rs. Rs.

Material 6,000 7,000

Labor 18,000 21,000

Semi‐variable

Electricity 30,000 33,000

Repairs 3,000 3,100

Fixed overheads:

Deprecation 16,500 16,500

Insurance 4,500 4,500

Salaries 15,000 15,000

Total Overheads 93,000 1,00,100

Estimated direct labor hours 1,86,000 2,17,000

Overhead Rate 0.50 0.46