1. A manufacturer of Surat purchased the chemicals A, B, and C from Mumbai. The invoice gave the following :

Chemical A : 3,000 kg. @ Rs. 4.20 per kg. 12,600/-

Chemical B : 5,000 kg. @ Rs. 3.80 per kg. 19,000/-

Chemical C : 2,000 kg. @ Rs. 4.75 per kg. 9,500/-

Sales Tax 2,050/-

Railway Freight 1,000/-

Total Cost 44,155/-

A shortage of 200 kg. in chemical A, of 280 kg. in Chemical B and of 100 kg. in Chemical C was noticed due to breakages. At Surat, the manufacturer paid octroi duty @ Rs. 0.10 per kg. He also paid cartage Rs. 22 for Chemical A, Rs. 63.12 for Chemical B and Rs. 31.80 for chemical C. Calculate the stock rate that you would suggest for pricing issue of chemicals assuming a provision of 5% toward further deterioration.

Answer :-1

2. The Particulars relating to the import of Sealing Ring made by A B & Co., during December, 2012 are given below :-(a) Sealing Ring – 1000 pieces invoiced £ 2.00 C.I.F, Mumbai Port.(b) Customs duty was paid @ 100% on invoice value, (which was converted to Indian Currency by adopting an Exchange rate of Rs. 85.00 per £).(c) Clearing charges- Rs. 18000 for the entire consignment, and (d) Freight charges- Rs. 14000 for transporting the consignment from Mumbai Port to Factory premises.

It was found on inspection that 100 pieces of the above material were broken and, therefore, rejected. There is no scrap value for the rejected part. No refund of the broken material would be admissible as per the terms of contract. The management decided to treat 60 pieces as normal loss and the rest 40 pieces as abnormal loss. The entire quantity of 900 pieces was issued to production.

Calculate

(a) Total cost of material , and

(b) Unit cost of material issued to production.

Also state briefly how the value of 100 pieces rejected in inspection will be treated in costs

Answer :-2

3. A company has the option to procure a particular material from two sources :Source I assures that defective will not be more than 2% of supplied quantity.Source II does not give any assurance, but on the bases of past experience of supplies received from it, it is observed that defective percentage is 2.8%.The Material is supplied in lots of 1,000 units. Source II supplied the lot at a price, which is lower by Rs. 100 as compared to Source I. The defective units of material can be rectified for use at a cost of Rs. 5 per unit.You are required to find out which of the two sources is more economical

Answer :-3

4. The Standard hours of Job X is 100 hours. The Job has been completed by Amar in 60 hours, Akbar in 70 hours and Anthony in 95 hours.The bonus system applicable to the job is as follows :Percentage of time saved to time BonusAllowedSaving up to 10% 10% of time saved From 11% to 20% 15% of time saved From 21% to 40% 20% of time saved From 41% to 100% 25% of time saved

The rate of pay is Rs. 100 per hour. Calculate the total earning of each worker and also the rate of earning per hour.

Answer :-4(A)

Answer :-4 (B)

5. Wages negotiations are going on with the recognised labour Union and the management wants you as the Cost Accountant of the Company to formulate an incentive scheme with a view to increase productivity.The case of three typical workers Achyuta, Ananta, and Govinda who produce respectively 180, 120 and 100 units of the company’s product in a normal day of 8 hours is taken up for study.Assuming that day wages would be guaranteed at Rs. 75 per hour and the piece rate would be based on a standard hourly output of 10 units, calculate the earning of the three workers and the labour cost per 100 pieces under (i) Day wages and (ii) Piece rate

Also calculate under the above schemes the average cost of labour for the company to produce 100 pieces.

Answer :-5

6. A departmental store has several departments. What bases would you recommend for apportioning the following items of expenses to its departments:-

• Fire Insurance of Building • Rent• Delivery Expenses• Purchases Department Expenses• Credit Department Expenses• General Administration Expenses• Advertisement• Sales Assistants Salaries• Personnel Department Expenses• Sales Commission

7. XYZ Ltd., a manufacturing Company, having an extensive marketing network throughout the country, sells its product through four zonal sales offices viz. A,B,C & D. The Budgeted expenditure for the month are given below

Rs. Sales Manager’s Salary 1,20,000Expenses Relating to sales manager’s office 80,000

Traveling Salesmen’s Salaries 3,20,000Traveling Expenses 36,000Advertisements 30,000Godown Rent : Zone “A” 15,000

“B” 25,200 “C” 9,800

“D” 18,000 68,000

Insurance of inventories 20,000Commission on Sales @ 5.00% on Sales 6,00,000

The Following further particulars are also available :-

Zone Sales in No. of Sales Mileage Allocation of Avg. Stock

Lakhs Men Covered Advertisement (Lakhs)

A 36 5 6,000 30% 6

B 48 6 14,000 30% 8

C 16 2 4,500 20% 4

D 20 3 5,500 20% 2

Based on the above details, compute zone wise selling overheads, as a percentage to sales.

Answer :-7

8. Following costs were incurred in producing 800 MT of M.S. Rods :

Rupees

Materials 280,000

Labour 100,000

Processing Charges 100,000

Of the Total output, 10% was defective and had to be sold after a discount of 10% off the normal price. The scrap arising out of the production realised a sum of Rs. 8760/-. The sale price is calculated to yield 15% profit on sales. You are requested to find out the normal price as well as the discount price of per MT of MS rods.Answer :-8

9. XYZ produces a uniform type of product and has a manufacturing capacity of 3000 units per week of 48 hours. From the cost records, the following data are available relating to output and cost for 3 consecutive weeks –

Week Units Direct Direct Fact. O.H. Mfgd. Mat. Lab. (Var.+Fixed)

Rs. Rs. Rs.1 1200 9000 3600 31000

2 1600 12000 4800 33000 3 1800 13500 5400 34000

Assuming that the Company charges a profit of 20% on Selling Price, find out the selling price p.u. when the weekly output is 2000 units.

Answer 9

10. A Company has developed 2 types of pocket TV Sets operated on battery and having LCD. Model A is having single channel and Model B is having multi-channels. The management of the Company asked their accountant to recommend prices for the new products which will fetch a margin of 20% on price. The accountant has collected following data for 1st year of production -

Product A BMax. prodn. & sale in Units 2,500 1,500

Variable Cost per Unit Rs.

Direct Materials 300 500

Direct Labour 100 200

Attributable Fixed O.H. (lacs) 2.5 3.0

Labour Hours per unit 20 40

Machine Hours per unit 30 15

The marketing department is contemplating to sell the entire output. The other common fixed OH relating to these products are Rs. 8.58 lacs p.a. The management wants to have a statement of costs, revenue and profit for both the products – one with common fixed costs absorbed on labour hour basis and another with common fixed costs absorbed on machine hour basis.

Answer 10

Required –

a.As above

b.Which set of prices would you recommend?

c.Do you think that cost plus pricing decision is valid for a newly developed product?

11. The Everest Snow Company manufactures and sells direct to consumers 10,000 jars of ‘Everest Snow’ per month at Rs. 125 per jar. The company’s normal production capacity is 20,000 jars of snow per month. An analysis of cost for 10,000 jars is given below :

RS.Direct Material……………….. 1,00,000Direct labour …………………. 2,47,500Power …………………………. 14,000Misc. Supplies ……………….. 43,000Jars ……………………………. 60,000Fixed expenses of manufacturing selling and administration 7,95,500

Total 12,60,000

The Company has received an offer for the export under a different brand name of 1,20,000 jars of snow at 10,000 jars per month at Rs. 75 a jar.

Write a short report on the advisability or otherwise of accepting the offer.

Answer 11

12. Given the following information, you are required to :

(a) Calculate and present the marginal product cost and contribution per unit.

(b) State which of the alternative sales mixes you would recommend to the management, and why.

Per unit

Selling price …………… X Rs. 250

Selling price …………… Y Rs. 200

Direct materials ………. X Rs. 80

Direct materials ………. Y Rs. 60

Direct wages …………. X 24 hrs. at Rs. 2.5 per hour

Direct wages …………. Y 16 hrs. at Rs. 2.5 per hour

Fixed overhead ……….. Rs. 7500

Variable over head ……….. 150% of Direct Wages

Alternative sales Mix (i) 250 units of X and 250 units of Y (ii) Nil units of X and 400 units of Y(iii) 400 units of x and 100 units of Y

Answer 12

13. A manufacturer has planned his level of operation at 50% of his plant capacity of 30,000 units. His expenses are estimated as follows, if 50% of the plant capacity is utilized :

Rs.(i) Direct materials 82,800

(ii) Direct wages 1,11,600 (iii) Variable and other manufacturer Exp. 39,600 (iv) Total Fixed expenses irrespective of capacity utilization 60,000

The expenses selling price in the domestic market is Rs. 20.00 per unit. Recently, the manufacturer has received a trade enquiry from an overseas organisation interested in purchasing 6,000 units at a price of Rs. 14.5 per unit.As a professional management accountant, what would be your suggestion regarding or rejection of the offer ? Support your suggestion with suitable quantitative information.

Answer 13

14. Two competing companies HERO Ltd. and ZERO Ltd., sell the same type of product in the same market. Their forecasted profit and loss accounts for the year ending Dec. 2012 are as follows:

Hero Ltd. Zero Ltd. (Rs.) (Rs.) Sales 50,00,000 50,00,000Less:- Variable Cost of Sales 40,00,000 30,00,000Less:- Fixed Cost 5,00,000 15,00,000Forecasted Net Profit before tax 5,00,000 5,00,000

You required to state which company is likely to earn greater profits in conditions of :

(A) Low demand and

(B) High demand .

Answer 14

15. Ridewell Cycle Ltd. purchases 20,000 bells per annum from an outside supplier at Rs. 50 each. The management feels that these be manufactured and not purchased. A machine costing 5,00,000 will be required to manufacture the item within the factory. The machine has as annual capacity of 30,000 units and life of 5 years. The following additional information are available :Material cost per bell will be Rs. 20.00Labour cost Rs. 10.00 Variable overheads 100% of labour Cost

You are required to advise whether:-

(i) The company should continue to purchases the bells from out side supplier or should make them in the factory; and

(ii) The company should accept an order to supply 5,000 bells to the market at a selling price of Re. 45 per unit?

Answer 15

16. Taurus Ltd. produces three products A,B and C from the same manufacturing facilities. The cost and other details of the three products are as follows:

A B C

Selling price / unit (Rs.) 200 160 100

Variable cost / unit (Rs.) 120 120 40

Fixed expenses / month (Rs.)

2,76,000

Maximum production per month (units)

5,000 8,000 6,000

Total hours available for the month

200 hours

Maximum demand per month (units)

2,000 4,000 2,400

The processing hours cannot be increased beyond 200 hours per month.You are required to :-(a) Compute the most profitable product-mix;(b) Compute the overall break – even sales of the company for the month based on the mix calculated in (a) above .

Answer 16

17. A company is at present working at 90% of its capacity and production 13,500 units per annum. It operates a flexible budgetary control, system the following figures ( excluding material and labour cost ) are obtained from its budget.

90.00% 100.00%

(a) Sales (Rs.) 15,00,000 16,00,000

(b) Fixed Expenses (Rs.) 3,00,500 3,00,500

(C) Semi- Fixed Expenses (Rs.) 97,500 1,00,500

(d) Variable Expenses (Rs.) 1,42,000 1,49,500

Material and labour cost per unit are constant under present conditions. Profit margin is 10% at 90% capacity.

(a) you are required to determine the cost of producing an additional 1,500 units.

(b) What would you recommend for an export price for these 1,500 units taking into account that overseas prices are much lower than indigenous prices ?

Answer 17

18. P.Q.R Ltd. make a single product which sells for Rs. 300 per unit and there is great demand of the product.

The variable cost of the product is Rs. 160 as detailed below:

RS.

Direct Material 80

Direct Labour (2 hrs.) 40

Variable Overhead 40

160

The labour force is currently working at full capacity and no extra time be made available. Mr. J.M. Pai a customer has approached the company with a request for the manufacture of a special order at Rs. 80,000.

The cost of the order would be Rs. 30,000 for Direct Material and 600 labour hours will be required and variable overhead per hour shall be Rs. 20 should the order be accepted

Answer 18

19. A manufacturing unit has two machines, viz. M1 and M2. Machine M1 can be used for the production of either product ‘A’ or product ‘B’ are both. Machine M2 can be used for the production of either product ‘X’ or product ‘Y’ or both. In order to meet long term contractual obligations with one of its customers, the unit should produce a minimum quantity of 1,200 units each of ‘A’ and ‘B’ and 1,600 units each of ‘X’ and ‘Y’.

The production and cost data for the year 2013 are :Machine hours available:

M1= 7,200 hours M2= 7,300 hours

Per unit of output A B C D

a) Machine hours required

2 3 3 1

b) Selling price (Rs.) 350 465 540 235

c) Direct Material cost (Rs.)

120 135 150 100

Per machine hours M1 M2

a) Direct Labour (Rs.) 65 80

b) Variable Overhead 15 22

Fixed overhead per annum Rs. 5 lakhs.

An additional expenditure involving a fixed overhead Rs. 40,000 per annum will convert the machine M1 and M2 into a versatile centre so that any of the products can be manufactured on these two machines.

As a management consultant please advise whether conversion of machines should be undertaken or not.

Answer 19

20. The XYZ Co., has the following budget for the year 1986-87 :

Rs.

Sales (1,00,000) units @ Rs. 20 20,00,000

Variable cost 10,00,000

Contribution 10,00,000

Fixed Cost 4,00,000

Profit 6,00,000

From the above set of information fin out .(a) The adjusted profits for if the following two sets of changes are

introduced and also suggest which plan should be implemented.

Plan A % Plan B %

Increase in price 20 Decrease in price 20

Decrease in volume 25 Increases in volume 25

Increase in variable cost

10 Decrease in variable Cost

10

Increase in fixed cost

6 Decrease in Fixed Cost

5

b) The P/V Ratio and break even points under the two plans referred above

Answer 20

21. A company present the following cost estimate for three prospective plants A, B & C.

Plant A Plant B Plant C

Annual fixed cost (Rs.) 60,000 1,08,000 1,20,000

Variable cost per unit (Rs.)

2.50 2.20 2.10

Annual Capacity (Units)

75,000 1,20,000 1,50,000

(i) Calculate the range of output over which each of the plants would be most economical

(ii) If sales are ready at 1,00,000 units per year and the unit selling price is Rs. 4 per unit, what will be the profits earned with each of the plants? Assume that Plant A can be worked double shift with an additional expenses of 10% in fixed costs and 5% in variable costs of all units.

Answer 21

22. The Asian Industries specialise in the manufacture of small capacity motors. The Cost structure of a motor is as under:-

Material Rs. 50

Labour Rs. 80

Variable overheads 75% of labour Cost

Fixed overheads of the Company amount to Rs. 2.40 lakhs per annum.The sales price of the motor is Rs. 230 each.

A) Determine the number of motors that have to be manufactured and sold in a year in order to break – even.

B) How many motors have to be made and sold to make a profit of Rs. 1 Lakh per year ?

(c) If the sale price is reduced by Rs. 15 each, how many motors have to be sold to break – even ?

14/317Answer 22

23. The Skyrock Ltd. produces and sells three types of products P.Q. & R. The management committee has decided to discontinue the production of ‘Q’ since there is not much profit in it. From the following set of information find out the profitability of the products and give your short comments on the decision of the management.

Products Selling Price per unit

Direct Material Per Unit

Direct Wages Per unit

Direct Wages Per unit

Direct Wages Per unit

Rs. Rs. Rs. Rs. Rs.

Dept. A Dept. B Dept. C

P 300 60 20 15 10

Q 275 30 20 20 10

R 305 70 12 10 20

The absorption rates of overhead on Direct Wages are:

Dept. A

Dept. B

Dept. C

Variable overhead

150% 120% 200%

Fixed overhead 200% 240% 150%

29/327Answer 23

24. A review, made by the top management of Sweat and Struggle Ltd., which makes only one products, of the result of first quarter of the year revealed the following:

Sales in Units 10,000

Loss in Rs. 10,000

Fixed cost (for the year Rs. 1,20,000) in Rs.

30,000

Variable cost per unit in Rs. 8

The finance manager who feels perturbed suggests that the company should at least break even in the second quarter with a drive for increased sales. Towards this, the company should introduce a better packing which will increase the cost by Re. 0.50 per unit

The Sales Manager has an alternate proposal. For the second quarter additional sales promotion expenses can be increased to the extent of Rs. 5,000 and a profit of Rs. 5,000 can be aimed at for the period with increased sales.The Production Manager feels otherwise. To improve the demand, the selling price per unit has to be reduced by 3 per cent. As a result the sales volume can be increased to attain a profit level of Rs. 4,000 for the quarter. The Managing Director asks you as a Cost Accountant to evaluate these three proposal and calculate the additional sales. Volume that would be required in each case, in order to help him take decision.

36/334Answer 24

25. A,B, and C are three similar plants under the same management who want them to be merged for better operation. The details are as under.

Plant A B C

Capacity operated 100% 70% 50%

Rs.( in lakhs)

Rs.( in lakhs)

Rs.( in lakhs)

Turnover 300 280 150

Variable Cost 200 210 75

Fixed Cost 70 50 62

Find out :-

(i) The capacity of the merged plant for break even.

(ii) The profit at 75% capacity of the merged plant.

(iii) The turnover from the merged plant to give a profit of RS. 28 lakhs.

40/340Answer 25

26. A factory is currently running at 50% capacity and produces 5,000 units at a cost of Rs. 90/- per unit details below:

Rs.

Material 50

Labour 15

Factory overheads 15 ( Rs. 6 Fixed)

Administrative overheads 10 (Rs. 5. Fixed)

The current selling price is Rs. 100/- per unit. At 60% working, material cost per unit increases by 2% and selling price per unit falls by 2%

At 80% working, material cost per unit increases by 5% and selling price per unit falls by 5%

Estimate profits of the factory at 60% and 80% working and offer you comments.

2/436Answer 26

27. Lookahead Ltd., produces and sells a single product. Sales budget calendar year 2013 by quarter is as under :-

Quarter No. of units be sold

I 12,000

II 15,000

III 16,500

IV 18,000

The year 2013 is expected to open with an inventory of 4,000 units of finished product and close with an inventory of 6,500 units.

Production is customarily scheduled to provide for two- third of the current quarter’s sales demand plus one-third of the following quarter’s demand. Thus production anticipates sales volume by about one month.The Standard cost details for one unit of the product is as follow:-Direct Material 10lds @ .50 paise per Ib.Direct labour 1 hour 30 minutes @ Rs. 4 per hour.variable overheads 1 hour 30 minutes @ Rs. 1 Per hour.Fixed overheads 1 hour 30 minutes @ Rs. 2 per hour based on a budget production volume of 90,000 direct labour hour for the year.(i). Prepare a Production Budget for 2013, by quarters, showing the number of units to be produced, and the total costs of direct material , direct labour, variable overheads and fixed overhead.(ii). If the budgeted selling price per unit is Rs. 17, what would be the budgeted perofit for the year as a whole ?

(iii). In which quarter of the year, is the Company expected to break even?

8/444Answer 27

28. Based on the following information, prepare a Cash Budget for ABC ltd.

1stQuarter 2ndQuarter 3rd Quarter 4th Quarter

Rs. Rs. Rs. Rs.Opening Cash balance

10,000

Collection for Customers

1,25,000 1,50,000 1,60,000 2,21,000

Payment :

Purchase of material

20,000 35,000 35,000 54,200

Other expenses 25,000 20,000 20,000 17,000Salary and wages 90,000 95,000 95,000 1,09,200Income Tax 5,000 - - -Purchase of machinery

- - - 20,000

The company desire to maintain a cash balance of Rs. 15,000 at the end of each quarter. Cash can be borrowed or repaid in multiples of Rs. 500 at an interest of 10% per annum. Management does not want top borrow cash more than what is necessary and wants to repay as early as possible. In any event, loans cannot be extended beyond 4 quarters. Interest is computed and paid when the principal is repaid. Assume that borrowing take place at the beginning and repayment are made at the end of the quarters.

9/446Answer 28

29. Leo Limited undertakes to supply 1,000 units of a component per month for the months of January, February, and March 2013. Every month a batch order is opened against which materials and labour cost are booked at actual. Overheads are levied at a rate per labour hour. The selling price in contracted at Rs. 15/- per unit. From the following data, present the cost and profit per unit of each batch order and the overall position of the order for the 3,000 units.

Month Batch Output (Number)

Material Cost (Rs.)

Labour Cost (Rs.)

January 2013 1250 6250 2500

February 2013 1500 9000 3000

March 2013 1000 5000 2000

Labour is paid at the rate of Rs. 2 per hour. The other details are:

Month Overheads Total Labour Hours

January 2013

12,000 4,000

February 2013

9,000 4,500

March 2013

15,000 5,000

9/159Answer 29