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OST AND MANGEMENT A OUNTINGIMPORTANT QUESTIONS

Q 1. An analysis of costs of Sullivan Manufacturing Company led to the followinginformation:

Cost Elements Variable Costs Fixed Costs(% of Sales) Rs.

Direct Materials 32.8Direct Labor 28.4Factor! "#er$eads 2.! "8#"$$$Distribtion Exenses 4. %8"4$$&eneral ' dminExenses

. !!"&$$

'udgeted sales for the ne(t year are )s. 8"%$"$$$.*ou are re+uired to determine:, the -rea/even sales volume"2, the profit at the -udgeted sales volume"3, the profit" if actual sales 0 a, drop -y $1" -, increase -y %1 from -udgeted

sales.Q . hen 5 ratio is 2$1 and Margin of Safety is 4$1" calculate the profit 1 of

sales.

Q *. 6 7td. produces a variety of products" each having a num-er of componentsparts. ' taes % hours to process on a machine woring to full capacity. ' has aselling price of )s. %$ and a marginal cost of )s. 3$ per unit. A/$9 componentpart used for product A could -e made on the same machine in 2 hours for amarginal cost of )s. % per unit. he supplier9s price is )s. 2.%$. Should 6 7td.mae or -uy A/$9; Assume that machine hour is the limiting factor.

Q +. Calculate the level of sales to earn same profit for the following company data:,nit ,nit -

Fixed Cost )s. $"$$$ )s. %"$$$Variable Cost )s. 2 )s. 4Also" state that which unit is more profita-le after achieving the a-ove sales.

Q . A company wants to -uy a new machine to replace one" which is having fre+uent-readown. ven oint of sale for current year plan if fi(ed cost is )s.8!"$$$ for current year and company follow =

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Sales )s. 4.8$ crores )s. 2.4$ croresVariable Cost )s. 3.%2 crores )s. .8$ croresFixed Cost )s. $.8$ crore )s. $.4$ crore*ou are re+uired to wor out:

, 'rea >ven Capacity of merge plant.2, rofit >arned at &%1 capacity of the merge plant.3, Sales re+uired to earn a profit of )s. crore.

Q 4. @* 7td. is manufacturing three household products" A" ' and C and selling themin a competitive maret. etails of current demand" selling price and coststructure are given -elow:

/articlars - C>(pected emand Bunits, $"$$$ 2"$$$ 2$"$$$Selling rice per unit )s. 2$ )s. ! )s. $5aria-le cost per unitirect material )s. $ 6g )s. ! )s. 4 )s. 2irect 7a-our )s. .% r )s. 3 )s. 3 )s. .%$5aria-le ?verheads )s. 2 )s. )s. =i(ed overheads per unit )s. % )s. 4 )s. 2he company is fre+uently affected -y acute scarcity of raw material and high

la-our turnover. uring the ne(t period" it is e(pected to have one of thefollowing situations:

, )aw material availa-le will -e only 2"$$ 6g.2, irect la-our hours availa-le will -e only %"$$$ rs.3, (penses )s. #$ per unit=i(ed >(penses )s. 3% per unit

otal Cost )s. !&% per unita, he purchase manager has an offer from a supplier who is willing to

supply the component at )s. %4$. Should the component -e purchasedand production stopped;

-, Assume the resources now used for this component9s manufacture are to-e used to produce another new product for which the selling price is )s.48%.

age of 2

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say 7td. produces an article -y -lending two -asic raw materials. he followingstandards have -een set up for raw materials:

Materials Standard Mix Standard /rice er 78.A 4$1 )s. 4.$$' !$1 )s. 3.$$

he standard loss in processing is %1. uring Septem-er" 2$2 the companyproduced &$$ g of finished output. he position of stoc and purchases for the

month of Septem-er" 2$2 is as under:Material Stoc: as on 1;5;1

Stoc: as on *6;5;1

/rc$ases(78.)

Cost(Rs.)

A 3% % 8$$ 3"4$$' 4$ %$ "2$$ 3"$$$

Calculate material variances. Assume that =

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uring the month in +uestion" however" the actual composition of gang andhourly wage rates paid were as under:

a8e rate aid 9=or:er 9 ?r

S:illed 2 )s. 2$Semi;S:illed 3 )s. 4

,ns:illed % )s. $he gang engaged for 2$$ hours during the month" which included 2 hours

when no production was possi-le" due to machine -rea down. 8$ units of theproduct were recorded as output of the gang during the month.

*ou are re+uired :a, o compute the standard unit la-our cost of the product.-, o compute the total variance in la-our cost during the month" andc, Analyse the variance in B-, a-ove into su-/variances and reconcile.

Q 1. he followings data has -een collected from the cost records of unit forcomputing the various fi(ed overhead variances for a period:Eum-er of -udgeted woring days 2% days'udgeted man/hour per day !$$$ hrs'udgeted output per man/hour Bin units, unit

=i(ed ?verhead cost as -udgeted )s. "%$"$$$Actual num-er of woring days 2& daysActual man/hour per day !3$$ hrsActual output per man/hour Bin units, $.# unitActual =i(ed ?verhead incurred )s. "%!"$$$

*ou are re+uired to calculate all the fi(ed overhead variances.

Q 1. =ollowing information is availa-le from the records of a factory:-d8et ctal

=i(ed ?verhead for Fune )s. $"$$$ )s. 2"$$$roduction in Fune BDnits, 2"$$$ 2"$$Standard time per unit

Br,

$ /

Actual our wored inFune

/ 22"$$$

Compute all the fi(ed overhead variances.

Q 12.

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Sales Qantit!@roduct M 2"$$$ "8$$roduct E 3"$$$ 3"%$$

Sales /rice /er ,nit@roduct M )s. 2 )s. 4roduct E )s. 8 )s. &

Cost er ,nit@roduct M )s. # )s. $

roduct E )s. ! )s. %

Q 6. he -udgeted overheads and cost driver volumes of @*G are as follows:Cost /ool -d8eted "9?

(Rs.)Cost Dri#ers -d8eted

VolmeMaterialrocurement

%"8$"$$$ Eo. of ?rders "$$

Material andling 2"%$"$$$ Eo. of movements !8$Set/Dp 4"%"$$$ Eo. of setups %2$Maintenance #"&$"$$$ Maintenances ours 8"4$$Huality Control "&!"$$$ Eo. of

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achproduct has an e(ternal maret.

A B External Mar:et rice er nit )s. 48 )s. 4! )s. 4$Variable cost of rodction )s. 33 )s. 24 )s. 28Labor $ors reired ernit

3 4 2

Maximm External Sales(nits)

8$$ %$$ 3$$

roduct * can -e transferred to ivision '" -ut the ma(imum +uantity that might-e re+uired for transfer is 3$$ units of *. ach unit cost is )e. and the ordering cost is )s. 2%. he inventory carryingcost is estimated at 2$1 of unit value. =ind the total annual cost of the e(istinginventory policy. ow much money can -e saved -y >conomic ?rder Huantity;

Q . he urchase epartment of your organisation has received an offer of +uantitydiscounts on its orders of materials as under:

rice per tonne B)s., onnes"2$$ 7ess than %$$"8$ %$$ and 7ess than "$$$

"!$ "$$$ and 7ess than 2"$$$"4$ 2"$$$ and 7ess than 3"$$$"2$ 3"$$$ and a-ove

he annual re+uirement for the material is %"$$$ tonnes. he delivery cost perorder is

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)s. "2$$ and the stoc holding cost is estimated at 2$1 of material cost perannum.

*ou are re+uired to advise the urchase epartment the most economicalpurchase level.

Q 2. F 7td. manufacturers of a special product" follows the policy of >?H for one ofits components. he component9s details are as follows:urchase rice Component )s. 2$$Cost of an order )s. $$

Annual Cost of Carrying one unit in inventory $1 of urchase riceotal Cost of conomic ?rder Huantity" -, Advise whetherthe +uantity discount offer can -e accepted. Assume that the inventory carryingcost does not vary according to the discount policy" c, ould your advice differsif the company is offered %1 discount on a single order;

Q 4.