Name of Book Cost AccountingAuthor(s) Babatosh BanerjeeEdition EleventhProblem No 2Page No 77

ProblemA companys monthly requirement of an inventory item is 1800 units .The cost of processing an order is Rs 5 and the carrying cost per units is Rs 0.20.The company supplier agrees to offer quantityDiscount as under - Upto AboveLot size (Units) 400 401-600 601-800 801-1000 1000Discount (Rs) Nil 6 10 15 20Lead time is 2 days and the company wishes to keep a safety stock equal to 50 % of the usage in the lead time.A)Find EOQ without considering the offer for discountB)Calculate Re-order point taking 1 month =30Working daysC)Tabulate different types of cost as also effect of discount on different order sizes taking 1,2,3,……….7 orders a month and indicate the EOQ.

Solution

Solution-A) EOQ = √2AS

C

where

A = Annual usuage =1800*12=21,600 units

S = Cost of processing an order =Rs 5

C = Carrying cost per unit=Rs0.20

EOQ = √2*21600*5 =0.2

B) Reorder poinSafety stock +Consumption during lead time1/2(1800/30*2)+(1800/30*2)Units

= 60+120= 180 units

C) Statement showing computations of EOQNo of orders

Monthly requirement (unit

Order size

Average inventory

Ordering cost @ rs 5 per o

Carrying cost@Rs0.20 per

Total cost

Discounts

Total cost

Since the total (Net) Cost is minimum for an order size of 450 units the EOQ is 450 Units

Name of Book Cost AccountingAuthor(s) Babatosh BanerjeeEdition EleventhProblem No 4Page No 78

ProblemG Ltd produces a product which has a monthly demand of 4000 units .The product requires a component x which is purchased at RS 20.For every finished product one unit of component is required .The ordering cost is Rs120Per order and the Holding cost is 120 per order and the holding cost is 10% pa You are required to calculate

1)EOQ

2)If the minimum lot size to be supplied is 4000 Units what is the extra cost the company has to incurr

3)What is the minimum carrying cost the company ha to incur

SolutionEOQ = √2AS

C

1) Where A=Annual Usage=4000*12=48,000 units

S=Ordering Cost per order =Rs120

C=Carrying/Holding Cost per unit =Rs 20*0.10=Rs 2

EOQ= √2*48000*1 =

2

2) Extra cost will be the difference in cost I.E ordering cost plus carrying cost between the two lot sizes i.e 2400 units VS 4000 units

= 48000 20

2400

No Of orders required when lot sizes is 4000 units

= 48000 12

4000

Average inventoryWhen order size is 2400=2400/2=1200 units

When order size is 4000=4000/2=2000 units

Extra cost = (20-12)*Rs120 +(1200-2000)*Rs2

= Rs 960 (Savings)-Rs 1600=(-) Rs 640

3) The Minimum carrying cost will be with the EOQ That is -

1/2(2400*Rs 2)= Rs 2400

A companys monthly requirement of an inventory item is 1800 units .The cost of processing an order is Rs 5 and the carrying cost per units is Rs 0.20.The company supplier agrees to offer quantity

C)Tabulate different types of cost as also effect of discount on different order sizes taking 1,2,3,……….7 orders a month and indicate the EOQ.

Annual usuage =1800*12=21,600 units

Cost of processing an order =Rs 5

Carrying cost per unit=Rs0.20

√10,80,000= 1039 units

1 2 3 4 5 6 7

1800 1800 1800 1800 1800 1800 1800

1800 900 600 450 360 300 257

900 450 300 225 180 150 129

5 10 15 20 25 30 35

180 90 60 45 36 30 26

185 100 75 65 61 60 6120 15 6 6 Nil Nil Nil

165 85 69 59 61 60 61

Since the total (Net) Cost is minimum for an order size of 450 units the EOQ is 450 Units

G Ltd produces a product which has a monthly demand of 4000 units .The product requires a component x which is purchased at RS 20.For every finished product one unit of component is required .The ordering cost is Rs120

A=Annual Usage=4000*12=48,000 units

C=Carrying/Holding Cost per unit =Rs 20*0.10=Rs 2

2400 units

Extra cost will be the difference in cost I.E ordering cost plus carrying cost between the two lot sizes i.e 2400 units VS 4000 units

G Ltd produces a product which has a monthly demand of 4000 units .The product requires a component x which is purchased at RS 20.For every finished product one unit of component is required .The ordering cost is Rs120

Name of Book Cost AccountingAuthor(s) S N MaheshwariEdition EleventhProblem No 5.7Page No 92

ProblemA Factory having three production department A,Band C and two service department Boiler House and Pump room .The boiler house has to depend upon the pump room for supply of water and pump room in its turn is dependent on the boiler house for supply of power for driving the pump .The expense is incurred by the production department during a period are A-RS 8,00,000,B-Rs 7,00,000 and c-Rs5,00,000 .The expenses for bolier house are RS 2,34,000and the pump room are Rs 3,00,000.The expenses of the Boiler house and pump room are apportioned to the production departments on the following basis

A B C B.H P.RExpenses of Boiler-H 20% 40% 30% - 10%Expenses of Pump R 40% 20% 20% 20% -Show clearly as to how the expenses of Boiler house and pump room would be apportioned to A,B and C department.Use Algebrical equation

Solution

Let X be the overhead of boiler house and Y be the total overhead of Pump Room

X=2,34,000 +.2YY=3,00,000+.1Y

or10X-2Y=23,40,000-x+10Y=30,00,000

On multiplying equation (I) by 5 and adding it to equation (II)50X-10Y=1,17,00,000-X+10Y=30,00,00049X=1,47,00,000X=3,00,000

On Substitution the value in Equation (II)-3,00,000+10Y=30,00,000

10Y=33,00,000 or Y=3,30,000

Distribution of Overheads

TotalA

Amount for the Departments 2,000,000 800,000Boiler House 270,000 60,000Pump Room 264,000 132,000

2,534,000 992,000

Name of Book Cost AccountingAuthor(s) S N MaheshwariEdition EleventhProblem No 5.22Page No 108

Problem

From the following data of textile factory maschine room compute an hourly maschine rate assuming that the maschine room will work on 90% capacity throughout the year and that a breakdown of 10% is reasonableThere are 3 days holidays at deepawali ,2 days at holi and 2 days at christmas exclusive of sundays .The factory works 8 hours a day and 4 hours on SaturdayNumber of Maschines (each of same type ) 40Expenses per anumpower 3120 Lubricating oil 66light 640 Repairs to maschines 1446Salaries to foreman 1200 depreciation 785.6

Total Expenses Rs 7257.60

SolutionNumber of Hours WorkedTotal Number of days in a yearSaturdays 52sundays 52Holidays 7Full Working days

Number of hours on fullworking days @8 per dayNumber of hours on saturdays @4 per dayTotal Per MaschineEffective hours per maschine 90%of 2240Total no of Hours for 40 Maschines 80640

Less Allowance for Breakdown 10% 8064Total Hours worked 72576

Computation of Maschine hour rate

Standing charges Salaries to foremanlightTotal

Per hour(1840/72,576)

Maschine expensesPower 3120Lubricating oil 66Repairs 1446Depreciation 785.6Total 5417.6

Per Hour(5417.60/72576)

Maschine hour rate

A Factory having three production department A,Band C and two service department Boiler House and Pump room .The boiler house has to depend upon the pump room for supply of water and pump room in its turn is dependent on the boiler house for supply of power for driving the pump .The expense is incurred by the production department during a period are A-RS 8,00,000,B-Rs 7,00,000 and c-Rs5,00,000 .

The expenses of the Boiler house and pump room are apportioned to the production departments on the following basis

Show clearly as to how the expenses of Boiler house and pump room would be apportioned to A,B and C department.Use Algebrical equation

DepartmentsB C

700,000 500,000120,000 90,000

66,000 66,000886,000 656,000

From the following data of textile factory maschine room compute an hourly maschine rate assuming that the maschine room will work on 90% capacity throughout the year and that a breakdown of 10% is reasonableThere are 3 days holidays at deepawali ,2 days at holi and 2 days at christmas exclusive of sundays .The factory works 8 hours a day and 4 hours on Saturday

365

111254

2032208

22402016

Per Hr RsRs

1200640

1840

0.02

0.08

0.1

From the following data of textile factory maschine room compute an hourly maschine rate assuming that the maschine room will work on 90% capacity throughout the year and that a breakdown of 10% is reasonable

Name of Book Problem and solution in cost accountingAuthor(s) DR S N MaheshwariEdition TenthProblem No 9.4Page No A255

ProblemCalculate the estimated cost of production of ByProducts X and Y at the point of separation from the main product

By Product X By Product YSelling Price per unit RS 12 Rs 24Cost per unit after separation from the main Product Rs 3 Rs 5Units Produced 500 200

Sellling expenses amount to 25% of Total Works cost i.e. including both pre-separation and post -separation works cost Selling prices are arrived at by adding 20% of total costi.e.the sum of works cost and selling expenses

SolutionApportionment of Pre-Separation costs

By-Product X500 Units

Perunit TotalSelling price 12 6000

Less Net Profit (1/5 of cost or 1/6of Selling price) 2 100010 5000

Less Selling expense(1/4 of works cost or 1/5 of Total cost 2 1000Work Cost 8 4000

Less Cost incurred after separation of Main Product 3 1500Estimated cost at the point of Separation 5 2500

Name of Book Problem and solution in cost accountingAuthor(s) DR S N MaheshwariEdition TenthProblem No 9.47Page No A263

Problem

A vegetable oil refining company obtains four products whose cost details are:Joint cost of the four products Rs 8,29,600Outputs A 5,00,000 litres,B 10,000 litres,C Rs Nil and D Rs 8030The products xan be sold as intermediates i.e. at split off point without further processing The sales prices are

As Finished product As IntermediateA Rs per litre 1.84 1.2B Rs Per litre 8 4C Rs Per litre 6.4 6.4D Rs per KG 26.67 24

A) Calculate the productwise profit allocating joint cost on net realisable valuesB)Compare the profitability in selling the products with and without further processing

Solution

Allocation of Joint cost on Net realisable Values

A) Products A B COutput 500000 litres 10000 litres 5000 litresSelling price at split off point per unit Rs1.20 RS4.00 Rs6.40Total Sales Value 600000 40000 32000Joint Cost Rs 8,29,600 apportioned in rati 560541 37369 29895Profit 39459 2631 2105

B) Products A B DFurther processingSales value 920,000 80,000 240,000Share of Joint cost 560,541 37,369 201,795Further processing costs 240,000 48,000 8,030Total cost 800,541 85,369 209,825Profit 119,459 -5,369 30,175

Not further processingProfit as shown above statement (A) 39459 2631 14205

The above statements shows that it is beneficial to further process product A and D but not product B

Calculate the estimated cost of production of ByProducts X and Y at the point of separation from the main product

Sellling expenses amount to 25% of Total Works cost i.e. including both pre-separation and post -separation works cost

Apportionment of Pre-Separation costsBy-Product X By-Product Y

200 UnitsPerunit Total

24 48004 800

20 40004 800

16 32005 1000

11 2200

The products xan be sold as intermediates i.e. at split off point without further processing The sales prices are

As Intermediate

Allocation of Joint cost on Net realisable Values

D9000KGRs 24

216000201795

14205

The above statements shows that it is beneficial to further process product A and D but not product B

Name of Book Problems and solution in cost accountingAuthor(s) DR Sn MaheshwariEdition EleventhProblem No 16.26Page No 458

ProblemThe following are the cost and the sales data of a manufacturer selling three products X,Y and Z

Product Selling price Variable cost Percent of Rupees (sales volume)X 4 3 20Y 5 4 40Z 8 6 40Capacityof the manufacturer Rs 15,00,000total sales volumeAnnual fixed cost -Rs2,30,000a)Find the break even point in rupees b)Calculate his profit or loss at 80% capacity

Solution

Computation of Profit Volume ratio X Y Z

Sales Revenue 20 40 40

Selling price per unit 4 5 8

No Of Units 5 8 5

Varable cost per unit 3 4 6

Total Varibale Cost 15 32 30

Contribution 5 8 10

The PV Ratio is thus 23%

a) Break Even Point

Fixed Cost Rs-2,30,000

Break Even S= Fixed CostP/V Ratio

2,30,000*100/23 Rs 10,00,000

b) Profit or Loss at 80% CapacitySale at 80% Capacity(80% of Rs 15,00,000) 1,200,000

Excess over break even sales 200,000

Profit at 23% of Rs2,00,000 46,000

Name of Book Cost accountingAuthor(s) Babatosh BanerjeeEdition EleventhProblem No 8Page No 588

ProblemNandi chemical s limited has two factories with similar plant and maschinery for manufacture of soda As.The Board of directors of the company has expressed the desire to merge them and to runthem as on integrated unit .The additional fixed cost involved in the merger is estimated at Rs 5Lakhs .Following data are available in respect of these two factories-

Factory X Ycapacity in operation 60% 100%

Rs RsTurnover 120 Lakhs 300 lakhsVariable cost 90 220Fixed cost 25 35

Find Outa) What should be the capacity of the merged factory to be operated for break evenb)What is the profitability of working 80% of the integrated capacity andC)What turnover will give an over all profit of Rs 60 lakhsSolution

60% 100%

Turnover 120 Lakhs 200 Lakhs

Variable cost 90 Lakhs 150 Lakhs

Fixed cost 25 Lakhs 25 Lakhs

Factory X Factory Y Merged factory

X Y X+Y

Capacity 100% 100% 100%

(Rs in Lakhs) Additional cost

Turnover 200 300 500

Variable cost 150 220 370

Fixed cost 25 35 5 65

a) P/v Ratio 500-370 = 13 or 26%500 50

BEP= Fixed Cost = 6500000 *50 = 250 Lakhs

P/V Ratio

or

250/500*100=50% capacity level

b) AT 80 % capacity sales over BEP would be30 % of 500 laks =RS 150 lakhs

Increase in Contribution=Increase in profit (Fixed cost reamaining constant )

13/50*150,00,000 = Rs 3,90,000

C) To earn a profit of Rs 60 Lakhs required contributionRs 65 lakhs +Rs 60Lakhs =Rs 125 Lakhs

Required Sales= Required cont= 125,00,000*50 =

P/V ratio 13

TOTAL

100

77

23

Nandi chemical s limited has two factories with similar plant and maschinery for manufacture of soda As.The Board of directors of the company has expressed the desire to merge them and to runthem as on integrated unit .The additional fixed cost involved in the merger is estimated at Rs 5Lakhs .Following data are available in respect of these two factories-

Rs 4,80,76,923

Name of Book Problems and solution in cost accountingAuthor(s) DR Sn MaheshwariEdition EleventhProblem No 17.9Page No 516

ProblemGarden Products limited manufacture the "Rain pour" garden spray .The accounts of the company for the year 1991 are expected to reveal a profit of Rs 14,00,000 from the manufacture of "Rainpour" after charging fixed costs of Rs 10,00,000 the "Rainpour" is sold for Rs 50 per unit and has a variable unit cost of Rs 20

Market sensitivity tests suggest the following responses to price charges Alternatives Selling price reduced by Quantity sold increases byA) 5% 10%B) 7% 20%C) 10% 25%

Evaluate these alternativess and state which on profitability consideration should be adopted for the forthcoming year assuming cost structure unchanged from 1991

Solution

Alternatives Reduction in Selling Price Rate Revised contribution per unitRs Rs Rs

A 5% 2.5 27.5

B 7% 3.5 26.5

C 10% 5 25

The above statement shows that on profitability consideration to the exclusion of other factors alternative B is the Best and hence should be adopted for 1992

Working note

Computation of Units sold in 1991Net Profit 1400000Fixed cost 1000000Contribution 2400000

Contribution per unit-Rs(50-20) I.e Rs 30Units sold-Rs 24,00,000/30=80,000

Name of Book Problems and solution in cost accounting

Author(s) DR Sn MaheshwariEdition EleventhProblem No 17.12Page No 520

ProblemThe budgeted results for X co include the following

Rs in lakhs Variable cost as % of sales valueProduct A 60 50%Product B 50 60%Product C 80 65%Product D 40 80%Product E 30 70%

260

Fixed overhead for the period Rs 100 Lakhs

A)You are required to prepare a statement showing the amount of loss expected .B)Assuming that the sale of only one product can be increased at a time you are asked to recommend a change in the sales volume of each product which will eliminate the expected loss.

SolutionStatement showing the amount of contribution and expected loss

Product Sales Ratio of variable Variable CostCost to Sales Rs

A 6,000,000 50% 3,000,000

B 5,000,000 60% 3,000,000

C 8,000,000 65% 5,200,000

D 4,000,000 80% 3,200,000

E 3,000,000 70% 2,100,000Total 26,000,000 16,500,000

Contribution at present level of activityTotal fixed expensesLoss

Additional sales required to break even assuming sales of only one product is increased at a time to give additional contribution of Rs 5,00,000 is calculated as follows

Sales required = under-recovery of Fixed overheads P/V Ratio of the product

Product RsA 500000/50% 1,000,000

B 500000/40% 1,250,000

C 500000/35% 1,428,571

D 500000/20% 2,500,000

E 500000/30% 1,666,667

The company should utilise the spare capacity available for Product A to achieve maximum Profitablity as its P/V Ratio is Highest .Fixed cost remaining the same at every levelof production this combination will lead to maximum profitability.

Garden Products limited manufacture the "Rain pour" garden spray .The accounts of the company for the year 1991 are expected to reveal a profit of Rs 14,00,000 from the manufacture of "Rainpour" after charging fixed costs of Rs 10,00,000 the "Rainpour" is sold for Rs 50 per unit and has a variable unit cost of Rs 20

Evaluate these alternativess and state which on profitability consideration should be adopted for the forthcoming year assuming cost structure unchanged from 1991

Rate increase in sale Qty Revised sale QTY Total contribution(units)

10% 8000 88000 2,420,000

20% 16000 96000 2,544,000

25% 20000 100000 2,500,000

The above statement shows that on profitability consideration to the exclusion of other factors alternative B is the Best and hence should be adopted for 1992

B)Assuming that the sale of only one product can be increased at a time you are asked to recommend a change in the sales volume of each product which will eliminate the expected loss.

Statement showing the amount of contribution and expected loss

Contribution as %of sale Contribution inRs

50% 3,000,000

40% 2,000,000

35% 2,800,000

20% 800,000

30% 900,0009,500,000

Contribution at present level of activity 9500000Total fixed expenses 10000000

500,000

Additional sales required to break even assuming sales of only one product is increased at a time to give additional contribution of Rs 5,00,000 is calculated as follows

under-recovery of Fixed overheads P/V Ratio of the product

The company should utilise the spare capacity available for Product A to achieve maximum Profitablity as its P/V Ratio is Highest .Fixed cost remaining the same at every level

Name of Book Problems and solution in cost accountingAuthor(s) Dr S N MaheshwariEdition eleventhProblem No 14.24Page No 374

ProblemThe budgeted cost of a factory specialising in the production of a single product at the optimum capacity of 6400 units per annum amounts rs 1,76,048 as detailed belowFixed cost Rs 20,688

Variable cost RsPower 1440Repairs 1700Miscellaneous 540Direct material 49280Direct labour 102,400 155,360

Having Regard to possible impact on sales turnover by market trends the company decided to have a flexible budget with a production target of Rs 3200 and 4800 units (the actual quantityproposed to be produced being left to a later date before commencement of the budget period).Prepare a flexible budget for production level at 50% and 75% capacity

Assume selling price per unit is maintained at Rs 40 as at present indicate the effect on net profit.Administration selling and distribution expenses continue at RS 3600

Solution

Capacity Level 100% 75% 50%Output (Units) 6,400 4800 3200

Fixed cost Rs 20688 Rs 20688 Rs 20688Variable costDirect material@rs 7.70 per Unit 49,280 36960 24640Direct Labour@Rs16.00 Per Unit 102,400 76800 51200Power@rs0.225 Per unit 1,440 1080 720Repairs etc @ Rs 0.265625 per unit 1,700 1275 850Miscellaneous @ Rs 0.084375 Per unit 540 405 270Total cost 176,408 137208 98368sales@RS40 per unit 256,000 192000 128000Gross Profit 79,952 54792 29632Administration expenses 3,600 3600 3600Net Pofit 75,352 51192 26032

Name of Book Problems and solution in cost accountingAuthor(s) Dr S N MaheshwariEdition eleventh

Problem No 14.37Page No 385

ProblemA Glass manufacturing company require you to calculate and present the budget for the next year from the following informationSalesToughened Glass Rs 3,00,000Bent-Toughened Glass Rs 5,00,000Direct Material Cost 60% Of salesDirect wages 20 workers @Rs 150 Per monthFactory OverheadIndirect labourWorks manager 500 Per monthForeman 400 Per monthStores and spares 2 1/2% on salesDepreciation on machinery Rs 12600Light and power 5000Repairs and Maintenance 8000Other sundries 10% on Direct wages

Administration selling and Distribution expense Rs 14000 Per year

Solution

Master Budget for period ending onRs

Sales (As per sales Budget) 300000Toughened glass units @ Rs 500000

800000Less Cost of Production(As per cost production budget)

Direct Material (Units @ Rs ) Rs 480000Direct Wages 36000Prime cost 516000

Factory OverheadVariableStores and spares2 1/2 % of Sales Rs 20000Light and power 5000Repairs and Maintenance 8000 33000

Fixed

Works Manager Salary 6000Foremans Salary 4800Depreciation 12600Sundries 3600 27000Works Cost 576000

Gross Profit 224000

Less Administration ,selling and Distribution Overheads 14000Net Profit 210000

The budgeted cost of a factory specialising in the production of a single product at the optimum capacity of 6400 units per annum amounts rs 1,76,048 as detailed below

Having Regard to possible impact on sales turnover by market trends the company decided to have a flexible budget with a production target of Rs 3200 and 4800 units (the actual quantityproposed to be produced being left to a later date before commencement of the budget period).Prepare a flexible budget for production level at 50% and 75% capacity

A Glass manufacturing company require you to calculate and present the budget for the next year from the following information