PROBLEM-42

A company manufacturing two products furnishes the following data for a year.

Product Annual output Total machine Total number of Total number of

(units) hours Purchase orders Set ups
A 5000 20,000 160 20
B 60000 120,000 384 44

The annual overheads are as under:

Particulars Amount in Rs.

Volume related activity costs 550,000
Set up related costs 820,000
Purchase related costs 618,000
Total costs 1988,000

Required:
Calculate the cost per unit of each product A and B, based on, Activity Based Costing.

PROBLEM-44

Ramos Company has identified the following overhead activities, costs, and activity drivers
for
the coming year.
Activity Expected cost Activity Driver Activity Capacity
Setting up equipment $120,000 Number of setups 300
Ordering costs 90,000 Number of orders 9000
Machine costs 210,000 Machine hours 21,000
Receiving 100,000 Receiving hours 5,000
Ramos produces two models of dishwashers with the following expected prime costs and
activity demands.
Model A Model B
Direct materials $150,000 $200,000
Direct labor $120,000 $120,000
Units completed 8,000 4,000
Direct labor hours 3,000 1,000
Number of setups 200 100
Number of orders 3,000 6,000
Machine hours 12,000 9,000
Receiving hours 1,500 3,500
The company’s normal activity is 4,000 direct labor hours.
Required:
1. Determine the unit cost for each model using direct labor hours to apply overhead.
2. Determine the unit cost for each model using the activity drivers.
3. Which method produces the most accurate cost assignment? why?
 PROBLEM-45
Bullen & co makes and sells high quality gas filters for microcomputer monitors. r. John,
controller is responsible for preparing Bullen’s budget (master) and has assembled the
following data for 2012.
The direct labor rate includes wages and all employee related benefits. Bullen expects to
have 10000 glare filters in inventory costing Rs. 700000 at 31st Dec 2010 and has a policy of
carrying 50 percent of the following month’s projected sales in inventory. Variable cost per
direct labor hour is Re.1 and the fixed cost per month is Rs. 22000.

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Particulars January February March April
Estimated unit sales 20000 24000 16000 18000
Sales per unit (Rs) 80 80 75 75
Direct labor hours per unit 4 4 3.5 3.5
Direct labor hourly rate (Rs) 15 15 16 16
Direct material cost per unit (Rs) 10 10 10 10

Required:
1. Production budget for the quarter ending March31, 2012.
2. Sales budget.
3. Direct material cost budget.
4. Direct labor budget.
5. Cost of goods sold budget.

PROBLEM-46
A manufacturing company is currently working at 50% capacity and produces 10000 units at
a cost of Rs.180 per unit as per the following details.
Materials Rs.100
Labor Rs.30
Factory overhead Rs.30 (40% fixed)
Administration overhead Rs.20 (50% fixed)
Total cost per unit Rs.180
The selling price per unit at present is Rs.200. At 60% working, material cost per unit
increases by 2% and selling price per unit falls by 2%. At 80% working, material cost per
unit increase by 5% and selling price per unit falls by 5%.
Prepare a flexible budget to show the profits/losses at 50%, 60%, and 80% capacity
utilization.

PROBLEM-47

The monthly budget for manufacturing overheads of a manufacturing company is given

below:
Particulars Capacity 60% Capacity 100%
Budgeted production 600 units 1000 units
Wages Rs. 1200 Rs. 2000
Consumable stores 900 1500
Maintenance 1100 1500
Power and fuel 1600 2000
Depreciation 4000 4000
Insurance 1000 1000
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Total 9800 12000

You are required to,

 Indicate which of the items are fixed, variable and semi variable
 Prepare a budget for 80% capacity
 Show the total cost, both fixed and variable per unit of output at 60%, 80% and 100%
capacity levels

PROBLEM-48.
ABC limited manufactures a single product for which market demand exists for a additional
quantity. Present sales of Rs.60000 per month utilize only 60% capacity of the plant. Sales
manager assures that with a reduction of 10% in the price, he would be in a position to
increase the sales by about 25% to 30%. The following data are available.
Selling price - Rs.10 per unit. Variable cost – Rs.3 per unit.
Semi variable cost - Rs.6000 fixed plus Rs.0.50 per unit
Fixed cost – Rs.20000 at present level estimated to be Rs.24000 at 80% output.
You are required to prepare a statement showing the operating profit at 60%, 70% and 80%
levels of capacity utilization at current selling price and proposed selling price.4

PROBLEM-50
Calculate (1) material cost variance (2) material price variance and (3) material
usage variance in respect of a manufacturing concern which has adopted standard costing.
The firm furnishes the following information.
Standard data:
Material for 100 kg. of finished products from 140 kg raw material.
Price of materials Rs.4 per kg.
Actual data:
Output 60000 kg.
Material used 80000 kg.
Cost of material Rs260000
PROBLEM-52
Gandolph Game company has established the following standards for the prime cost of one
unit of its chief product, dartboards.
Standard cost Standard Quantity Standard price/rate
Direct material Rs.14 8 kilograms Rs.1.75 per kilogram
Direct labor 2 0.25 hour Rs.8 per hour
-----------
Total Rs.16
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During September, Gandolph purchased 320,000 kilograms of direct material at a total cost
of Rs.608,000.The total wages for September were Rs.84000, 90% of which was for direct
labor. Gandolph manufactured 38,000 dartboards during September, using 285,000
kilograms of direct material and 10000 direct labor hours.
 Compute the following:
1. The direct material cost variance. 2. The direct material price variance
3. The direct material quantity variance. 4. The direct labor cost variance
5. The direct labor rate variance 6. The direct labor efficiency variance

PROBLEM-58
A product is sold at a price of Rs120. per unit and its variable cost is Rs.80 per unit. The
fixed expenses of the business are Rs.8000 per year. Find (i) BEP in Rupees and units
(ii) profits made when sales are 240 units (iii) sales to be made to earn net profit of Rs.5000
for the year.

PROBLEM-59
Oberon Company manufactures dorm-room sized refrigerators. Fixed costs amounted to
$270000 per year. Variable costs per refrigerator are $23 and the average price per
refrigerator is $50.
Required:
1). How many refrigerators must Oberon Company sell to breakeven?
2) If Oberon Company sells 16000 refrigerators in a year what is the operating income?
3) If Oberon Company’s variable costs decrease to $20 per refrigerator, while the price,
fixed cost remains unchanged, what is the new breakeven level?

PROBLEM-60
A retail dealer in garments is currently selling 24000 shirts annually. He supplies the
following details for the year ended 31st March 2009.
Selling price per shirt: Rs.800
Variable cost per shirt Rs.600
Fixed cost:
Staff salaries Rs.24000
General office expenses Rs.800000
Advertising cost Rs.800000
You are required to answer the following each part independently.
1. Calculate break-even point and margin of safety in sales revenue and volume
independently.
2. Assume that 30000 shirts were sold during the year, find out the net profit of the firm and
Degree of operating leverage.
3. Assuming that in the coming year, an additional staff salary of Rs.1000000 is anticipated,
and price of shirt is likely be increased by 15%, what should be the breakeven point in
number of shirts and sales value?

PROBLEM-63
Z plc makes a single product which it sells for $16 per unit. Fixed costs are $76800 per
Month and the product has a contribution to sales ratio of 40%. In a period when actual sales
were $2, 24,000. What would be Z pic’s margin of safety in units?
 PROBLEM-64
Sales (Rs) Profit (Rs)
Period1 10,000 2,000
Period2 15,000 4,000
Required to compute:
1. C/V ratio
2. Fixed cost
3. Break even sales volume
4. Sales to earn profit of Rs. 3, 000
5. Profit when sales are Rs. 8, 000.
PROBLEM-66
Matson Corporation manufactures pharmaceutical products that are sold through a network
of sales agents. The agents are paid a commission of 18% of revenues. The income statement
for the year ending December 31,2012 is as follows:
Matson Corporation
Income Statement
For the year ended December 31,2011
Revenues Rs.26,000,000
Cost of goods sold:
Variable Rs.11,700,000
Fixed 2,870,000 14,570,000
Gross margin 11,430,000
Marketing costs
Commissions Rs.4,680,000
Fixed costs 3,420,000 8,100,000
Operating income 3,330,000
Matson is considering hiring its own sales staff to replace the network of sales agents. Matson
would pay its sales people a commission of 10% of revenues and incur additional fixed costs
of Rs.2,080,000.
Required:
1. Calculate Matson corporation’s breakeven point in revenues for the year 2011.
2. Calculate Matson corporation’s breakeven point in revenues for the year 2011 if the
company
had hired its own sales force in 2011 to replace the network of sales agents.
3. Calculate the degree of operating leverage at revenues of Rs.26,000,000 if (a) Matson uses
sales agents and (b) Matson employs its own sales staff. Describe the advantages and
disadvantages of each alternative.
4. If Matson had hired its own staff and increased the commission paid to them to 15%,
keeping
all other costs the same, how much revenue have to generate to earn the operating income
it did in 2011.
 PROBLEM-70
From the following information, recommend the most profitable product mix, presuming that
direct
labor hours are only 700.
Product A Product B
Contribution per unit Rs.30 Rs.20
Direct labor per unit 10 hours 5 hours
The maximum production possible for each of the products A and B is 100 units. Fixed
overheads
are Rs.2000.

PROBLEM-71
You are given the following information in respect of products X and Y of Bee Cee company
limited.
Product X Product Y
Selling price Rs.42 Rs.33
Direct material 15 15
Labor hours (50 paise per hour) 18 hours 9 hours
Variable overheads 50% of Direct wages
Fixed overheads Rs.6750
State which product is more profitable during labor shortage.

PROBLEM-72
A company engaged in plantation activities has 200 hectares of virgin land which can be used for
growing jointly or individually tea, coffee, and cardamom. The yield per hectare of the different
crops and their selling prices per kg are as under:
Yield (kgs) Selling price (Rs per kg)
Tea 2,000 20
Coffee 500 40
Cardamom 100 250

a) Variable cost per kg:

Tea (Rs) Coffee (Rs) Cardamom (Rs)
Labor charges 8 10 120
Packing materials 2 2 10
Other costs 4 1 20
Total cost 14 13 150

b) Fixed cost per annum Rs.1,800,000

The policy of the company is to produce and sell all the three kinds of products and the
maximum
and minimum are to be cultivated per product is as follows:
Maximum area (hectares) Minimum area (hectares)
 Tea 160 120
Coffee 50 30
Cardamom 30 10
Calculate the priority of production, the most profitable product mix and the maximum profit
which can be achieved.