Symbiosis Institute of Business Management, Hyderabad

Assignment

Subject : Management Accounting

Faculty Name : Dr. K. P. Venugopala Rao Date of submission: 27.3.2020

I. Answer ALL the questions. Each question carries 8 Marks

1. Belltown Athletic Supply (BAS) makes game jerseys for athletic teams. The F. C. Kitsap
soccer club has offered to buy 100 jerseys for the teams in its league for Rs.15 per jersey. The
team price for such jerseys normally is Rs.18, an 80% markup over BAS’s purchase price of
Rs.10 per jersey. BAS adds a name and number to each jersey at a variable cost of Rs.2 per
jersey. The annual fixed cost of equipment used in the printing process is Rs.6,000, and other
fixed costs allocated to jerseys are Rs.2,000. BAS makes about 2,000 jerseys per year, so the
fixed cost is Rs.4 per jersey. The equipment is used only for printing jerseys and stands idle
75% of the usable time. The manager of BAS turned down the offer, saying, “If we sell at
Rs.15 and our cost is Rs.16, we lose money on each jersey we sell. We would like to help
your league, but we can’t afford to lose money on the sale.”
a. Compute the amount by which the operating income of BAS would change if it accepted
F. C. Kitsap’s offer.
b. Suppose you were the manager of BAS. Would you accept the offer? In addition to
considering the quantitative impact computed in requirement 1, list two qualitative
considerations that would influence your decision—one qualitative factor supporting
acceptance of the offer and one supporting rejection.
2. Reynolds Company produces and sells picture frames. One particular frame for 8 X 10 photos
was an instant success in the market, but recently competitors have come out with comparable
frames. Reynolds has been charging Rs.12.50 wholesale for the frames, and sales have fallen
from 10,000 units last year to 7,000 units this year. The product manager in charge of this
frame is considering lowering the price to Rs.10 per frame. He believes sales will rebound to
10,000 units at the lower price, but they will fall to 6,000 units at the Rs.12.50 price. The unit
variable cost of producing and selling the frames is Rs.6, and Rs.60,000 of fixed cost is
assigned to the frames.
a. Assuming that the only prices under consideration are Rs.10 and Rs.12.50 per frame,
which price will lead to the largest profit for Reynolds? Explain why.
b. What subjective considerations might affect your pricing decision?

3. An Engineering Works has a standard costing system for its single output. Their standard was
as follows :
Standard direct labour cost per unit: 20 hours at Rs.1.50 per hour.
Standard material cost per unit: 20 lbs. at Rs.2 per lb.
Standard overhead rate : Rs.3 per standard labour hour.
The following operating data were taken for November:
In process at 1st November : Nil Completed during the month
1,000 units In process at 30th November
100 units on which 50% work is completed and for which all materials were issued.
Direct labour cost was Rs.32,000 at Rs.1.60 per hour.
21,000 lbs. of material were issued at Rs.1.90 per lb.
Actual overhead : Rs.64,000.
 Symbiosis Institute of Business Management, Hyderabad

You are required to prepare a statement comparing actual and standard cost of production for
November, analysing variances on materials and labour costs Work-in-progress at 30th
November may be valued at standard cost.
OR
Calculate the labour variances from the following information:
Standard Wages:
Grade X: 90 Labourers at Rs.2 per hour
Grade Y: 60 Labourers at Rs.3 per hour
Actual Wages:
Grade X: 80 Labourers Rs.2.50 per hour
Grade Y: 70 Labourers at Rs.2.00 per hour
Budgeted Hours 1,000; Actual Hours 900
Budgeted Gross Production 5,000 units; Standard Loss 20%; Actual loss 900 units
4. A machine tool manufacturing company sells its lathes at Rs.36,500 each made up as follows.

1
Direct Materials 16,000
Direct Labour 2,000
Venable Overheads 5,000
Fixed Overheads 3,000
Variable Selling Overheads 500
Royalty 1,000
Profit 5,000 32,500
Central Excise Duty 1,000
Sales Tax 3,000
36,500
There is enough idle capacity.
(а) A firm in Arabia has offered to buy 10 company’s lathes at Rs.28,500 each. Should the
company be interested in the business?
(b) It has been decided to sell 5 such lathes to an engineering company under the same
management at bare cost. What price should you charge?
5. A factory engaged in manufacturing plastic buckets is working at 40% capacity and produces
10,000 buckets per annum. The present cost break-up for one bucket is as under:
Material Rs.10; Labour Cost Rs.3; Overheads Rs.5 (60 percent fixed)
The selling price is Rs.20 per bucket.
If it is decided to work the factory at 50% capacity, the selling price falls by 3%. At
90% capacity, the selling price falls by 5% accompanied by a similar fall in the prices
of material. You are required to calculate the profit at 5% and 90% capacities and also
calculate break-even point for the same capacity productions