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Surya Roshni Manufacturing Company is producing bulbs which passing Through Two Process Following Data during the January Work in Progress Opening Stock 6,000 units of bulbs at a cost of Rs 15,000 Closing Stock 7,000 units of bulbs The degree of completion of both opening and closing WIP was Previous process Cost Process II Material LAbour and Overheads 100% 80% 60%
During the Month, 47,000 Units of bulbs were Transferred From Process I are a cost of Rs 90,000.Other Costs Incurred for the Process II During the Month were: Material Overheads Rs 43,600 Rs 21,250
No losses are expected. However, During the month 3,000 units of bulbs were rejected at inspection and sold as scrap for Rs 1/So Process II account and abnormal loss account using first in first out method is as follow: Solution:
EQUIVALENT UNITS MATERIAL (M) % EU ----100 100 100 ----37,000 3,000 7,000 47,000 LABOUR (L) % EU 20 --100 100 80 1,200 --37,000 3,000 5,600 46,800 OVERHEADS (OH) % EU 40 --100 100 60 2,400 --37,000 3,000 4,200 46,600
1 NOW ) 2 FRESH UNITS INTRODUCED 3 FRESH UNITS COMPLETED 4 ABNORMAL LOSS 5 CLOSING WIP TOTAL UNITS (A)
53,000
3.3025
(C)
Cost appropriation
EU CPEU RS TOTAL
PARTICULARS COST OF COMPLETING OPENING WIP MATERIAL LABOUR OVERHEADS COMPLETING FRESH UNIT ABNORMAL LOSS/GAIN COST OF CLOSING WIP - MATERIAL -I - LABOUR - OVERHEADS
1117.92 1094.4
20537
TOTAL COST (B) APPORTIONED PARTICULARS COST OF OPENING WIP B/F (GIVEN) ADD :- COST OF COMPLETING OPENING WIP (C1) ADD :- COST OF COMPLETING FRESH UNITS (C2 )
139405
Cost tranfer
Process account II Particulars To opening WIP To Transfer from Process I To Material To Labour To Labour and Overheads 53000 units 6000 47000 Rs 15000 90000 43600 21250 Particulars By abnormal loss By Closing WIP By Transfer to finished stock units 3000 7000 43000 Rs 9908 20537 139405
169850
53000
169850
Particulars To Process II
units 3000
Rs 9908
units 3000
_______ 3000
Findings:
P.V. Ratio Break Even Point Margin Of Safety
Surya Roshni Limited supplied following information relating to sales and cost of sales of manufacturing company for only. 10,000 units.
From the above information we find out: P.V. Ratio, Break Even Point Margin Of Safety.
Amount (Rs)
1,20,000
Per Units
12
4.5 7.5
1.5
80000 60000 40000 20000 0 Column2 Column3 Profit Less: Fixed Cost Contribution Less: Variable Cost Sales
12 4.5 7.5
1.5
2) Break Even Point Of Company is as follows: For B.E.P it is necessary to find out B.E.S of the company So, B.E.S. = Fixed cost / P.V. Ratio i.e, B.E.S = 60,000 / 62.5 % B.E.S = Rs 96,000/- per month Now B.E.P = B.E.S / Selling price per unit i.e B.E.P = 96,000 / 12 B.E.P = 8,000 Unit per month
3) Margin of Safety of January is as follows: Formula for M.O.S is = Sales B.E.S. M.O.S = 120,000 96,000 So, M.O.S = Rs 24,000 /-
From the given information we also evaluate the effect of following on P.V. Ratio, B.E.P and Margin of Safety.
a) 10% Increase in variable cost. b) 10% Decrease in Variable cost. c) 10% Increase in fixed cost and, 10% Decrease in fixed cost. d) 5% Decrease in selling price. e) 10% Increase in Selling Price and 10% Decrease in units. According to the information we evaluate the first condition i.e. If sale and fixed cost is same and 10% Increase in variable cost.
So, we find what its effect on P.V. Ratio, B.E.P and M.O.S: Revised Marginal Cost Statement were: Particulars Sale Less: Variable Cost (10% Increase) Contribution Fixed Cost Profit 70500 60000 10500 1.05 7.05 Amount (In Rs) 1,20,000 49,500 Per Unit Price 12/4.95/-
So Revised P.V. Ratio = Contribution / Sales x 100 Therefore, P.V. Ratio = 67200 / 120,000 x 100 i.e. P.V. Ratio = 58.75 % Now Company Revised B.E.P according to change in variable cost is as follows: B.E.P = B.E.S / Selling price per unit So, B.E.P = B.E.S (Fixed Cost / P.V. Ratio) / S.p.u
Therefore, B.E.P = (60000 / 58.75 %) / 12 B.E.P = 8511Units Now Company Revised M.O.S according to change in variable cost is as follows: M.O.S = Sales B.E.S So, M.O.S = Sales - (Fixed Cost / P.V. Ratio) M.O.S =120,000 - (60000 / 58.75% ) i.e. M.O.S = 120000 102128 B.E.P = Rs.17872/According to the information we evaluate our Second condition i.e. Particulars Sale Less: Variable Cost (10% decrease) Contribution Fixed Cost Profit 79,500 60000 19,500 1.95 7.95 If sale and fixed cost is same and 10% Decrease in variable cost. Amount (In Rs) 1,20,000 40,500 Per Unit Price 12/4.05
So Revised P.V. Ratio = Contribution / Sales x 100 Therefore, P.V. Ratio = 79,500 / 120,000 x 100 i.e. P.V. Ratio = 66.25 % Now Company Revised B.E.P according to change in variable cost is as follows: B.E.P = B.E.S / Selling price per unit
So, B.E.P = B.E.S (Fixed Cost / P.V. Ratio) / S.p.u Therefore, B.E.P = (60000 / 66.25 %) / 12 B.E.P = 7547 Units Now Company Revised M.O.S according to change in variable cost is as follows: M.O.S = Sales B.E.S So, M.O.S = Sales - (Fixed Cost / P.V. Ratio) M.O.S =120,000 - (60000 / 66.25 % ) i.e. M.O.S = 120000 90566 B.E.P = Rs.29434 /According to the information we evaluate the Third condition i.e. If sale and fixed cost is same and 10% Increase and 10 % Decrease in fixed cost.
Particular
Sales Less: Variable Cost Contribution Less: Fixed Cost (10 % Increase) Profit
Amount (Rs)
1,20,000 45,000 75,000 66,000
Per Units
12 4.5 7.5
9000
0.9
If Sale, Variable Cost is same than P.V. Ratio remain same i.e. P.V. Ratio = 62.5 % Now we evaluate the B.E.P and M.O.S.
And, M.O.S. = Sales B.E.S. M.O.S = 120,000 105600 M.O.S. = Rs. 14,400 /-
Particular
Sales Less: Variable Cost Contribution Less: Fixed Cost (10 % Decrease) Profit
Amount (Rs)
1,20,000 45,000 75,000 54000
Per Units
12 4.5 7.5
21000
2.1
If Sale, Variable Cost is same than P.V. Ratio remain same i.e. P.V. Ratio = 62.5 % Now we evaluate the B.E.P and M.O.S. B.E.P = B.E.S. / S.P.u. B.E.S = Fixed Cost / P.V. Ratio
M.O.S = 120,000 86,400 M.O.S. = Rs. 33,600 /According to the information we evaluate the Fourth condition i.e. If 5% Increase in selling price.
Particular
Sales Less: Variable Cost Contribution Less: Fixed Cost Profit
Amount (Rs)
1,26,000 45,000 81,000 60,000 21,000
Per Units
12.6 4.5 8.1
2.1
2) Break Even Point Of Company is as follows: For B.E.P it is necessary to find out B.E.S of the company So, B.E.S. = Fixed cost / P.V. Ratio i.e, B.E.S = 60,000 / 64.3 %
B.E.S = Rs 93,313 /- per month Now B.E.P = B.E.S / Selling price per unit i.e B.E.P = 93,313 / 12 B.E.P = 7776 Unit per month
3) Margin of Safety of January is as follows: Formula for M.O.S is = Sales B.E.S. M.O.S = 126,000 93,313 So, M.O.S = Rs 32,687 /According to the information we evaluate the Fourth condition i.e. 10% Increase in Selling Price and 10% Decrease in units.
Sales = 10 % Decrease in units i.e. 10,000 10 % = 9,000 /S.P.U= 10 % Increase in Price i.e. 12 + 10% = Rs. 14.67 /-
Particular
Sales Less: Variable Cost Contribution Less: Fixed Cost Profit
Amount (Rs)
1,32,000 45,000 87,000 60,000 27000
Per Units
14.67 5 9.67
2) Break Even Point Of Company is as follows: For B.E.P it is necessary to find out B.E.S of the company So, B.E.S. = Fixed cost / P.V. Ratio i.e, B.E.S = 60,000 / 66 % B.E.S = Rs 90,909/- per month Now B.E.P = B.E.S / Selling price per unit i.e B.E.P = 90,909 / 14.67 B.E.P = 6197 Unit per month
3) Margin of Safety of January is as follows: Formula for M.O.S is = Sales B.E.S. M.O.S = 132,000 90,909 So, M.O.S = Rs 41091 /-