The document contains information about costs and revenues for multiple products/orders. It includes questions about determining profitability given constraints on materials, production capacity, sales quantity or value. It also includes questions about determining optimal product mix, budgeted profitability, determining selling prices, and whether special orders should be accepted. Cost information like materials, labor, overheads, fixed and variable costs are provided for analysis using techniques like marginal costing.

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Marginal Costing – Assignment II<br />Key factor<br />Q.1 The following particulars are obtained from costing records of a factory. <br />Product A (per unit)Rs.Product B (per unit)Rs.Selling Price 200500Material (Rs. 20 per litre)40160Labour (Rs. 10 per hour)50100Variable Overhead 2040Total Fixed Overheads –Rs. 15,000<br />Comment on the profitability of each product when: <br />(a) Raw material is in short supply; <br />(b) Production capacity is limited; <br />(c) Sales quantity is limited; <br />(d) Sales value is limited; <br />(e) Only 1,000 litres of raw material is available for both the products in total and maximum sales quantity of each product is 300 units. <br />Q.2 A manufacturer produces three products whose cost data are as follows:<br />XYZDirect materials (Rs./unit)32.0076.0058.50Direct Labour:Department.Rate / hour (Rs.)HoursHoursHours12.5018102023.0054732.0010520Variable overheads (Rs.)84.5010.50<br />Fixed overheads: Rs. 4,00,000 per annum.<br />The budget was prepared at a time, when market was sluggish. The budgeted quantities and selling prices are as under:<br />Product Budgeted quantity(Units)Selling Price/unit(Rs.)X19,500135Y15,600140Z15,600200<br />Later, the market improved and the sales quantities could be increased by 20 per cent for product X and 25 per cent each for product Y and Z. The sales manager confirmed that the increased sales could be achieved at the prices originally budgeted. The production manager stated that the output could not be increased beyond the budgeted level due to the limitation of direct labour hours in department 2.<br />Required: (i) Prepare a statement of budgeted profitability.<br />Set optimal product mix and calculate the optimal profit.<br />Acceptance of sales order<br />Q.3 X Company manufactures cookware. Expected annual volume of 1,00,000 sets per year is well below its full capacity of 1,50,000. Normal selling price is Rs. 40 per set. Manufacturing cost is Rs. 30 per set (Rs 20 variable and Rs. 10 fixed). Total fixed manufacturing cost is Rs. 10,00,000. Selling and administrative expenses are expected to be Rs. 5,00,000 (Rs. 3,00,000 fixed and Rs. 2,00,000 variable). A departmental store offers to buy 25,000 sets of Rs. 27 per set. No extra selling and administrative costs would be caused by the order. Further, the acceptance of this order will not affect regular sales. Should the offer be accepted?<br />Q.4 X Calculators Ltd. manufactures engineering calculators and the selling price was fixed at Rs. 400. The following are the cost particulars.<br />Rs.Direct Material Cost140Direct Labour Cost40Variable Factory Overhead20Other Variable Cost20Fixed Overhead5,00,000 per annumCommission30% on selling price<br />The company was producing only 10,000 units, since the demand was only 10,000 units. However, the company has the capacity to produce another 1,000 units without any additional fixed overheads. One of the distributors offered that he would take 1,000 units in addition to his normal quota, but at a selling price of Rs. 320 per unit. He was also prepared to accept only half of his regular commission for this transaction.<br />The Managing Director wants you as the Management Accountant to prepare a statement to the Board of Directors with your specific recommendations.<br />Determination of selling price<br />Q.5 A manufacturing company has an installed capacity of 1,50,000 units per annum. Its cost structure is given below:<br />(Per unit) Rs.Variable costs10Labour (Minimum Rs. 1,00,000 per month)10Overheads4Fixed overheads: Rs. 1,92,300 per annum<br />Semi-variable overheads Rs. 60,000 per annum at 75% capacity, which increases by Rs. 4,000 per annum for every 5% increase in capacity utilization for the year as a whole.<br />The capacity utilization for the next year is estimated at 75% for three months, 80% for six months and 90% for the remaining part of the year. If the company is planning to have a profit of 20% on the selling price, calculate the selling price per unit?<br />Q.6 A highly skilled technician is paid Rs. 100 per hour and is fully engaged in the manufacture of a certain product which earns a contribution of Rs. 200 per hour to firm.<br />The firm has received an order, which will require the services of the technician for 25 hours. If the material and other processing costs amount to Rs. 11,250 and mark up 20% on cost, what price should be quoted for the new order?<br />CVP Analysis <br />Q.7 A company has developed a new product. The sales volume of the new product was estimated to be between 15,000 and 20,000 units per month at a price of Rs. 20 per unit. Alternatively, if the selling price is reduced to Rs. 18 per unit, the sales volume will be between 24,000 and 36,000 units per month. If the production is maintained below 20,000 units per month, the variable manufacturing cost will be Rs. 16.50 per unit and the fixed costs Rs. 48,500 per month. If the production exceeds 20,000 units per month, the variable manufacturing cost will be reduced to Rs. 15.50 per unit, but the fixed costs will increase to Rs. 64,500 per month. The company paid Rs. 40,000 as fee for market survey and in addition incurred a cost of Rs. 60,000 in developing the new product.<br />In the event of taking up this new line of business, it will be necessary to use the building space, which has been let out for a rental of Rs. 5,600 per month.<br />You are required to analyze the Potential Profitability of the proposal of the company at different levels of output and make suitable recommendations relating to the price and volume of output to be set.<br />Marginal costing v. Absorption costing<br />Q.8 X Fabrics manufactures quality napkins at its unit in Tirupur. The unit has a capacity of 60,000 napkins per month. Present monthly production for April is 40,000 napkins. Cost incurred for production is as below: (per unit).<br />Direct materialRs. 6No fixed costDirect LabourRs. 2Fixed cost 75%Manufacturing overheadRs. 4Variable 25%TotalRs. 12<br />The marketing cost per unit is Rs. 7 (Rs. 5 is variable). Marketing costs include distribution costs and customer service costs. Present selling price is Rs. 22.50 per unit<br />Due to a strike at its existing napkin supplier, a hotel group has offered to buy 10,000 napkins from X Fabrics @Rs. 11 per napkin for the month of June. No further sales to the hotel are anticipated. Fixed manufacturing costs and marketing costs are tied to the 60,000 napkins. The acceptance of the special order is not expected to affect the selling price to regular customers. <br />No marketing costs involved in special order. Prepare: <br />(i) Budgeted income statement for June.<br />(ii) Actual income statement under absorption costing for April.<br />(iii) Should X Fabrics accept the special order from the hotel or not?<br />