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- 1. Marginal Costing – Assignment I <br />Q.1 X Ltd., manufacturers only pens where the marginal cost of each pen is Rs. 3. It has fixed costs of Rs. 25,000 per annum. Present production and sales of pens is 50,000 units and selling price per pen is Rs. 5. Any sale beyond 50,000 pens is possible only if the company reduces 20% of its current selling price.<br />However, the reduced price applies only to the additional units. The company wants a target profit of Rs. 1,00,000. How many pens to company must produce and sell if the target profit is to be achieved?<br />Q.2 From the following data, calculate break-even point (BEP):<br />Selling price per unitRs. 20Variable cost per unitRs. 15Fixed overheadsRs. 20,000<br />If sales are 20% above BEP, determine the net profit.<br />Q.3 If fixed costs are Rs. 4,000 variable costs Rs. 32,000 and break-even point Rs. 20,000, find: (i) Profit-volume ratio; (ii) Sales; (iii) Net profit; (iv) Margin of safety.<br />Q.4 (i) Ascertain profit, when sales= Rs. 2,00,000<br />Fixed Cost= Rs. 40,000<br />BEP= Rs. 1,60,000<br /> (ii) Ascertain sales, when fixed cost= Rs. 20,000<br />Profit= Rs. 10,000<br />BEP= Rs. 40,000<br />Q.5 From the following data, compute break-even sales and margin of safety:<br />SalesRs. 10,00,000Fixed costRs. 3,00,000ProfitRs. 2,00,000<br />Q.6 X Ltd. produces a single article. Following cost data is given about its product:<br />Selling price per unitRs. 200Marginal cost per unitRs. 120Fixed cost per annumRs. 8,000<br />Calculate:<br />P/V ratio (b) Break-even sales<br />(c) Sales to earn a profit of Rs. 10,000 (d) Profit at sales of Rs. 60,000 <br />(e) New break-even sales, if sales price is reduced by 10%.<br />Q.7 From the following data, find out (i) sales; and (ii) new break-even sales, if selling price is reduced by 10%:<br />Fixed costRs. 4,000Break-even salesRs. 20,000ProfitRs. 1,000Selling price per unitRs. 20<br />Q.8 From the data given below, find out:<br />(a) P/V ratio; (b) Sales, and (c) Margin of safety<br /> Fixed cost: Rs. 2,00,000<br /> Profit: Rs. 1,00,000<br /> B.E. Point: Rs. 4,00,000<br />Q.9 If fixed costs are Rs. 24,000, margin of safety Rs. 40,000 and break-even 80,000, find out:<br />(1) Sales; (2) Profit-volume ratio; (3) Net profit; (4) Variable cost<br />Q.10 Profit/Volume ratio of X Ltd. is 50%, while its margin of safety is 40%. If sales of the company are Rs. 50 lakh find out its (i) break-even sales and (ii) net profit.<br />[Hint: Margin of Safety (in terms of %) = Actual Sales – Break even sales]<br /> Actual Sales<br />Q.11 The profit/volume ratio of X Ltd. is 50% and the margin of safety is 40%. You are required to calculate the net profit if actual sale is Rs. 1,00,000.<br />Q.12 The ratio of variable cost of sales is 70%. The break-even occurs at 60% of the capacity sales. Find the break even sales when fixed costs are Rs. 90,000. Also compute profit at 75% of the capacity sales.<br />Q.13 The following figures are extracted from the books of X Ltd. for 2007-08:<br />Direct materialRs. 2,05,000Direct labourRs. 75,000Fixed overheadsRs. 60,000Variable overheadsRs. 1,00,000SalesRs. 5,00,000<br />Calculate the break-even point (B.E.P.). What will be the effect of BEP of an increase of 10% in: (i) fixed expenses; and (ii) variable expenses?<br />Q.14 A Ltd. maintains a margin of safety of 37.5% with an overall contribution to sales ratio of 40%. Its fixed costs amount to Rs. 5 lakh. Calculate the following:<br />(i) Break-even sales; (ii) Total sales; (iii) Total variable cost; (iv) current profit; (v) New “margin of safety” if the sales volume is increased by 7½%.<br />Q.15 The trading results of PJ Ltd. for the two years have been:<br />YearSales Rs.Profits Rs.20075,40,00012,00020086,00,00030,000<br />Compute the following:<br />P/V ratio; (ii) Fixed costs; (iii) Break-even sales;(iv) Margin of safety at a profit of Rs. 48,000 (v) Variable costs during the two year.<br />Q.16 Following figures relating to the performance of a company of the year 2007 and 2008 are available. Assuming that (i) the ratio of variable cost to sales and (ii) the fixed costs are the same for both the years, ascertain:<br />(a) The profit-volume ratio, (b) the amount of the fixed costs (c) the Break-even point, and (d) the budgeted profit for year 2009, if budgeted sales for that year are Rs. 1 crore.<br />Total Sales (Rs. in ‘000)Total Costs (Rs. in ‘000)Year 20077,0005,800Year 20089,0006,600<br /> [P/V Ratio = Change in profit / Change in sales x 100]<br />Q.17 S. Ltd., a multi-product company, finished following data relating to year 2007:<br />1st half of the year2nd half of the yearSalesRs. 45,000Rs. 50,000Total costRs. 40,000Rs. 43,000<br />Assuming that there is no change in prices and variable costs and that the fixed expenses are incurred equally in the two half year periods, calculate for the year 2007:<br />(i) the profit volume ratio, (ii) the fixed expenses<br />(iii) the break-even sales, and (iv) the percentage of margin of safety to total sales.<br />Q.18 A company wants to buy a new machine to replace one, which is having frequent breakdown. It received offers for two models M1 and M2. Further details regarding these models are given below:<br />M1M2Installed capacity (units)10,00010,000Fixed overhead per annum (Rs.)2,40,0001,00,000Estimated profit at the above capacity (Rs.)1,60,0001,00,000<br />The product manufactured using this type of machine (M1 or M2) is sold at Rs. 100 per unit. You are required to determine:<br />Break-even level of sales for each model.<br />The level of sales at which both the models will earn the same profit.<br />The model suitable for different levels of demand for the product.<br />Q.19 Two competing companies ABC Ltd. and XYZ Ltd. produce and sell the same type of product in the same market. For the year ended March 2008, their forecasted profit and loss accounts are as follows:<br />ParticularsABC Ltd Rs. Rs.XYZ Ltd. Rs. Rs.Sales2,50,0002,50,000Less: Variable Cost of Sales2,00,0001,50,000 Fixed Costs 25,000 75,0002,25,0002,25,000Forecasted net operating profits25,00025,000<br />You are required to compute: P/V Ratio (2) Break-even sales volume<br />You are also required to state which company is likely to earn greater profits in condition of: (a) low demand, and (b) high demand.<br />Q.20 From the following data, calculate (i) P/V Ratio; (ii) Profit when sales are Rs. 20,000 and (iii) New break-even point if selling price is reduced by 20%<br />Fixed expenses Rs. 4,000 Break-even point Rs. 10,000<br />Q.21 A company has a fixed cost of Rs. 20,000. It sells two products – A and B, in the ratio of 2 units of A and 1 unit of B. Contribution is Re.1 per unit of A and Rs. 2 per unit of B. How many units of A and B would be sold at break-even point?<br />Q.22 A company budgets for a production of 1,50,000 units. The variable cost per unit is Rs. 14 and fixed cost is Rs. 2 per unit. The company fixes its selling price to fetch a profit of 15% on cost.<br />(a) What is the break-even point?<br />(b) What is profit-volume ratio?<br />(c) If it reduces its selling price by 5%, how does the revised selling price affect the break-even point and the profit-volume ratio?<br />(d) If a profit increase of 10% is desired more than the budget, what should be the sale at the reduced prices?<br />Q.23 From the following data, calculate:<br />(i) Break-even point expressed in amount of sales in rupees;<br />(ii) Number of units that must be sold to earn a profit of Rs. 60,000 per year.<br />(iii) How many units must be sold to earn a net income of 10% of sales?<br />Rs.Sales price20 per unitVariable manufacturing costs11 per unitVariable selling costs3 per unitFixed factory overheadsRs. 5,40,000 per yearFixed selling costsRs. 2,52,000 per year<br />Q.24 A company is intending to purchase a new plant. There are two alternative choices available.<br />Plant X: The operation of this plant will result in a fixed cost of Rs. 4,80,000 and variable costs of Rs. 5 per unit;<br />Plant Y: The purchase of this plant will result in a fixed cost of Rs. 5,20,000 and variable costs of Rs.4 per unit.<br />Compute the cost break-even point and state which plant is to be preferred and when.<br />Q.25 X Ltd. a retail dealer in garments is currently selling 24,000 shirts annually. It supplies the following details for the year ended 31st March:<br />Selling price per shirt Rs. 400Variable cost per shirtRs. 250Fixed cost: Staff salaries for the yearRs.12,00,000 General office costs for the yearRs. 8,00,000 Advertisement costs for the yearRs. 4,00,000<br />As a Cost Accountant of the firm you are required to answer the following each part independently:<br />(i) Calculate the break-even point and margin of safety in sales revenue and number of shirt sold.<br />(ii) Assume that 20,000 shirts were sold in a year. Find out the net profit of the firm.<br />(iii) If t is decided to introduce selling commission of Rs. 30 per shirt, how many shirts would require to be sold in a year to earn a net income of Rs. 1,50,000.<br />(iv) Assuming that for the year 2009 an additional staff salary of Rs. 3,30,000 is anticipated and price of a shirt is likely to be increased by 15%, what should be the break-even point in number of shirts and sales revenue?<br />Q.26 Indian Plastics make plastic buckets. An analysis of their accounting reveals:<br />Variable cost per bucketRs. 20Fixed costRs. 50,000 for the yearCapacity2,000 buckets per yearSelling price per bucketRs. 70<br />Required: (i) Find the break-even point<br />(ii) Find the number of buckets to be sold to get a profit of Rs. 30,000<br />(iii) If the company can manufacture 600 buckets more per year with an additional fixed cost of Rs. 2,000, what should be the selling price maintain to the profit per bucket as at (ii) above?<br />Q.27 Green Valley Hotel has annual fixed costs applicable to rooms of Rs. 15,00,000 for a 300 rooms hotel with average daily room rates of Rs. 400 and average variable cost of Rs. 60 for each room rented. The hotel operates 365 days per year. It is subject to an income-tax rate of 30 per cent. You are required to:<br /> (i) Calculate the number of rooms the Hotel must rent to earn a net income after taxes of Rs. 10,00,000 and <br />(ii) Compute the break-even point in terms of number of rooms rented.<br />Q.28 X Ltd. manufactures a document-reproducing machine, which has a variable cost structure as follows:<br />Rs.Material40Labour10Overhead4and a selling price of Rs. 90.<br />Sales during the current year are expected to be Rs. 13,50,000 and fixed overhead Rs. 1,40,000. Under a wage agreement, an increase of 10% is payable to all direct workers from the beginning of the forthcoming year, whilst material costs are expected to increase by 7½%, variable overhead costs by 5% and fixed overhead costs 3%.<br />You are required to calculate:<br />(a) The new selling price if the current profit/volume ratio is to be maintained; and <br />(b) The quantity to be sold during the forthcoming year to yield the same amount of profit as the current year assuming the selling price to remain as Rs. 90.<br />

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