QUESTION 7.

PAGE 59

GIVEN: PER UNIT LAST YEAR

SALES PRICE 280 SALE RS.

LAST YEAR SALE IN UNITS 2000 560,000

GROSS PROFIT WAS BASED ON COGS @ 25%

BREAK UP OF COGS SOLUTION

MATERIAL 40% IF X IS THE COGS

FOH 15% THEN

25% X =
LABOUR 45%
X + .25X

COMING YEAR X=
CHANGES:
X=
MATERIAL > 25%
COGS =
LABOUR > 25%
GP 25%=
FOH > 12.50%

SALES PRICE = ?

REQUIRED LAST YEAR GP = COMING YEAR GP BREAK UP OF COGS

IF SP IS = 300 MATERIAL
325
350 LABOUR

FOH
1 SUGGESTED SP

COGS

GP

2 SUGGESTED SP

COGS

GP

3 SUGGESTED SP

COGS

GP

X=

.25 X

X+.25X

COGS

CHAPTER 24
COST VOLUME PROFIT
OR BREAK EVEN
 THE POINT AT WHICH AN ENTITY NOT MAKE
NOR SUFFER ANY LOSS

SALES

LESS VARIBALE COST

CONTRIBUTION MARGIN
C.M
LESS FIXED

BREAK EVEN

CONTRIBUTION RATIO

BE
AMOUNT

BE
AMOUNT

BE IN UNITS

DESIRED SALES / DESIRED PROFIT AMOUNT

SALES =
FIGURE

SALES =
FIGURE

PROFIT =
AMOUNT

MARGIN =
 MARGIN OF SAFETY RATIO =
M/S

P %= C/M x M/S

EXERCISE ON PAGE 709 TO 714

Q1
SALES RS 4,500,000

FC 1,200,000

VC 1,800,000

REQ
C.M ?
C/M ?
BE ?

SOLUTION:

C.M = S - VC 2,700,000

C/M 60%

BE FC = 1,200,000
C/M 60%

B.E IN AMOUNT = 2,000,000

Q2 IN MONTH OF JUNE
BUDGETED SALES 265,000

VC IS 56% OF SALES 148,400

C/M= 44%
PROFIT 31,768
REQ
B.E ?
PROFIT = 10,560
SALES ?

P= (SX C/M)-FC

P= (SALES X C.M) - FC

P% 116600 -FC

31,768 = 116600-FC

FC = 116600 - 31768

FC= 84,832

BE= FC 84,832
C/M 44%

BE = RS 192,800

SALES FIGURE = FC +PROFIT

C/M

= 84,832 + 10,560
44%

= 95,392
44%

= ACTUAL SALES 216,800

JUNE

Q3 UNITS
NORMAL CAPACITY 18000

UNIT SP PER UNIT 2.5

SALES ? IF WE WANT PROFIT OF RS 8250
 COST DATA:
VARIBALE FIXED
PER UNIT RS

D.M 0.7

DL 0.8

FOH 0.15 3000

IND COST 0.025 1290

TOTAL 1.675 4290

C.M 0.825

C/M 33%

BE FC 4290
C/M 33%

BE =RS 13000

DESIRED SALES FIGURE TO MAKE PROFIT OF 8250

SALES FC+ DESIRED PROFIT 4290 + 8250

C/M 33%

SALES FIGURE WHICH WILL MAKE PROFIT OF 38,000

RS. 8250

Q10

PROFIT 28,800

BREAK EVEN SALES 160,000

C/M 36%

REQUIRED
FC?
VC?
 SALES?
M/S?

P= (S X C/M) - FC

BE = FC
C/M

160000 = FC
C/M = 36%

FC = 57600

P= 28800

28800 = (S X .36) - 57600

86400 = S X .36

86400 = S
0.36

240000 = S

SALES = 100%

C/M 36%

VC 100 - 36

VC 64 SALES

VC 153,600

M/S = ACTUAL SALES - BE SALES

ACTUAL SALES

= 240000 - 160000
240000
 M/S 33%

PROOF:
p% M/S X C/M

P= 12%

given = 28,800
S 206,250 100%
VC 132,000
VC% 64%
Q.12 C/M 36%
LAST MONT CURRENT MONTH REQ
DUE TO < SP AND < FC
SALES 220,000 220,000
VC 60% 132,000 64%? OF VC = SALES
C/M 40% 36%

M/S 30% 24%

SOLUTION

P% C/M X M/S P = 36% X 24% OF ACTUAL SALES

P= 12% VC = 60% OF 220000

P IN RS= 26400 VC = 132,000

P= (S X C/M) - FC CURRENT MONTH SALES 206,250

26400 = (220000 X 40%) - FC

P= C/M X M/S
FC = 61600
P= 8.64% OF SALES
BE = FC 61600
C/M 40% SALES 206,250

BE = 154,000 P= 17,820

P= (S X C/M) - FC

17,820 = (206250*36%) - FC
FC = 56,430

< IN FC 5170

< IN PROFIT 8580

< IN SALES 13750

< IN BE -2750

BE IN > DUE TO < IN SALES

X IS THE COGS

GP

280

280/1.25

224

448,000

112,000

560,000

LAST YEAR CHANGE IN COMING YEAR

REAK UP OF COGS 448,000 COMING YEAR NEW BREAK UP OF
COGS
40% 179,200 INCREASE 25% 224,000

45% 201,600 INCREASE 25% 252,000

15% 67,200 INCREASE 12.50% 75,600

448,000 551,600

RELATION OF GP TO COGS IS 25% 137,900

NEW SALES 689,500

BREAK UP OF COGS PER UNIT LAST YEAR BREAK UP OF COGS PER UNIT COMING YEAR
TOTOA UNITS 2000
PER UNIT PER UNIT
 MATERIAL 89.60 112

LABOUR 100.80 126

FOH 33.60 37.80

224.00 276

UGGESTED SP 300 NO OF UNITS TO BE SOLD

275.80 LAST GP 112,000

24.20
24.20
UNITS 4,628

UGGESTED SP 325 LAST GP 112,000

49.20
275.80
UNITS 2,276
49.20

UGGESTED SP 350 LAST GP 112,000

74.20
275.80
UNITS 1,509
74.20

COGS

GP

= 350

= 280

CHAPTER 24
COST VOLUME PROFIT ANALYSIS
OR BREAK EVEN POINT
CH AN ENTITY NOT MAKE ANY PROFIT

XXX 110

(XXX) -45

S - VC 65

(XXX) -55
-100
0 10

= S - VC = C/M
SALES
FC
CONTRIBUTION MARGIN RATIO

FC
1 - VC/S

BE AMOUNT
SP PER UNIT

ESIRED PROFIT AMOUNT XXX

FC + DESIRED PROFIT
C/M

FC - DESIRED LOSS
C/M

(S X C/M) -FC

C/M = S - VC
S

SALES - BE SALES
SALES - BE SALES
SALES
 < IN SALES FIGURE

< FC

NEW BE

P FOR CURRENT MONTH

06250*36%) - FC
NEW BE = FC
C/M

NEW BE = 156750

74,250
ER UNIT COMING YEAR
COST
AN AMOUNT PAID TO ACQUIRE AN OWNER OF AN ITEM.

COST
1 VARIABLE
2 FIXED

ELEMENT S OF VARIBALE COST

1 MATERIAL
2 LABOUR
3 FACTORY OVERHEDS

MATERIAL DEFINE AS
1 DIRECT MATERIAL INDENTIFIABLE
2 IN-DIRECT MATERIAL UN-INDENTIFIABLE FOH

LABOUR
1 SKILLED DIRECT WORK ON DIRECT MATERIAL
2 UN-SKILLED IN-DIRECT WORK INDIRECT MATERIAL
HELD SKILLED LABOUR

FACORY OVERHEDS
1 VARIBALE = SEMIABLE AND FIXED (PRODUCTION BASED VARIATION)
2 FIXED FIXED WHETHER WORK OR NOT
RENT
KE BILL
SECURITRY GURAD SALARY
DEPERICIATION
OIL AND LUBRICATION
STAFF SALARY
SEMI- VARIABLE
VARIABLE BASED ON USAGE
FIXED METER RENT ETC.

FINANCIAL ACCOUNTING RECORDING, SUMMARIZE, ANALYZE, REPORT (HISTORY)

MANAGERIAL ACCOUNTING COSTING, DECISION, PRICE, BREAK EVEN CVP , FO (FUTURE)

SALES
COGS ISSUED AND DEVELOP BY CASB OF IFAC
 GP

STATEMENT OF COST OF GOODS MANAFACTURED AND SOLD.

XYZ COMPANY LTD.
FOR THE PERIOD FROM 1ST JAN TO 31ST JAN 2020

SALES 1844000
SALES DISC -8000
1836000
Q6
COST OF SALES / COST OF GOODS SOLD

1 DIRECT MATERIAL

OPENING INVENTORY 88,000

ADD PURCHASES 366,000
PURCHASES RETURNS -
FREIGHT / TRANSPORTATION 6,600
MATERIAL AVAILABLE FOR USE 460,600
LESS ENDING INVENTORY (64,000)
MATERIAL CONSUMED / USED 396,600

ADD DIREC LABOUR COST 523,600

2 PRIME COST 920,200

ADD FACTORY OVER HEAD (FOH) 572,800

3 MANAGACTURING COST 1,493,000

ADD OPENING INVENTORY - WIP 29,800

COST PUT INTO PROCESS 1,522,800

LESS ENDING INVENTORY - WIP (38,800)

4 COST OF GOOD MANAFACTURED 1,484,000

ADD OPENDING INVENTORY OF - FINISHED GOODS. 44,200

FINISHED GOODS AVAILABLE FOR SALE 1,528,200

LESS ENDING INVENTORY OF - FINISHED GOODS (66,000)

5 COST OF GOODS SOLD 1,462,200 1,462,200

 GROSS PROFIT 373,800
LESS
EXPENSES

Q7
COST OF SALES / COST OF GOODS SOLD

1 DIRECT MATERIAL

OPENING INVENTORY 90,000

ADD PURCHASES 198,000
PURCHASES RETURNS -
FREIGHT / TRANSPORTATION -
MATERIAL AVAILABLE FOR USE 288,000
LESS ENDING INVENTORY (95,000)
MATERIAL CONSUMED / USED 193,000

ADD DIREC LABOUR COST 224,000

2 PRIME COST 417,000

ADD FACTORY OVER HEAD (FOH) 167,000

3 MANAGACTURING COST 584,000

ADD OPENING INVENTORY - WIP 70,000

COST PUT INTO PROCESS 654,000

LESS ENDING INVENTORY - WIP (80,000)

4 COST OF GOOD MANAFACTURED 574,000

ADD OPENDING INVENTORY OF - FINISHED GOODS. 110,000

FINISHED GOODS AVAILABLE FOR SALE 684,000

LESS ENDING INVENTORY OF - FINISHED GOODS (95,000)

5 COST OF GOODS SOLD 589,000

 FOH

ASB OF IFAC
DEP 116000
90%
104400
 STATEMENT OF COST OF GOODS MANAFACTURED AND SOLD.
XYZ COMPANY LTD.
FOR THE PERIOD FROM 1ST JAN TO 31ST JAN 2020

SALES
SALES DISC

Q4
COST OF SALES / COST OF GOODS SOLD

1 DIRECT MATERIAL

OPENING INVENTORY 7,000

ADD PURCHASES 42,300
PURCHASES RETURNS -
FREIGHT / TRANSPORTATION -
MATERIAL AVAILABLE FOR USE 49,300
LESS ENDING INVENTORY (7,400)
MATERIAL CONSUMED / USED 41,900

ADD DIREC LABOUR COST 30,000

2 PRIME COST 71,900

ADD FACTORY OVER HEAD (FOH) 45,000

3 MANAGACTURING COST 116,900

ADD OPENING INVENTORY - WIP 9,600

COST PUT INTO PROCESS 126,500

LESS ENDING INVENTORY - WIP (13,000)

4 COST OF GOOD MANAFACTURED 113,500

ADD OPENDING INVENTORY OF - FINISHED GOODS. 15,000

FINISHED GOODS AVAILABLE FOR SALE 128,500

LESS ENDING INVENTORY OF - FINISHED GOODS (17,500)

5 COST OF GOODS SOLD 111,000

 GROSS PROFIT
LESS
EXPENSES
MARKETING EXP 14,100
GENERAL AND ADMIN 22,900

EBIT/ INCOME / PROFIT

Q.10 ROCE NET INCOME X100 0.1

CAPITAL
10.00%

Q.11
SALES
LESS COST OF SALES / COGS 60%

GP 40% OF SALES

EXPENSES

MKT EXP 15% OF SALES

OPERATING EXP
FINANCIAL EXP/INTEREST 5% 37.5% OF 2000,000 750000

TOTAL EXP

EBT

TAX 10% OF SALES

EBT

SALES X

PRETAX INCOME 10% * X 1200000

12,000,000

Q.12
2) SALES SOLD 12,400
ADD ENDING INVENTORY 200 AT THE RATE OF RS 395/EACH
AVAIABLE 12,600 79,000
LESS OPENING INV 100

MANAFACURED 12,500 4,937,500

3) SALES 6,634,000

COST OF SALES / COST OF GOODS SOLD

1 DIRECT MATERIAL

OPENING INVENTORY 268,000

ADD PURCHASES 1,946,700
PURCHASES RETURNS -
FREIGHT / TRANSPORTATION -
MATERIAL AVAILABLE FOR USE 2,214,700
LESS ENDING INVENTORY (167,000)
MATERIAL CONSUMED / USED 2,047,700

ADD DIREC LABOUR COST 2,125,800

2 PRIME COST 4,173,500

ADD FACTORY OVER HEAD (FOH) 764,000

3 MANAGACTURING COST 12500 UNITS 4,937,500

ADD OPENING INVENTORY - WIP -

COST PUT INTO PROCESS 4,937,500

LESS ENDING INVENTORY - WIP -

4 COST OF GOOD MANAFACTURED 4,937,500

ADD OPENDING INVENTORY OF - FINISHED GOODS. 43,000

FINISHED GOODS AVAILABLE FOR SALE 4,980,500

LESS ENDING INVENTORY OF - FINISHED GOODS (79,000)

5 COST OF GOODS SOLD 4,901,500 (4,901,500)

 GROSS PROFIT 1,732,500
LESS
EXPENSES
MARKETING EXP 516,000
GENERAL AND ADMIN 461,000
(977,000)
EBIT/ INCOME / PROFIT 755,500

PROBLEM 2-5
PRESCOTT PRODUCTS INC.
FORCAST INCOME STATEMENT
FOR THE PERIOD OF 19B
19A 19B

SALES > 20% CURRENT FORCAST

SALES 12,000,000 14,400,000

COST OF GOODS SOLD

DIR. MAT >8% 3,800,000 4,104,000

DIR. LAB >10% 2,900,000 3,190,000

FOH >3% ON VC 2,450,000 2,486,000

FIX 1250000
VAR 1,200,000
9,150,000 9,780,000

GP 2,850,000 4,620,000

COMMERCIAL EXPENS

MARKETING EXP >4% 1,350,000 1,404,000

GENERAL EXP BALANCING FIGURE 1,571,000
ADMIN EXP >2% 1,000,000 1,020,000
 2,350,000 3,995,000

OPERATING INCOME 500,000 625,000

125,000

625,000

4% 4%

CHANGE IN OPERATING INCOME TO SALES (625,000.00)

Q8 PART 3

FOH APPLIED IS 30% OF D/L COST D/L

290,000

APPLIED FOH 87,000

ACTUAL FOH 89,760

DIFF 2,760
TREATMENT
APLLIED < THAN ACTUAL UNDER APPLIED ADD IN COGS

APLLIED IS > ACTUAL OVER APLLIED LESS FROM COGS

SOLD.

182000
0
182000

111,000
 71,000

37,000
34,000

12,000,000
(7,200,000)

4,800,000

1,800,000
1,762,500
37,500
1,837,500
3,600,000

1,200,000

1,200,000 2,962,500

562,500
395 UNIT COST 3
140 GP PER UNIT 4

26% RATIO OF GP TO SALES 6

61 INCOME PER UNIT 5

11% INCOME TO SALES %

INCREASE

2,400,000

304,000

290,000

36,000

54,000

20,000
Q2

Currently

Plant operating at VFOH 60%

Units produced 9,900 2,700

New tender is for units 900

Total units to be produced 3,600

New operating capacity of plant would be 13,500 80%

If the plant would be operating at 80%

Variable overheads would be 13,500

Additional variable overhead 3,600 3,600

Planning Profit, Sales and Cost.

Q 2.
International Brands Ltd. Is operating at 60% capacity and producing 2,700 pieces of product A. The co
Rs.
Direct Material 54,000 20
Direct wages 8,100 3
Variable Overheads 9,900
Fixed Overheads 18,000

The products are currently sold at an average price of Rs. 72.

A tender for supply of 900 pieces per month has been received. To submit tender the following informa

• Variable Overheads attributable to various activity level is:

 % Per month Rs.
50
60
70
80
90
100

Required:

(a) Calculate the bidding price which will yield a 10% profit.
(b) Prepare a saccepted.
 Cost Evaluation Units RS. Per unit
for producing 2,700 u2700

Dir Materail 54,000 20

100% Labor 8,100 3

4,500 Variable overhead at 60% 9,900

Fixed FOH 18,000

Total cost for producing 2700 units 90,000

a)

for 900 units price would be based

per units the bid price would be

b)

Current
Units 2,700
Sales 194,400

Cost 90,000

G. Profit 104,400

2,700 pieces of product A. The cost of production for the month of August 2012 was:

80% 100%
3600 4500

PRICING TECHNIQUE

1 BASED ON COST

bmit tender the following information has been ascertained.

2 BASED ON SELLING
Per month Rs.
8,280
9,900
11,520
13,500 13500-9900 3,600
15,300
16,920
 Cost Evaluation units cost
for producing 900 units 900

Dir Materail 18,000

Labor 2,700

Variable overhead 3,600

Fixed FOH -

Total cost for producing 900 units 24,300 27 PER UNIT

Bid price with 10% profit

r 900 units price would be based on sellign price 27,000

r units the bid price would be 30

Comparative statement

New total
900 3,600
27,000 221,400

24,300 114,300

2,700 107,100

ICING TECHNIQUE

ASED ON COST PER UNIT 27 Rs. Add 10% to make price

24,300 26,730 24,057
0.27
29.7 2.97 26.73

ASED ON SELLING 24,300 24,300

 (100% - 10%)

27000 30
27,000 2,700 24,300

34,225.35 38.03

24,300
Q.8 PAGE # 230

PLANT OPERATING LEVEL EXPECTED AVERAGE

ACTUAL SALES
CAPACITY LEVEL 80% 85%

DIRECT LABOUR HOURS 27,200 28,900

FACTORY OVERHEAD :

FIXED 102,000 102,000

VARIABLE 136,000 144,500

238,000 246,500

SOLUTION 1 8.75 8.53

PER D/LAB HR PER D/LAB HR

VARIBALE RATE 5 5

FIXED 3.75 3.53

8.75 8.53

SOLUTION 2

FIXED 108,375

VARIABLE 144,500
252,875

UNDER APPLIED FOH (6,375)

 NORMAL THEORITICAL
CAPACITY CAPACITY
90% 100%

30,600 34,000

102,000 102,000

153,000 170,000
255,000 272,000

8.33 8
PER D/LAB HR PER D/LAB HR

5 5

3.33 3
8.33 8.00

114,750 127,500

153,000 170,000
267,750 297,500

(12,750) (25,500)
Q5. Activity Based Costing:

The budgeted overheads and cost drivers volumes of Barklays Corporation are as follows.
Cost pools Budgeted Over Heads Cost Drivers Budgeted Volumes
Material Procurement 1,044,000 No. of orders 1980
Material Handling 450,000 Numbers of movements 1224
Set-up 747,000 No. of set-ups 936
Maintenance 1,746,000 Maintenance hours 15,120
Quality Control 316,800 No. of Inspections 1,620
Machinery 1,296,000 No. of Machine hours 43,200

The company has produced a batch of 5,599,800

Material Rs. 234,000

Labour cost Rs. 441,000

The actual usage activities of the said batch are as follows.

Material orders 47
Material movements 32
Set-ups 45
Maintenance hours 1,242
Inspections 50
Machine hours 3,240

Required:

4680 OF COMPONENT PRODUCT A

(a)    Calculate cost drivers rates that are used for tracing appropriate amount of overheads to the said batch.

(b)   Ascertain the cost of batch components using Activity based Costing.

C) Compute price of product A-1 based on 39%?

Solution
a) Computaion of cost driver rates
Cost pools Rate of Actual T . Cost of
cost per activity Activity OVERHEAD
Material Procurement 527 47 24,782
Material Handling 368 32 11,765
Set-up 798 45 35,913
Maintenance 115 1242 143,421
Quality Control 196 50 9,778
Machinery 30 3240 97,200

Total overhead cost based on ABC 322,859

(b)   Ascertain the cost of batch components using Activity based Costing.
RS.
Material 234,000

Labour 441,000

Overheads ABC 322,859

TOTAL COST OF BATCH 997,859

COST PER UNINT OF PRODUCT A 213.22

UNITS PRODUCED
4,680

C) Compute price of product A-1 based on 39%?

Selling price of A-1 349.54

Job Order / Batch Costing

Question No. 2

Solution:
Budgeted fixed costs $70,000
Budgeted variable costs per kilowatt hour $    0.18 Budgeted FOH per KWH
(kWh)
Budgeted fixed costs
Additional data for 19X3: Dept. X Dept. Y
Long-run demand (kWh) 420,000 280,000 Budgeted for 19X3 (kWh)
Budgeted for 19X3 (kWh) 310,000 200,000
Actual for 19X3 (kWh) 320,000 160,000 Rateof fixed FOH KWH

Actual power plant costs for 19X3 are: Variable FOH

Fixed $78,000
Variable $90,000

Required:

a. Fixed b. Variable
Dept. X $42,549.02 $55,800.00

Dep. Y $27,450.98 36000

Total Budgeted cost $70,000.00 $91,800.00

Actual $78,000 $90,000

Variance ($8,000.00) $1,800.00

Total variacne ($6,200.00)

 $ DEPT X DEPT Y Total

FOH per KWH

$70,000 $42,549.02 $27,450.98 $70,000.00

for 19X3 (kWh) 510,000

ed FOH KWH $0.14

$    0.18 $55,800.00 36000

0.14
Question.
BE in Rs. 1000000 Solution
BE in units 37,500
High and Low point formula
Manafactruing cost
FOH for 20,000 units 175000 Units FOH
HIGH 20000 175000
FOH 15000 131250 LOW 15000 131250
SP IS 29%
DIFF 5000 43750
Required
1 Fixed and variable cost VARIABLE FOH RATE PER UNIT
2 CM ratio
3 BE VFOH 43,750/5000 9
4. SP if management wants profit of VAR FIX
1,5 M based on the same BE units 20000 175000
15000 131250

SP 27 GIVEN IN QUESTION TO BE SP IS 29%

SALES 1,000,000 UNITS 37500
C/M 29% 29% MARGIN 290,000
COGS 710,000
COGS 71% COST PER UNIT 19
VFOH PER UNIT 9
PRIME COST 10

chapter 2, question 12, page 34

BE = FC/CM RATIO

BE = FC / 29%

1000000= FC / 29%

290,000

1 710,000
2 290,000
3 1000000

4 DESIRED PROFIT

obj. sales= FC + DESIRED PROFIT

c/m
6,172,414
DESIRED 6,172,414
SALES
SP 165
 MID TERM TOPICS

1 DIFF B/W MA AND FA

2 FRAME WORK
3 DEFINITION
4 COGM AND COGS WITH P&L
5 PRICING METHODS
6 JOB ORDER / PROCESS COSTING METHODS
7 FOH RATE DETERMINATION AND CAUSES OF CHANGES
8 BREAK EVEN ANALYSIS WITH PRICING AND OBJ PROFIT / DESIRED SALES FIGURES
9 HIGH AND LOW POINT FORMULA.
Que stio n 2.
Pric e De te rm ina tio n (hig h-lo w me tho d ).
Da vid Ind u strie s Ltd . Pro d u c e s a sing le p ro d u c t a n d ha s a m a n u fa c tu rin g c a p a c it y o f
100,000 u nits p e r w e e k o f 48 h o u rs. The o u tp u t d a ta fo r th re e c o n se c u tive we e ks is
g ive n b e lo w :

Un its Pro d u c e d Dire c t Ma te ria l Dire c t La b o ur To ta l FO H

(Va ria b le & Fixe d )
43,200 864,000 1,080,000 669,600
50,400 1008,000 1,260,000 691,200
64,800 1296,000 1,620,000 734,400

Re q uire d :
Wo rk o u t th e se lling p ric e a ssu m in g a n a c tivity le ve l o f 99,000 u nits p e r w e e k a n d a
p ro fit o f 29% o n se llin g p ric e ?

SOLUTION:

UNITS FOH

HIGH 64,800 734,400

LOW 43,200 669,600

DIFF 21,600 64,800

VAR FOH PER UNIT DIFF FOH

DIFF UNITS

VAR FOH PER UNIT RS. 3

RECONCILE:
UNITS FOH VAR

HIGH 64,800 734,400 194,400

LOW 43,200 669,600 129,600

PER UNITS COST OF D/MATERIAL MAT COST / UNITS

PER UNIT COST OF D/LABOR D/LAB COST/ UNITS

 TOTA COST OF PRODUCT FOR 99000 UNITS

D/MATERIAL 1,980,000

D/LABOUR 2,475,000

VAR FOH 297,000

FIX FOH 540,000

TOTAL COST 5,292,000

PER UNITS COST 53.45

SELLING PRICE 53.45

(100% - 29%)

SP 75

Q.

Battonkill Company, operating at full capacity, sold 112,800 units at a price of $150 per
unit during 2010. Its income statement for 2010 is as follows:

Sales . . . . . . . . . . . . . . . . . . . ……. . . . $16,920,000

Cost of goods sold . . . . . . . . . . . . . 6,000,000
Gross profit . ###
Expenses:
Selling expenses . . . . . ……….. . . . . . . $3,000,000
Administrativ 1,800,000
Total expenses 4,800,000
Income from o ###

The division of costs between fixed and variable is as follows:

Fixed Variable
Cost of sales 40% 60%
Selling expense
50% 50%
Administrativ
70% 30%

Management is considering a plant expansion program that will permit an increase of $1,500,000 in yearly sales. T
Required:
a. Do you think the income statement presented above helps Battonkill Company to answer the following
b. Compute the break-even sales (units) for 2010.
c. Compute the break-even sales (units) under the (proposed) program.
d. Determine the amount of sales (amount) that would be necessary under the proposed
program to realize the $6,120,000 of income from operations that was earned in 2010.
e. Determine the maximum income from operations possible with the expanded plant.
f. If the proposal is accepted and sales remain at the 2010 level, what will the income?
or loss from operations is for 2011?
u fa c tu rin g c a p a c it y o f
c o n se c u tive we e ks is

To ta l FO H
(Va ria b le & Fixe d )
669,600
691,200
734,400

u n its p e r w e e k a n d a

FIX

540,000

540,000

PER UNIT COST

20

25
crease of $1,500,000 in yearly sales. The expansion will increase fixed costs by $200,000, but will not affect the relationship between sales
nkill Company to answer the following requirements if no how this income statement shall be presented

y under the proposed

he expanded plant.
at will the income?
t the relationship between sales and variable costs.
Specific order / job order Costing/ FOH

Q5. A Ltd. employs a job-order costing system. The factory expenses incurred in the month of March of the cu
(as shown by the factory overhead control account) are:
Cutting shop ###
Assembly shop ###
Spraying shop ###
Finishing shop ###

Overheads have been debited to jobs as follows:

Cutting – 1.30 per machine-hour for 22,000 hours.
Assembly – 140% of direct labor cost. Direct labor cost is Rs. 3,300
Spraying – Rs. 0.60 per piece for 925 pieces.
Finishing – Rs. 0.75 per direct labor-hour for 11,000 hours.

All expenses are charged to a factory overhead control account and are transferred from this account
at the end of each month to the departmental overhead account.
You are required to (a) record the necessary journal entries for factory overhead incurred and absorbed
and (b) state the amount of over- or under-absorption of overhead in each department.
Assume that the company maintains both factory ledger and general ledger.

SOLUTION Q 5

DEPARTMENT ACTUAL FOH INCURRED BUDGETED FIGURES AS

PER STANDARDS,
Cutting sh ### 28,600
Assembly ### 4,620
Spraying ### 555
Finishing ### 8,250

TOTAL VARIANCE (UNDER APPLIED)

ADD INTO COGS TO ARRIVE AT THE ADJUSTED COGS.

 (Marks 5)
e month of March of the current year
Amount in Rs.

his account

d incurred and absorbed

VARIANCE

(7,650)
(135)
(115)
350

(7,550)
DM - LIMITING FACTOR
MANAGERIAL ACCOUNTING -

EXAMPLE QUESTION:

THERE IS A BAKERY SHOP PRODUCT THREE PRODCTS, CAKE, PASTREES, ROLLS. THE BAKERY FACILITY TO BAKE THE PRODCTS IS
TO 15000 HOURS. WHILE ITS TAKES 2 HOURS TO BAKE THE CAKE, 2.25 HOURS TO BAKE THE PASTREES, AND 1.75 HOURS FOR
THE SELLING PRICE AND COST OF EACH PRODUCT IS AS FOLLOWS. 10,000 KG OF MATERIAL IS AVAILABLE @ RS. 125 PER KG
VC IS COMPRISED OF THE
CAKE PASTREES ROLLS VC CAKE
SOLD 3500 2600 1500 DM 198
SP 800 500 350 DL 132
COST: VFOH 110
VC 440 225 175 DM REQ K 1.5
FC 120 75 53 SOLD 4000

REQUIRED
1 SUGGEST THE BAKER THE BEST PRODUCTION OF THESE MIX OF PRODUCTS WHICH WILL YIELD THE MAXIMUM PRO
2
WHA WOLULD BE THE BEST UTILIZATION OF LIMITED 15000 AS TO PRDUCTION OF PRODUCTS.

SOLUTION
CAKE PASTREES ROLLS

SP 800 500 350

VC 440 225 175

CM 360 275 175

HOURS 2 2.25 1.75

1 CM PER HOUR PRODUCT WISE 180 122 100

RAKING 1ST 2ND 3RD

HRS UTILIZED 7,000 5,850 2,150

2 PRODUCT MIX 3500 2600 1,229

MAX PROFIT 240 350 122

MAX PROFIT MIX 840,000 910,000 149,886 1,899,886

CONDITION 2 MATERIAL IS THE LIMITING FACTOR 10,000 KG.

CAKE PASTREES ROLLS

SP 800 500 350

VC 440 225 175

CM 360 275 175

MATERIAL IN KG 1.5 0.8 0.6

CM PER KG OF MAT PRODUCT WI 240 344 292

RAKING 3RD 1ST 2ND

PRODUCT MIX 267 4800 4800

MAX PROFIT 240 200 122

MAX PROFIT MIX 64,000 960,000 585,600 1,609,600

SENSITIVITY ANALYSIS DUE TO CHANGE IN THE FOLLOWING ASPECTS.

DUE TO CHANGE IN SP
VC
LIMITING FACTOR
DEMAND
SUPPLY
 TO BAKE THE PRODCTS IS LIMITED
ES, AND 1.75 HOURS FOR THE ROLLS.
ABLE @ RS. 125 PER KG
VC IS COMPRISED OF THE FOLLOWING
PASTREES ROLLS
101 79
68 53
56 44
0.8 0.6
6000 8000

YIELD THE MAXIMUM PROFIT