Analysis of Financial Statements

Case Study 1Solution

Solution :

• Let X be the cost, Y be the profit and Rs. 1600, selling price per unit of radio manufactured by the company

Hence X + Y = Rs. 1600 - i

Statement of present and future cost of a radio

Particulars Present Cost Increase in Cost Anticipated Future Cost

  (A) (B) (C ) = (A) + (B)

Direct Material 0.3X 0.09X 0.39X

Direct Labour 0.4X 0.04X 0.44X

Overheads 0.3X

- 0.30X

       

TOTAL X 0.13X 1.13X

Solution : (Cont ..)

• An increase in material price and wage rates resulted into decrease in current profit by 40% at present selling price :

• Therefore1.13 X + 0.6Y = 1,600 – ii

On solving i & ii X + Y = 16001.13X + 0.6 Y = 1600

X = Rs. 1,207.55 - CostY = Rs. 392.45 – Current Profit (32.5% of Cost)

Future profit is 235.47

Solution : (Cont ..)

Direct Material 470.94

0.39 X 1207.55  

Direct Labour 531.32

0.44 X 1207.55  

Overheads 362.27

0.30 X 1207.55  

   

Total Cost 1,364.53

Profit 443.47

(32.5% of total cost)  

Revised Selling Price 1,808.00

Statement of revised selling price to maintain the present rate of profit

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Rohit BhagwatCell : 99308-96787

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