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*Anuj Verma*Case-1Alfa ltd. Produces a single product in its
plant. This product sells for Rs.100 per unit. The standard
production cost per unit is as follows:
Raw Material (5 Kgs @ Rs.8 per Kg)Rs.40Direct Labour (2 hours @
Rs 5 per hr.)Rs.10Variable manufacturing overheadsRs.10Fixed
manufacturing overheadsRs.20Rs.80
The plant is currently operating at full capacity of 100000
units per year on a single shift. This output is inadequate to meet
the projected sales demand, and the sales manager has estimated
that the firm will lose sales of 40000 units next year if the
capacity is not expanded.Max. marks: 10TESTMax. Time: 45 Mins.
Anuj Verma
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*Anuj Verma*Plant capacity could be doubled by adding a second
shift. This would require additional out-of-pocket fixed
manufacturing overhead costs of Rs.1000000 annually. Also , a night
work wage premium equal to 25% of the standard wage would have to
be paid during the second shift. However, if annual production
volume were 130000 units or more, the company could take advantage
of 2% quantity discount on its raw material purchases.
You are required to advise whether it would be profitable to add
the second shift in order to obtain the sales volume of 40000 units
per year?
Anuj Verma
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*Anuj Verma*Case-2The annual budget of ABC ltd. At 60% and 80%
level of performance is as under(Rs. in thousands):
Particulars60%level80%level
Direct materialRs.360Rs.480Direct labourRs.480Rs.640Production
overheadsRs.252Rs.276Administrative overheadsRs.124Rs.132Selling
& Distributive o/hRs.136Rs.148TotalRs.1352Rs.1676
The Co. is experiencing difficulties in selling its products and
is at present operating at 50% capacity level.The sales revenue for
the year is estimated at Rs.990000. The directors are seriously
considering suspending operations till the market picks up.
Anuj Verma
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*Anuj Verma*Market research undertaken by the company reveals
that in about 12 months, the sales will pick up and the company can
comfortably operate at 75% level of performance and earn a sales
income of Rs.18 lakhs in that year.The sales personnel of the
company do not want to suspend operations for fear of adverse
reactions in the market, but the directors want to decide the issue
purely on financial considerations.If the manufacturing and other
operations of the company are suspended for a year, it is estimated
that:The present fixed cost could be reduced to Rs.220000 per
annum.The settlement cost of personnel not required would amount to
Rs.150000.The maintenance of plant has to go on and that would cost
Rs.20000 per annum.On resuming operations, the expenditure
connected with reopening after shutdown would amount to
Rs.80000.Submit a report to the directors, and indicate therein,
based on purely financial considerations, whether it would be
advisable to suspend the companys operations in the current
year.
Anuj Verma
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*Max. Marks: 10TESTMax. Time: 40 Mins.
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*Anuj Verma*Case(Elimination of a Product line)Avon Garments
ltd. manufactures readymade garments and uses its cut-pieces of
cloth to manufacture dolls. The following statement of cost has
been prepared:
ParticularsReadymade garmentsDollsTotal
Direct materialRs.80000Rs.6000Rs.86000Direct
LabourRs.13000Rs.1200Rs.14200Variable
overheadsRs.17000Rs.2800Rs.19800Fixed
overheadsRs.24000Rs.3000Rs.27000Total
costRs.134000Rs.13000Rs.147000SalesRs.170000Rs.12000Rs.182000Profit(Loss)Rs.36000Rs.(1000)Rs.35000The
cut-pieces used in dolls have a scrap value of Rs. 1000 if sold in
the market. As there is a loss of Rs.1000 in the manufacturing of
dolls, it is suggested to discontinue their manufacturing. Advise
the management?
Anuj Verma
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*Anuj Verma*Q1.The following data pertain to the shop. The owner
has made the following sales forecasts for the first 5 months of
the coming year:Other data are as follows:Debtors and creditors
balances at the beginning of the year are Rs.30000 and Rs.14000,
respectively. The balances of other relevant assets and liabilities
are :
b) 40% of sales are on cash basis. Credit sales are collected in
the month following sales.c) Cost of goods sold is 60% of sales.d)
The only other variable cost is a 5% commission to sales agents.
The sales commission is paid in the month after it is earned.Max.
Marks: 10 TESTMax. Time: 40 Mins.
Anuj Verma
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*Anuj Verma*e) Inventory is kept equal to sales requirements for
the next two months budgeted sales.
f) Trade creditors are paid in the following month after
purchases.
g) Fixed cost are Rs.5000 per month, including Rs.2000
depreciation.
You are required to prepare a cash budget for each of the first
three months of the coming year.
Anuj Verma
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*Anuj Verma*Q2. S.V.Ltd. Manufactures a single product, the
standard mix of which is:Material A 60% at Rs.20 per KgMaterial B
40% at Rs.10 per Kg
Normal loss in the production is 20% of input. Due to shortage
of material A, the standard mix was changed. Actual results for
March 2000 were:Material A105 Kg at Rs.20 per KgMaterial B95 Kg at
Rs.9 per KgInput200 KgLoss35 KgOutput165 Kg
Calculate:Material Price Varianceiii) Material Usage
VarianceMaterial Mix Varianceiv) Material Yield Variance
Anuj Verma
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*Anuj Verma*
Anuj Verma
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*Anuj Verma*
Anuj Verma
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*Anuj Verma*
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*Anuj Verma*Q2. The standard cost card for a product shows:The
actuals which have emerged from business operations are as
follows:
Calculate appropriate material and labour variances
Anuj Verma
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*Anuj Verma*
Anuj Verma
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*Anuj Verma*Q2. The standard cost of a certain chemical mixture
is:Material A 35% at Rs.25 per KgMaterial B 65% at Rs.36 per Kg
A standard loss of 5% is expected in productionDuring a period
the actual usage was:Material A125 Kg at Rs.27 per KgMaterial B275
Kg at Rs.34 per KgActual Output365 Kg
Calculate:Material Price Varianceiii) Material Cost
VarianceMaterial Mix Varianceiv) Material Yield Variance
Anuj Verma
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*Anuj Verma*
Anuj Verma
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*Anuj Verma*
Anuj Verma
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Prof. Anuj Verma*Max Time: 20 Mins.TESTMax. Marks : 10
Prof. Anuj Verma
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Prof. Anuj Verma*
Prof. Anuj Verma
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Prof. Anuj Verma*
Prof. Anuj Verma
