Marginal Costing Problems

Prof.Behere’s Classes 1  Marginal Costing Problem (1) Chandrashekhar Enterprises supplies you with the following data Months January 1981 February 1981 Sales. Profit Rs. Rs. 3,00,00 8,000 0 3,80,00 24,000 0 You are asked to compute: (1) Break-even point (2) Profit at sale level of Rs. 2,40,000 (3) Sales’ required to earn a profit of Rs. 2,40,000 and (4) M/s for 2 years. Problem (2) Sales, turnovers and costs during 2 years are as follows: Ye ar 198 0 198 1 Sales. Profit Rs. Rs. 1,50,00 1,30,00 0 00 1,70,00 1,45,00 0 0 Find out: (1) P/V ratio; (2) B.E.P.; (3) Sales to earn profit of Rs. 40,000; (4) Profit made when sales are Rs.2,50,000; (5) M/s at a profit of Rs. 50,000 and (6) Variable cost for 2 years. Problem (3) 1) Fixed Cost 2) Break Even Point 3) Profit @ 8,00,000 sales 4) Sales to earn Rs. 60,000 profit . 5) M/s for 2 years. 6) Variable Cost for 2 years. Ye ar 1st 2nd Situation 2 1st 2nd Sales. Profit Rs. Rs. 2,00,00 30,000 0 3,00,00 70,000 0 3,00,00 (-) 0 20,000 5,00,00 (+) 0 20,000 Situation 1 Problem (4) 2 years sales were Rs. 3,00,000 and Rs. 5,00,000 and 2 years profit were Rs. 30,000 and Rs. 80,000. Find out (1) Fixed cost (2) Break down point (3) Sales to earn Rs. 60,000 profit (4) 10,00,000 Sales (5) sales to earn 10% profit on sales (6) variable cost for 2 years (7) Margin of safety for 2 (8) BEP (revised) if s.p. is ↓ by 10%. (9) sales to earn profit after tax 70,000 (if tax rate is 30%). Problem (5) S. Ltd. furnishes you the following information related to the half year ended 30th June, 1980: Rs. Fixed 45,000 expenses Sales Value 1,50,0 00 Profit 30,000 During the second half of the year, the company has projected a loss of Rs. 10,000. Calculate: (1) The break even point and margin of safety for six months ending 30th June 1980. (2) Expected sales volume for second half of the year assuming that the P/V ratio and fixed expenses remain constant in the second half year also. (3) The break-even point and margin of safety for the whole year 1980. Problem (6) A company has annual fixed costs of Rs. 1,40,000. In 1975, sales amounted to Rs. 6,00,000 as compared with Rs. 4.5 lakhs in 1974 and profit in 1975 was Rs. 42,000 higher than that in the year 1974. 1) At what level of sales does the Co. break even ? 2) Determine profit or toss on a forecast sales volume of Rs. 8,00,000. 10. increased in fixed overheads by Rs. Problem (8) You are given the following Information of a company: Variable cost per unit Rs. 2.2. The selling price per unit can be assumed of Rs. 45. The contribution margin is estimated at 20% of sales revenue. The tax rate is to assumed 60% of net income before taxes. 2. 60. The fixed costs for the year are estimated Rs.0 0 5% 3.Prof.0 00 Variable over heads on direct 100 labour cost % If sales are 10% and 15% above the break-even volume. If the contribution margin can be increased to 25 %.000 Profit Calculate: (1) The number of units by selling which the company will neither loose nor gain anything. 15. 10. 25 per unit. what should be the required sales volume ? Problem (7) Calculate: (1) The amount of fixed expenses . 18. 1 lakh . (4) 10% decrease in fixed costs. Rs. 2.10.000 at the present selling price of Rs. . 2 Variable cost.00. The company sold in two successive periods 7. (2) P/V ratio and margin of safety at present level. Problem (9) The following data are obtained from the records of a factory: Sales 4.000.000. (2) The number of units to Break-even.00 10. Ltd.000. (1) Sales Rs. Rs . 100.000 units at 25 each Materials consumed Variable over heads Labour Overheads Fixed overheads 1. Rs . 60. (7) 20% increase in selling price accompanied by an increase of 10% in fixed costs and decrease by 10% in variable costs.10. in certain year. 40. (3) 5% decrease in sales volume.000 units and has incurred a loss of Rs.0 00 40. determine the net profits.12.000 as profit respectively.000 18.000 units and 9.000. (6) 20% increase in SP plus. 10.000 after income taxes in 1971.000 ? Problem (12) From the following data draw a simple breakeven chart: Selling price per unit Trade Discount Direct material cost per unit Direct labour cost per unit Fixed Overheads Rs .000 and earned Rs. Selling price per unit Rs.000 Net 12. (5) 10% decrease in variable costs. Find out : (a) Break-even point.000. Break even point and M/s at this level.00 2. You are required to compute the sales revenue required to earn a net income after income taxes of Rs. Behere’s Classes 2 3) If there is a reduction in selling price by 10% in 1976 and the Co. 30. Problem (10) The following information is available from A Co.000 units yield the net profits of Rs. (b) Calculate the effect of. Total sales Rs.000.20. 3 Fixed cost Rs.000 10. Rs .000 units. (3) The extra units which should be sold to obtain the present profit if it is proposed to reduce the selling price by (a) 20% and (b) 25% (4) The selling price to fixed to bring down its break even points to 500 units under present conditions (5) The sales required to earn profit of Rs. Fixed expenses Rs. (1) 20% Increase in selling price.000 88.25. (2) 10% decrease in selling price. and (3) the number of units to earn a profit of Rs. desires to earn the same amount of profit in 75. 4.000 20. (c) At what selling price would the sale Rs.000. profit-volume ratio & Margin of safety. (b) What should be the selling price per unit if the break even point is bought down to 6.60. Problem (11) Diamond company plans to earn Rs. 10.000.10. (a) Find out the P/V ratio.000. How much sale’s revenue will be required to earn a net income after income taxes of Rs. 000 Variable Cost 15. manufactures and sells four types of products under the brand names A.000 Less Other expenses 3. a British Chocolate and Soft Drink company. 1) Contribution 10. (iv) Margin of safety as a % of total capacity.000 % of total Annual costs that is variable (Rs. Rs.000. 9. cost studies produced the following estimates for the Indian subsidiary: Total Annual costs Rs.93.000 6. Problem (17) Following information is presented by the Costing Department to the management accountant of the company.0 Rs. A. The total budgeted sales (100%) are .000 bottles of the mineral water. (ii) Budgeted Break-even point.00 Budgeted variable Cost (unit) 1. Problem (18) Alcos Ltd. Schweppes Mineral Water.000 80.30.000 (b) P/V ratio is 30% margin of safety ratio is 33 1/3 and sales are Rs.000 2) Fixed Cost 4.) 100% 70% 64% 30% ‘The Indian’ production will be sold by manufacturer’s representatives who will receive a commission of 8 % of the sale price.00 (Total) 0 0 Budgeted Capacity 80% 80% Compute the following for each of the above two companies: (i) Budgeted profit. Problem (15) Find out the amount of profit if: (a) P/V ratio Is 30% and margin of safety is Rs. (iii) The impact of + 10% deviation in budgeted sales. Based on the estimated annual sales of 40.0 00 Add Other income 9. Material Labour Overhead Administratio n 1. C and D.Prof.600 90. C. and D respectively. The sales mix is value comprises of 33 1/3% and 41 2/3% 16 2/3% and 8 1/3% of products.00 0 Net 38.00 Budgeted Fixed Cost 5.5) 00 Less Fixed Costs 28. Sales(15.000 30. Problem (16) Cadbury Schweppes Limited.00 2.0 Profit 00 How would you compute break-even points ? Problem (14) The budgeted sales of two companies are given : Budgeted sales (units) 10. is planning to establish a subsidiary company in India to produce.0 00 00 Budgeted selling price (unit) 2.25 1.000 43.000 units @ 75. Behere’s Classes 3 Problem (13) The following are the budgeted data of Volga Company: Rs. No portion of the British Office expenses is to be allocated to the Indian subsidiary.90. B.0 00 Operating Profit 32.000 3) P/V Ratio 1/3 The management accountant is asked to find out the margin of safety if P/V ratio is brought down to 1/2 .50 8.0 10. B. 14.00 60. The total sales per month remaining Rs. Behere’s Classes 4 Rs. 20 per unit 11 per unit 3 per unit 5.000 per month. volume X 4 3 20 Y 5 4 40 Z 8 6 40 Capacity of the manufacturer Rs. 60. Rs. Product A B C D Percent 25% 40% 30% 5% (b) Assuming that the proposal is implemented.40. Also construct a profit volume chart showing the profits estimated on sales upto 1. (ii) Number of units that must be sold to earn a profit of Rs. (a) Calculate the break even point for the products on an over all basis.000 per month for each of the sales mix provided above.30. and then compute the P/V ratio.000 0 0 18.52.0 per 00 year Problem (21) The following are the cost and the sales data of a manufacturer selling three products X. 15.20. 60. Sales Rs. 60. Problem (19) The following is the statement of a Rampha Co.00 72. break-even point -and then profit for the Company under each of the following assumptions: (i) Sales revenue divided. Produc ts . 2. 60% to product L and 40% to product M (ii) Sales revenue divided 40% to product L and 60 % to product M.00 30.000 total sales volume Annual fixed cost Rs. Y & Z Selling Variable cost percent of Price rupee per unit per unit Rs. (iii) How many units must be sold to earn a net income of 10% of sales ? Sales price Variable manufacturing costs Variable selling costs Fixed factory overheads fixed selling costs Rs.00 1. calculate the break even point.000 12.000. 60. for the month of November Products L– M– Total Rs.000 0 0 36.700 per month.00. It has been proposed to change the sales mix as follows.80.00 30. 2) Calculate his profit or loss at 80% of capacity.000 per year. calculate : (i) Break-even point expressed in amount of sales in Rs.0 per 00 year 2.00 48.000 1) Final break -even point In Rupee.Prof. Operating costs are : Variable costs : Product A 60% of selling price Product B 68% -doProduct C 80% -doProduct D 40% -doFixed cost Rs.000 Sales Variable costs Overhead Administratio n Net Profit You are required to compute the P/V ratio for each product. Problem (20) From the following data.0 0 0 00 42. 000 0 57.000 in fixed costs and decrease of Rs.0 1.000 00 9. 30. 2. They have requested you to prepare a statement showing the amount of loss expected and recommend a change in the series of each product or in total mix which will eliminate the expected loss.00 0 B C 60.Prof.00 15. An analysis of their accounting raveals Fixed cost Variable cost Capacity Selling price Rs.0 60. with an increase of Rs. Product (24) Sunita Manufacturing Company produces chairs. 20.0 00 2.000 p.000 P/V ratio 50% 40% 30% Fixed overheads for the period Rs.00 0 42.000 00 +3.000 20.000 (3) What will be the answer for (1) and (2) if selling price changes to Rs. include Produ ct A B C Sales Value 50.000 10. Ltd.000 1. unit. unit. Problem (23) The Budgeted results of A Co. 10 5 3 2 per per per per unit. (b) On . Rs. Rs. 50 per chair? (4) If the company can manufacture 600 chairs more per year with an additional fixed cost of Rs. 30.000 10.a. 20 per chair. unit.000 Units Units Units Units = = = = Rs.0 00 00 48. The following data has been collected: Sales Variable. Rs.0 00 6.1.000 10. Costs Fixed Costs apportioned on the bas is of sales Total Cost Profit & Loss A 40. is worried about the performance of Department A and wants to close the department. The cost data of your firm as computed by the cost Accountant are as below: Sales Out of pocket costs (Variable) Burden (Fixed) Profit Rs.000 30. Behere’s Classes 5 Problem (22) The sales Director of your concern requires to compute the sales volume necessary in order to: 1) Break -even (2) Make a profit of Rs. 2 per unit in out of pocket costs.0 +25. 70 per chair (1) Find the break-even point.0 00 36. 30.00. (6) Maintain the present profit per unit with the revision in costs and out of pocket costs is in 5 (7) Maintain the present percentage of profit to sales with the revision in costs and out of pocket as in .000 10.000 80.000 what should be the selling price to maintain the profit per chair as at (2) above Problem (25) The management of X Co.00. 4 per unit (3) Make a profit of 30 % of sales (4) Make a profit of Rs. 1.000 for the year. Rs.0 00 00 (a) You are required to advice management in respect of closure of Department A.20. (5) Maintain the present profits in Rs. Ltd.00. (2) Find the number of chairs to be sold to get a profit of Rs.0 75.000 50.000 chairs per year Rs.000 The directors are worried about the results of the Co. Rs. 2. 13. @ Rs.) Sales 100 200 materials @ Rs. Sales 1.000 15.000 Profit 15. engaged in the production of two products A and B from a certain raw material.000 costs 0 Add : Fixed Costs 15. Alternative Sales mixes: (1) 250 units of X and Y (2) 400 units of Y and (3) 400 units of X and 100 units of Y.20. Dept C -Rs. 5.25 @ Rs. 2 . 15 Rs.000 35.8 Rs.000 as general fixed over heads. (b) Calculate the present marginal cost and contribution per unit. and Z Ltd. The budgeted profit and loss account for the coming year is as : Y Ltd. Rs. 6 per labour 30 60 hour Variable overheads 10 20 Total fixed overheads 10. {c) State which of the alternative sales mix would you recommend to the management and why.0. 100 2 Kg Rs. and (c) State which business is likely to earn greater profit in conditions of (i) Heavy demand (ii) low demand for the product.000 units.Rs. Problem (27) Given the following Information.) Rs.00. Also briefly give your reason. if specific fixed costs are ascertained as follows : Dept A . sell the same type of product in the same type of market. you are required to : (a) Comment which product should be produced if labour hour is the limiting factor and idea is to produce only product.000 profit. 0.00 1. Dept B – Rs. 6 Hrs. 2. Product Sales per unit Consumption material Material cost Direct wage cost Direct expenses Machinery hours used of A Rs. 20 50 wages @ Rs.000 Problem (29) The following particulars are extracted from-the records of Ellora Sales Ltd.6 24 labour 16 labour hrs. 3 B Rs.. 120 3 Kg Rs. find the product mix which would yield maximum profit.000 0 Less : Variable 1.000 You are required to (a) Calculate the break-even point of each business (b) Calculate the sales.000. 5 Hrs. Selling price Direct materials Direct wages Rs.000 and balance Rs. 10 Rs.20 Rs. Ltd. Behere’s Classes 6 the above. 5. Rs.25 Rs. hrs. 730 and variable overheads 150% of direct wages.50.50.25 hour hour Fixed overheads: Rs. Product A Product B (per unit (per unit Rs. You comment on the profitability of each product when: (a) Total sales potential in units is limited (b) Total sales potential is limited in value (c) Raw material is in short supply (d) Production capacity is the limiting factor. Z. 10 Rs. Problem (28) The following particulars are obtained from the records of the Co. Problem (26) Two business Y Ltd. volume at which each of the business will earn Rs. (e) When total availability of raw materials is 4000 kg and maximum sales potential of each product is 1. 10.Prof.00 1. 15 Rs.10 per kg.000. 0 00 2.00.000 kg and maximum sales potential of each product being 3.) 18 4 30 200 150 100 (1 ) Direct material per unit Direct wages per unit Sales price per unit (units) (units) (units) Proposed Sales mixes: (i) (ii) (iii ) 1.) 20 Coffee 40 Cardamo 250 m The relevant cost data are given below: (A) Variable Cost per Kg.Prof.) (Rs. 300 and Rs. 10 Rs. 5 (a) Comment on the profitability of each product (both use the same raw material ) when (i) Total sales potential in units is limited . (c) The proposed sales mixes to earn a profit of Rs. the following: (a) The unit marginal cost and unit contribution. period are expected to be Rs.00 0 50. As a Cost Accountant you are required to present to the management of AB Ltd. The yield per hectare of the different crops and their selling price per kg are as under : Yield Tea 2. (iii) Raw material is in short supply and (iv) production capacity (in terms of machine hours) is the limiting factor.) 20 6 40 100 150 200 Y (Rs. X (Rs.) (Rs. (ii) Total sales potential in value is limited.) Charges 8 10 120 Material 2 2 10 s 4 1 20 Total 14 13 150 Cost (B) Fixed cost per annum Cultivation and Growing Cost Administrative Cost Land Revenue Repairs and Maintenance 10. 20 Direct wage per hours Rs. Problem (31) A company engaged in plantation activities has 200 hectares of virgin land which can be used for growing jointly or individually tea. Tea Coffee Cardamom (Rs. (b) Assuming raw material as the key factor. Behere’s Classes 7 Overhead expenses: Fixed Variable Rs.000 Kg 500 Kg 100 Kg Selling price per Kg (Rs.00. Problem (30) The following set of information Is presented to you by your client B Ltd.500 units. (b) The total contribution and resultant profit from each of the above sales mixes. find out the product mix which will yield the maximum profit.00 .600 100% of (3) Variable expenses are allocated to products at the rate of Direct Wages. coffee and cardamom.50. 5 Rs. 15 Rs. Producing two products X and Y. (2) Fixed expenses during the.600 with the total sales of X and Y being 300 units.000 2. availability of which is 10. If the present level of profit is to be maintained.000 2. produces and markets Industrial containers and packing cases.50.00 0 18. Rs.0 00 The policy of the Company is to produce and sell all the three kinds of products and the maximum & minimum area to be cultivated per product is as follows: Hectares Maximu Minimu m m Tea 160 120 Coffee 50 30 Cardamo 30 10 m Calculate the most profitable products mix and the maximum profit which can be achieved. Behere’s Classes 8 Other Costs Total Costs 0 3. Problem (32) On the basis of the following Information in respect of an engineering company. Due to competition the company proposes to reduce the selling prices. but they want to keep the total profit intact. What level of production will have to be reached.000 1.00. what is the product mix which will give the highest profit attainable Rs.000 hours at twice the normal wages (overheads are ignored for the purpose of this question).00. is as follow Per cycle Rs.00 3.e.0 00 Variable Cost (30.000 kg raw materials are available @ Rs.00.0 units) 00 Fixed Cost 70. Do you recommend over time working upto a maximum of 15. how many cycles will have to be made to get the same amount of profits. Product A B C Raw material per unit (Kg) 10 6 15 Labour hours per unit @ Rs. 1 per hour (hrs) 15 25 20 Sales price per unit(Rs.00.00 4.0 00 Net Profit 50.84.80. Ltd. 60 20 20 100 50 50 100 Materials Labour Variable Overheads Fixed Overheads Profit Selling Price This is based on the manufacture of one lakh cycles per annum. if (a) The selling price Is reduced by 10% ? (b) The selling price is reduced by 20 % . The following additional information is available : Rs. Problem (33) The Bins and Tins Ltd.000 units) 3.000 with facility for a further 5. The company expects that due to competition they will have to reduce selling prices.000 hours on overtime basis at twice the normal wage rate. 10 per kg maximum production hours are 1. i. Present Sales turnover (30.) 125 100 200 Maximum production possible 6.Prof.000 Problem (34) The price structure of a cycle made by the Cycle co.00 units 0 0 0 1. Indicate the number of units to be sold if the proposed reduction in selling price is (a) 5% (b) 10% (c) 15% . should operate. 2. 14. Direct 3. But he has no option of increasing the selling price. (1) Variable Cost per unit Rs.3. Which of these two suggestions you would recommend.000 pieces @ 60% of potential capacity. 60 (ii) Semi variable cost (including a variable element of Rs. Present sales : 90. Under this situation he obtain for a further 20% of his capacity. (3) Fixed costs of Rs. The following data are available. The following further data re available (i ) Variable cost per unit Rs. 5 per unit) Rs.000. (2) Semi variable cost (including a variable element of Rs. 60.000 units. If the company desires to maintain the present profit. 100 per unit.673 lakhs? Reason out your recommendation. to achieve the desired objective.000 will remain constant upto 80% level.000 will be needed Problem (36) Cookwell Ltd. 6 lakhs.50 material Direct wages 1. 18 lakhs.00. Currently the capacity utilisation is 60% with the sales turnover of Rs. Problem (39) A toy manufacturer earns an average net profit of Rs. 300 per unit. Currently the capacity utilisation is 60% with a sales turnover of Rs.000 will be incurred. proposes to reduce the selling price by 20% but desires to maintain the same profit position by increasing the output Assuring that the increased output could be made and sold determine the level at which the Co.30 by producing and selling 60.25 (50% overhead fixed) Sales 0. Suggestions have been made for increasing sales a) By reducing sales price by 5% b) By increasing dealers margin by 25% over the existing rate. The Co. determine the level at which the company should operate to achieve the desired objectives.000 will remain constant upto 80% level beyond this an additional amount of Rs. Capacity utilisation .50 per piece on a selling price of Rs. 20. manufactures pressure cookers the selling price of which is Rs.Prof.80. Assuming that the increased output could be made and sold.80 (25% Overhead varying) During the current years he intends to produce the same number but anticipated that his fixed charges will got up by 10% while rates of Direct labour and Direct Material will increase by 8 % and 6% respectively. Problem (37) Quality products Ltd. His cost of sales is: Rs. Extra efforts are necessary to sell.60 % There is acute competition. 1. Problem (38) An umbrella manufacturer makes an average net profit of Rs. The company proposed to reduce the selling price by 20% but desires to maintain the same profit position by increasing the output. Beyond this an additional amount of Rs. 40.00. manufactures and markets a single product. The following further data are available.000 pieces or 60% of the potential capacity. Give reasons. Rs. 60. The break up of the cost of sales was as under : Rs. 3 per piece in a selling 60.000 (iii) Fixed costs Rs. 5 Lakhs. Behere’s Classes 9 Problem (35) Your company manufactures a single product.25 Works 6. per Unit Direct Material 4 Direct Wages 1 Works 6 (50% Overhead fixed) . 2. 10 per unit) Rs. What minimum price will you recommend for acceptance to ensure the manufacturer an overall profit of Rs. 1. The selling price is Rs. per Unit Materials 16 Conversion 12 (Variable) Dealers margin 4 Selling Price 40 Fixed cost : Rs. 20.000 jars of Everest Snow @ Rs.23 per jar. Problem (42) There are two factories under the same management. The details are as follows. 120 lakhs lakhs Rs.000. he intends to produce the same number but anticipates that (a) Fixed expenses increase by 10% (b) Rates of direct labour increase by 20% (c) Rates of Direct Material increase by 5% (d) selling price can’t be Increased. What minimum price would be recommended for accepting the order to ensure the manufacturer an overall profit of Rs.5% only. Power Rs.80. Problem (43) Everest Snow Co.000 units. 430. Direct labour Rs. manufactures and sells directly to the customers 10. 20 each and he sells 50. 1. The management desires to merge these two plants. (2) Turnover from the merged plant to give a profit of Rs. Give reasons for your recommendations. In such situation he gets an offer for an additional 15% of his capacity.Prof. 140.000 jars shows: Direct Materials : Rs. The following particulars are available : Particulars Capacity operation Sales Variable Costs fixed costs. What minimum price will you recommend so that the manufacturer retains the same amount of profit as he earned on 50.00 (50% fixed) During the current year he intends to produce at current level of output but anticipates a rise in fixed cost by 10%. Factory I 100% Factory II 60% Rs. In (Rs. Behere’s Classes 10 Sales 1 (75% Overheads fixed) During the year. Under these circumstances he obtains an order for a further 20% of his capacity.00 Labour cost 4. Cost of jars Rs. The cost analysis of 10. .475.00 Manufacturing & Administration 4.000 jars of snow @ 10. Whether offer should be accepted ? Problem (44) The cost of the product has been given as under : Rs. 20 lakhs. 2. 1. 90 lakhs lakhs Rs.000 pieces representing 50% of capacity utilization. AND what would be profitability on working at 73% of the Merged Capacity. In lakhs) lakhs) Turnover 200 210 Variable Cost 150 140 Fixed Cost 40 60 Find out : (1) The capacity of the merged plant at break even.00 (75% O/|| fixed) Selling & distribution O/|| 2.955. The market can absorb a price-increase of 2. Problem (41) A and B are two similar plants under the same management who want them to be merged for better expansion. 40 Rs.000 jars per month @ 75 paise per jar. Plant A B Capacity 100% 70% operated (Rs.000 jars per month. The Company’s normal production capacity is 20.500. 1. Problem (40) A manufacturer makes an average net profit of 15 per unit on a selling price of Rs.600 and Fixed expenses Rs. 20 lakhs lakhs You are required to calculate : What would be the capacity of the merged plant to be operated for the purpose of breaking even. 7. His cost break down is: Material 7. 220 Rs. The company has received an offer from the foreign customer under different brand name for 1. Similarly rates for direct material and labour will go up by 10%. Miscellaneous Expenses Rs. 300 Rs. 50) Administrative expenses Selling overheads (Fixed Rs. Materials 270 per unit Labour (25% 180 per fixed) unit Expenses: Variable 90 per unit Fixed 135 per unit 675 per unit (a) The purchase Manager has an offer from a supplier who is willing to supply the component at Rs.000 units.000 Variable Overheads 1.00 3. 0.0.000 units. A foreign customer is desirous to buy 15. 540. 485. Materials 540 per unit Labour (25% 360 per fixed) unit Expenses: Variable 180 per unit Fixed 270 per unit 1. 0. Should the part be purchase and production stopped ? What will be your advice if the resources producing that part are used to produce a product for which the selling price is Rs. 90. should be component be purchased and production stopped ? (b) Assume the resources now used for this company’s manufacture are to be used to produce another new product for which the selling price is Rs. In the latter case material price will be Rs. The above figures are for an output of 30.20. The cost structure of a parts whose annual production is 90.200 manufactured Direct Materials Rs. 390 per units.50 + Variable Rs.25 + Variable Rs.75 10.080. In the latter case material price will be Rs.0. Discuss whether it would be advisable to divert the resources to manufacture that new product on the footing that the component presently being produced would instead of being produced be purchased from the market. Whether the offer should be accepted or not ? If the offer is from local merchants what would have been your opinion? Problem (45) Mercury motor parts manufacturers produce various motor parts.2 5 The selling price is Rs.0 00 Direct Labour 96. Problem (47) A manufacturer working at 60% capacity gives the following date: Number of units 1. 1. is as follows: Rs. has an annual production of 90.965.00 1.12. The component’s cost structure is given below: Rs.75 0.Prof. 1 per unit and labour efficiency will fall by 2%.00 0.000 units. The capacity of the firm 45. 200 per unit.000 units for a motor component. at the same cost basis as above for labour and expenses.72.000 units @ cost will reduce by Rs. Problem (46) Auto Parts Ltd. Behere’s Classes 11 Direct Material Direct Wages Factory Overhead (Fixed Rs.50) 5.000 Units of this product can be produced.350 per unit The purchasing manager explores that a supply is ready to supply the part @ Rs.00 . What should be the production so that.000 Selling price per unit 400 (a) Due to competition he is required to reduce the selling price to Rs. he will earn the same amount of profit which he earns today ? (b) If the cost of materials. i. This will necessitate an increase in the fixed overheads by 10% and decrease marginal cost by 5% on all units manufactured. labour and variable overheads increase by 25% and fixed overheads Increase by 20% What should be the selling price so that he will earn the same amount of profit what he earns today by keeping the present production level. 340 per unit is received.200 units (c) An offer to produce a further 800 units of his product at Rs.e. 1. 360 per unit.Prof. Comment whether the offer can be accepted? . Behere’s Classes 12 0 Fixed Overheads 96. 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