ACCOUNTING FOR DECISION MAKING

XAVIER INSTITUTE OF MANAGEMENT, BHUBANESWAR

PGDM I, END TERM
15.12.2012

Time: 2 Hours

Instruction: There are 5 questions in 5 different sheets. You have to answer each question in the same sheet itse
Upload this answer file in the Assignment section of AIS.
Q1, Q3,Q4,Q5 = 7.5*4=30 marks & Q2 =10 marks

Total marks: 40 Marks

Open book examination. You can state necessary valid assumptions, wherever
required. Workings will form part of your answer.
Q1.
Bandwagon manufactures a designer Band 'B' and sells the same at Rs. 20 per unit. Variable
cost is Rs. 15 per unit and Fixed overhead for the year is Rs. 6,30,000.
Required:
(a) Calculate sales value needed to earn a profit of 10% on sales.
(b) Calculate sales price per unit to bring BEP down to 1,20,000 units.
(c ) Calculate margin of safety sales if profit is Rs. 60,000.
Write Your Answer Below this Line:

a)

Contribution per unit

Selling Price
Profit
Cost Price
Per Unit fixed Cost
No. of Units to be Produced
Hence Total Sales

5
20
2
18
3
210000
4200000

NG
BANESWAR

Time: 2 Hours

answer each question in the same sheet itself.

Total marks: 40 Marks

mptions, wherever

at Rs. 20 per unit. Variable

0.

ts.

b)

Total Variable cost for 120000 units

Total Fixed Price
Hence Selling price for break even

1800000
630000
20.25

c)

No. of units sold

So Total Sales

138000
2760000

Hence Margin of safety

2700000

ACCOUNTING FOR DECISION MAKING

XAVIER INSTITUTE OF MANAGEMENT, BHUBANESWAR
PGDM I, END TERM

Open book examination. You can state necessary valid assumptions, wherever required. Workings will form pa
your answer.
Q2.
The annual flexible budget of Expresso Ltd. is as follows:
Production Capacity
Costs:
Direct wages
Direct material
Production Overheads (fixed and variable)
Administrative overheads (fixed and variable)
Sellind and distribution overheads (fixed and variable)
Total

40%

60%

20,000.00
16,000.00
11,400.00
5,800.00

30,000.00
24,000.00
12,600.00
6,200.00

6,200.00
59,400.00

6,800.00
79,600.00

The company is presently passing through a period of very lean market demand and operating at 50% capacity and have also sellin
product at a discounted price generating a total sales revenue of Rs. 60,000 at that level.

It is expected that the market scenario will improve in the next year and, on a conservative estimate, the company is likely to opera
capacity level with increased sales revenue of Rs. 1,20,000
As an option, the management is considering to close down the operation for one year and restart operation after one year when
market conditions are likely to improve. If closed down for the year it is estimated that:
(i) the present fixed costs will reduce by 60%.
(ii) there will be a cost of Rs. 10,000 towards closing down operations.
(iii) to maintain a skeleton maintenance service for which Rs. 24,000 to be incurred.
(iv) an initial cost of reopening of Rs. 20,000 to be incurred.
The other option is to keep the factory operational for one year and wait for better time next year.
You are required to work out the profitability under the two options and give your comment.

Write Your Answer Below this Line:

Production Capacity
Costs:
Direct wages
Direct material
Production Overheads (fixed and variable)
Production Overhead( Fixed Component)
Production overhead (variable component)
Administrative overheads (fixed and variable)
Administrative overheads (fixed)
Administrative overheads (variable)
Sellind and distribution overheads (fixed and variable)
Sellind and distribution overheads (fixed )

40%

50%

60%

20,000.00
16,000.00
11,400.00
9,000.00
2,400.00
5,800.00
5,000.00
800.00
6,200.00
5,000.00

25,000.00
20,000.00

30,000.00
24,000.00
12,600.00
9,000.00
3,600.00
6,200.00
5,000.00
1,200.00
6,800.00
5,000.00

9,000.00
3,000.00
5,000.00
1,000.00
5,000.00

Selling and Overhead (variable)

Total

1,200.00
59,400.00

1,500.00
69,500.00

1,800.00
79,600.00

ON MAKING
ENT, BHUBANESWAR
TERM

s, wherever required. Workings will form part of

80%

100%

40,000.00
32,000.00
13,800.00
6,600.00

50,000.00
40,000.00
15,000.00
7,000.00

7,400.00
99,800.00

8,000.00
120,000.00

and operating at 50% capacity and have also selling its

at level.

nservative estimate, the company is likely to operate at 70%

e year and restart operation after one year when the

d that:

ed.

er time next year.

ur comment.

70%

80%

100%
If Factory keeps operating for the year then it will have the

35,000.00
28,000.00
9,000.00
4,200.00
5,000.00
1,400.00
5,000.00

40,000.00
32,000.00
13,800.00
9,000.00
4,800.00
6,600.00
5,000.00
1,600.00
7,400.00
5,000.00

50,000.00
40,000.00
15,000.00
9,000.00
6,000.00
7,000.00
5,000.00
2,000.00
8,000.00
5,000.00

Hence Loss

If Factory shuts down then the total cost would be

Closing
10000
Skeleton
24000
Reopening
20000
Fixed cost 11,400.00

2,100.00
89,700.00

2,400.00
99,800.00

3,000.00
120,000.00

Total
Hence Loss

65400

Hence company should continue operating

keeps operating for the year then it will have the cost of 69500
-9500

down then the total cost would be

-65400

Hence company should continue operating

ACCOUNTING FOR DECISION MAKING

XAVIER INSTITUTE OF MANAGEMENT, BHUBANESWAR
PGDM I, END TERM

Open book examination. You can state necessary valid assumptions, wherever required. Workings will form pa
of your answer.

Q3.
Majestic Auto Ltd. Is manufacturing and selling three standard products. The company has a standard cost system and analyses the
variances between the budget and the actual periodically. The summarized working result for 2010-11 were as follows:
Product

A
B
C

Selling
price per
unit (Rs.)
50
40
30

Budget
Cost per
unit (Rs.)
32
24
18

Actual
No. of
units sold

Selling price
per unit
(Rs.)
48
42
31

10,000
14,000
16,000

(a) Calculate the variance in profit during the period.

(b) Analyse the variance in profit into:
(i) Sales price variance
(ii) Sales volume variance
(iii) Cost variance
(iv) Sales margin quantity variance
(v) Sales margin mix variance

Write Your Answer Below this Line:

Product

A
B
C

Selling
price per
unit (Rs.)
50
40
30

Variance Name
Profit Variance
Sales Price variance
Sales Volume variance
Cost Variance
Sales Margin Quantity Variance
Sales Margin Mix Variance

Budget
Cost per
unit (Rs.)
32
24
18

Value
11000
-15000
10000
-18000
8000

Actual
No. of
units sold
10,000
14,000
16,000

Budgetd Profit
180000
224000
192000

Favourability
Unfavourable
Favourable
Unfavourable
Unfavourable
Unfavourable

Selling price
per unit
(Rs.)
48
42
31

AKING
UBANESWAR

erever required. Workings will form part

has a standard cost system and analyses the

ult for 2010-11 were as follows:
Actual
Cost per
unit (Rs.)
30
25
20

Actual
Cost per
unit (Rs.)

No. of units
sold
12,000
12,000
15,000

No. of units
sold
Actual Profit

30
25
20

12,000
12,000
15,000

216000
204000
165000

Sales Price Sales Volume

Cost
Variance
variance
Variance
24000
-100000
24000
-24000
80000
-12000
-15000
30000
-30000

Sales
Sales
Margin
Margin
Quantity
Mix
Variance Variance
-36000
32000
12000

ACCOUNTING FOR DECISION MAKING

XAVIER INSTITUTE OF MANAGEMENT, BHUBANESWAR
PGDM I, END TERM
Open book examination. You can state necessary valid assumptions, wherever required. Workings will
form part of your answer.
Q4.
A Ltd., operates a system of standard costs. Following information is available:
Actuals:
Rs.
189,000.00
Materials consumed (3600 units at Rs. 52.50 p.u)
22,100.00
Direct wages
188,000.00
Fixed Expenses
62,000.00
Variable Expenses
Output during the period was 3500 units of finished product.
For the above period, the standard production capacity was 4800 units and the breakup of standard cost per unit was as
under:
Rs.
50
Materials (one unit @ Rs. 50 p.u)
6
Direct wages
40
Fixed Expenses
20
Variable Expenses
116
Total standard cost per unit
The standard wages per unit is based on 9,600 hours for the above period at the rate Rs. 3.00 per hour. 6,400 hours were
actually worked during the above period, and in addition, wages for 400 hours were paid to compensate for idle time due to
breakdown of a machine, and overall wage rate was Rs. 3.25 per hour.
You are required to compute the following variances with appropriate workings:
(a) Direct material cost variance
(b)Material price variance
(c ) Material Usage variance
(d)Direct labour cost variance
(e )Wage rate variance
(f) Labour efficiency variance
(g) Idle time variance

Write Your Answer Below this Line:

Material cost Variance

Material Price Variance
Material Usage Variance
Labour Cost Variance
Wage Rate Variance
Labour Efficiency Variance

-14000
-9000
-5000
-1100
-2900
1800

Unfavourable
Unfavourable
Unfavourable
Unfavourable
Unfavourable
Favourable

Idle Time Variance

Std Hrs = 3500*2 = 7000

NESWAR

ver required. Workings will

standard cost per unit was as

00 per hour. 6,400 hours were

o compensate for idle time due to

Actual hrs = 6400

thus no idle time

ACCOUNTING FOR DECISION MAKING

XAVIER INSTITUTE OF MANAGEMENT, BHUBANESWAR
PGDM I, END TERM

Open book examination. You can state necessary valid assumptions, wherever required. Workings will for
part of your answer.

Q5. ET Ltd. has two divisions- D1 & D2 . D1s output K is used by D2 in its product Z. The details of the cos
manufacturing one unit of K is given below:
In Rs.
Direct material
10
Direct Labour
2
Variable overheads
3
Fixed overheads*
5
Total
20
* Total capacity 2,00,000 units
Additional cost
1. Fixed selling & admn. Exp. Rs.5,00,000/2. Variable selling expenses Re. 1 per unit

K is being sold in the market at Rs.29 per unit. Division D1, though capable of producing 2,00,000
units, is producing only 1,50,000 units based on market demand. Division D2 is buying the same
product from the market at Rs.28per unit for its use in Z. It expects to use 50,000units of K and
accordingly makes an offer to the Manager of D1 to produce additional 50,000 units of K and off
a buying price of Rs.18 per unit.
You are required to:

1. Determine the minimum transfer price that the Manager of D1 would accept for K
2.
Determine
the maximum
price
that ?the
Manager
D2 would
for K
3. Should
an internal
transfertransfer
price take
place
What
is your of
opinion?
Willoffer
you sell
at Rs.18 per uni
D2? Explain

4. Assuming that the investment in D1 is Rs.10,00,000/-, compute the return on investment for D1, if
the 50,000 additional units of K are sold to D2 at Rs.18per unit.

Write Your Answer Below this Line:

Minimum Price that the manager would accept will be equal to the total cost
Variable cost per unit
16 (Assumption here is that the variable selling expenditure of Re 1 willl be incurred on se
Fixed cost per unit
7.5
Hence Total cost
23.5
So Minimum price =
23.5
Manager of D2 can offer the maximum of Rs 28 to the D1

Yes Internal transfer should take place because the total variable cost is less than the transfer price
Manager should sell at Rs 18 because it is less than the variable cost, which is equal to the Rs 16

WAR

uired. Workings will form

. The details of the cost of

of producing 2,00,000
is buying the same
000units of K and
000 units of K and offers

ept for K
er
for K
u sell
at Rs.18 per unit to
investment for D1, if

Re 1 willl be incurred on selling to the divison D2 also)