1.

The balance sheet of a company as on 31st Chaitra last year is given below:
Liabilities Amount Rs. Assets Amount Rs.
Share Capital 600,000 Inventories
Profit and loss ac 60,000 Finished Goods 5000 units 150,000
Sundry creditors 120,000 Raw material @ Rs. 2 55,000
Outstanding expenses 120,000 Sundry Debtors 480,000
Cash 21,000
Investment 100,000
Fixed assets 94,000
900,000
The purchase and sales estimated are:
Months Baishak Jestha Ashad Sharwan
Sales in units 10,000 12,000 14,000 12,000
Sales revenue Rs. 400,000 Rs. 480,000 Rs. 560,000 Rs. 480,000
Purchase Rs. 120,000 Rs. 130,000 Rs. 130,000 -
20% of the sales are made on cash and balance on credit. All credit are collected in
the month following the sales. All purchases are paid on the following month of
purchase. Time lag on wages and expenses are ½ month. Non-manufacturing
overhead are payable in the month of their being due. The expenses for the 3
months are as under:
Months Baishak Jestha Ashad
Wages and Expenses Rs. 220,000 Rs. 260,000 Rs. 260,000
Non-manufacturing overhead Rs. 100,000 Rs. 119,220 Rs. 140,000
The company’s policy is to have ending finished goods each month to fill 50% of the
following month’s sales.
The company has been thinking of buying a machine in the month of Baishak at a
cost of Rs. 150,000. The company keeps a minimum cash balance of Rs.20,000.
Cash deficiencies are made up by bank loan. All borrowings are to be assumed as
borrowed on the first day of a month and all payments are to be paid on last day of a
month. The interest rate is 12% per annum and is payable with the principal to the
extent of refund of the principle.
The company issued additional share capital of Rs. 100,000 in Jestha and in the
same month, the company also received interests amounting Rs. 3,000 from
investment.
Required:
a. Production budget for the 3 month ending Ashad=37000 units
b. Cash budget=ending blc of ashad rs20000
c. Budgeted income statement= net income rs3000
d. Budgeted balance sheet= bs total rs1057000

2. The opening balance sheet and other information necessary for preparing a
master budget of a manufacturing company have been summarized below:
Balance sheet as on Jan 1,2006
Equity Capital Rs. 100,000 Plant and Machinery Rs. 50,000
Retained earning Rs. 21,000 Inventories 22,000
Accounts payable Rs. 22,000 Raw material 11000 units 20,000
Finished Goods 2500 units 26000

MBA-3rd Trimester
Boston International College
 Account Receivable 25000
Cash at bank
143,000 143,000
Sales and Production Budget
Particulars/Months Nov. Dec. Jan. Feb. March April
Sales Units 3000 4000 5000 6000 6000 4000
Sales Revenue 30,000 40,000 50,000 60,000 60,000 40,000
Production Units - - 5500 6000 5000 4500
Sales would be on credit. Credit sales would realize 50% in the month of sales, 30%
in the next month and 18% in the following next month of sales. Bad debts would be
2% of sales. The inventory of finished goods and raw materials would be 50% of
sales need of the next month and the material need for production of the next month
respectively.
Minimum need of cash balance would be Rs. 25,000. Purchase would be paid in the
next month and other expenses would be paid in the same month when they
become due.
Each unit of finished product would need two units of materials and material would
cost Rs. 2 per unit. Labour cost per unit of output produced would be Rs. 3 and
manufacturing overhead (excluding deprecation Rs. 2000 per month) would be Re.1
per unit of output produced. The company would purchase additional plant worth Rs.
50,000 on Jan 2006.
Short-term loan in a multiple of Rs. 5000 would be available at an interest rate of
18% p.a. to meet cash deficiency. Repayment of bank loan would be in a multiple of
Rs. 1,000.
Required:
a. Material purchase budget
b. Cash collection and disbursement budget
c. Budgeted Balance sheet as on 31st March

3. A co. ltd. has followed a system of defining its plant capacity in terms of direct
labour hour (DHL). The company is currently working 14,000 DHL at 70% of its
capacity. The direct labour hour rate is Rs. 5 per hour and direct labour hour required
for the product is 2 hour per unit. The cost of material per unit is Rs. 10 at present
capacity and it decreases by 10% for running more than 70% capacity. The other
information assembled by the company are:
Capacity 70% 100%
Direct expenses Rs. 21,000 Rs. 30,000
Salaries 40,000 40,000
Depreciation 10,000 10,000
Inspection 10,000 13,000
Maintenance and repair 24,000 30,000
Power 31,000 40,000
General administration 30,000 36,000
Shop labour 7,000 10,000
Required:

MBA-3rd Trimester
Boston International College
Flexible budget for 8,000(Rs337000) and 9,000(Rs368000) units showing cost per
unit of output.

4. Wimpy has a normal capacity of 20,000 units. It wants to estimate the budget
for 70%,80% and 90% output levels. Given below is the cost structure at the normal
capacity.
Direct Mateiral Rs. 800,000
Direct Labour 600,000
Prime cost 1,400,000
Overhead:
Indirect expenses(30%variable) 200,000
Maintenance cost(40%fixed) 600,000
Salaries (fixed) 50,000
Depreciation (Fixed) 100,000
Power and fuel (70% variable) 800,000
Required:
Prepare flexible budget at 70%(Rs2436000), 80%(Rs2674000) and
90%(Rs2912000) capacity levels.

5. The income statement of Nepal Thai Food Ltd., has been presented below

Products Lovely Fancy Total

Sales Units 3,000 2,000 5,000

Sales revenue Rs. 60,000 Rs. 20,000 Rs. 80,000

Less : Variable cost 30,000 10,000 40,000

Contribution margin 30,000 10,000 40,000

Less: Fixed Cost

Joint Cost 10,000 5,000 15,000
Departmental Fixed Cost 8,000 2,000 10,000

Total Fixed Cost 18,000 7,000 25,000

Net Profit before Tax 12,000 3,000 15,000

Company received a special offer to supply 2000 units of Lovely product in a different brand name, at
Rs. 16 per unit. The special product would need material cost of Rs.5 per unit, direct

labor cost of Rs. 4 per unit and the variable manufacturing overhead cost of Rs. 2 per unit. The
company has been able to utilize its capacity in the past and production of special product would be

MBA-3rd Trimester
Boston International College
possible only if, the production and sales of Fancy product could be curtailed by 1000 units. However,
the special product would need investment in special device a sum of Rs. 4,000 and would have to
spend Rs. 2000 for set-up cost.
Required:
a. Differential cost analysis to decide whether the company should accept offer.
b. Opportunity cost of order if any.
6. A company has received a special order for a product which it does not normally produce.
Currently it is producing the commodity X and Y. The company is working at capacity colume and
would have to give up some other business to take the special order. For this purpose it can reduce the
output of product Y by one half and cannot curtail the product X, as it is highly demanded in the
market.
The costs required for special product ‘Z’ are:

Direct Material Rs. 20/unit

Direct Labor Rs. 10/unit
Additional Fixed cost Rs. 2,000

Price, cost and production data for the product A and B are shown below;

Product X Product Y

Sales Units 5,000 2,000

Selling price per unit Rs. 20 Rs. 25
Cost Per Unit:
Direct Material Rs. 4 Rs. 8
Direct Labor 8 9
Overhead apportioned to the product:
Depreciation Rs. 5,000 Rs. 3,000
Power 1,000 400
Rent 6,000 1,000
General Expenses 1,000 9,00

Required
a. Statement showing the cost profit of product X and Y, prior to accepting the special order.
-(Total net profit before tax before accepting the offer is rs377000)
b. Statement showing the full cost charged to all products and profit by accepting the special
order. The acceptable selling price per unit of special order is Rs. 40 and ordering units is 800.
-(Total net profit before tax after accepting the offer is rs36150)
c. Should the Company accept the special order and why?
-(The company should not accept the order because accepting the order will decrease the company’s
profit by rs1550)

MBA-3rd Trimester
Boston International College
7. Surichi Products Inc. manufactures and sales a number of items, including an
overnight case. The company has been experiencing losses on the overnight case
for sometimes, as shown on the following income statement.
Suruchi Products, Inc.
Income statement-overnight cases
For the year ended June 30,2010

Sales Rs. 450,000

Less: Variable Expenses:
Variable manufacturing expenses
Sales commissions Rs.130,000
48,000
Shipping 190,000
12,000
Contribution Margin 260,000

Less: Fixed Expenses

21,000
Salary of product line manager
104,000
General factory overhead
36,000
Depreciation of equipment
110,000
Advertising- traceable
9,000
Insurance on inventories 330,000
50,000
Purchasing department expenses

Net operating Profit (Rs. 70,000)

Additional information:
● The product line manager is in contract base. His contract is renewed every
year.
● General factory overhead is allocated on the basis of machine-hour.
● The equipment used in the department is fully depreciated. It has no resale
value. New similar equipment is required to continue the overnight cases which cost
same as old equipment resulting the same depreciation amount.
● Purchase department’s expenses are allocated on the basis of sales revenue.

Discontinuing the overnight cases would not affect sales of other product lines and
would have no noticeable effect on the company’s total general factory overhead or
total purchasing department expenses.
Required:
Would you recommend that the company discontinue the manufacture and sale of
overnight cases? Support your answer with appropriate computations.
Ans: Actual Departmental profit Rs. 84,000, should not drop.

MBA-3rd Trimester
Boston International College
8. A company limited produces three standard product called X, Y AND Z. The
result of the operation of last year ended on 31st Ashadh are presented below:
Products:- X Y Z Total

Sales Units 5,000 5,000 2,500 12,500

Sales Revenue (Rs.) 100,000 100,000 50,000 250,000

Less: Cost of Goods Sold:

Prime Cost 40,000 40,000 20,000 100,000
Variable Overhead 10,000 10,000 5,000 25,000
Fixed Overhead 20,000 20,000 15,000 55,000

Total Cost of Goods Sold 70,000 70,000 40,000 180,000

Gross Profit 30,000 30,000 10,000 70,000

Less, Other Costs:

Variable selling and administrative 50,000 50,000 2,500 12,500
cost 10,000 10,000 10,000 30,000
Fixed Selling and administrative cost

Total Fixed cost 15,000 15,000 12,500 42,500

Net Income 15,000 15,000 (2,500) 27,500

The result of the operation shows product Z have suffered losses for years,
therefore, the management is considering to drop out product Z form its production
schedule. If it does so it will be able to reduce its fixed manufacturing cost by Rs.
5,000. All other fixed cost are allocated will remain there irrespective of decision but
the company will loose its sales of other products by 10%.

Required:
a. Should the company drop out product Z?
b. If unutilized capacity of product z could be rented out Rs. 30,000, what would
be your decision?
9. Delta manufacturing company has sufficient idle capacity therefore; it would like to
see the possibility of manufacturing a component used in its final products. The company
has been buying the component from the outside supplier at the rate of Rs. 20. The other
data have been presented below:

Annual need 20,000 units

Cost estimate for one unit:
Raw material Rs. 6
Direct labor Rs. 8
Manufacturing OH Rs. 10

MBA-3rd Trimester
Boston International College
The company has followed a system of defining its plant capacity in terms of direct labor
hours. The annual normal capacity is 50,000 direct labor hours. The annual budgeted and
actual fixed manufacturing overhead is Rs. 200,000. One unit of needed component requires
two direct labor hours.

Required:
Differential cost analysis to decide whether the company should continue to buy?

- Purchase/Make saves by Rs. 80,000

10. Anup Metal Industry is now producing a part that is used in the production of one of
the industry’s main product lines. The industry’s accounting department reports the following
cost of producing 10,000 units per annum parts internally.
Details Unit Cost (Rs.) Total (Rs.)

Direct Materials 5 50,000

Direct labor 6 60,000
Variable manufacturing overhead 2 20,000
Supervisor’s salary (Annual contract basis) 4 40,000
Depreciation of equipment 5 50,000
Joint Cost 8 80,000

Total 30 300,000

The company has just received an offer from an outside supplier who will provide
10,000 parts a year at a firm price of Rs. 20 per part.
Required:
a. Should the company stop producing the parts internally and start purchasing form the
outside supplier? (make,cost save by rs30000)
b. Would the decision made in above change in the equipment can be sold at their book
value. (buy,cost save by rs20000)
c. If the unutilized capacity could be rented out at annual rent Rs. 40,000, what would
be your decision? (buy,cost save by rs10000)
11. The burns chemical company produced three joint products at a joint cost of Rs.
100,000. These products were processed further and sold as follows:
Chemical Product Sales Additional Processing cost

A Rs. 245,000 Rs. 200,000

B Rs. 330,000 Rs. 300,000
C Rs. 175,000 Rs. 100,000

The company has had an opportunity to sell at split-off directly to other processors. If that
alternative had been selected, sales would have earn:
A : Rs. 56,000
B: Rs. 28,000
C: Rs. 56,000

The company expects to operate at the same level of production and sales in the
forthcoming year.

MBA-3rd Trimester
Boston International College
Required:
Consider all the information and assume that all costs incurred after the split-off are
available.
1. Could the company increase its operating income by altering its processing decision?
If so what would be the expected overall operating income? -(the company should not alter
the decision of further processing because by the further processing the company can enjoy
an additional profit of rs10000.)
2. Which product should be processed further and which should be sold at split-off?
–Since the product B and C result in an additional profit by further processing, only product B
and C should be further processed but product A should be sold at split off as it incurs a loss
of rs11000.)

12. Mr. Goet, a newly appointed CFO of Nepalgunj Manufacturing Company, assigned his
subordinate to prepare income statement for reporting purpose from the following information
Selling price per unit Rs. 30
Sales 16,000 Units
Production 20,000 Units
Closing Stock 6,000 Units
Direct Material Rs. 10 per unit
Direct Labour Rs. 5 per unit
Variable manufacturing cost Rs. 2 per unit
Variable selling cost Rs. 5 per unit
Variable administrative cost Rs. 4 per unit
Fixed manufacturing cost Rs. 40,000
Fixed selling cost Rs. 30,000
Fixed administrative cost Rs. 20,000

Required:
i. Prepare an income statement reporting internal user of financial information.
ii. Prepare an income statement reporting external user of financial information.
iii. Reconciliation statement showing the causes of difference in net income.

13. The Orchid co. ltd. Separates oxygen from the air, freezes it, and sells it in its solid form.
Thus, its raw material is free and it incurs only production costs all of which are fixed, since the plant
is fully automated. These production costs amount to Rs. 300,000 per year. The oxygen is sold at Rs.
40 per unit. The company has made two forecasts of sales for the next two years, one optimistic and
one pessimistic:
2009 2010

Optimistic sales forecasts 10,000 units 30,000 units

Pessimistic sales forecasts 10,000 units 10,000

MBA-3rd Trimester
Boston International College
The company president has decided that production during the next two years would be 20,000 in
each year under the optimistic forecast; the production would be 20,000 units in 2009 but zero in
2010, even though fixed costs would continue under the pessimistic forecast.
Required:
a. Compute income before taxes in rupees and as a percentage of sales revenue under
absorption costing and variable costing for both sales forecasts.
b. Which costing methods should the company use? Why?
14. The data for various costs and units of output is given as follows:
Output 7000units 10000 units
Direct expenses Rs. 21,000 Rs. 30,000
Salaries 40,000 40,000
Depreciation 10,000 10,000
Inspection 10,000 13,000
Maintenance and repair 24,000 30,000
Power 31,000 40,000
General administration 30,000 36,000
Shop labour 7,000 10,000
Required:
a. Identify the nature of the costs.
b. Segregate semi-variable costs into fixed and variable components.

15. The following data is available:

Output in units Maintenance cost Rs,
10,000 30,000
20,000 50,000
30,000 70,000
40,000 90,000
Required: Segregate maintenance costs into fixed and variable costs components
by using the least square method. –(rs2,rs10000)

16. The given Information depict the operating result of trading concern for the past two
years:
Year Sales Net Profit

2071 Rs. 500,000 (15.000)

2072 Rs. 800,000 45,000

Required:
i. P/V ratio (.20)
ii. Amount of fixed expenses (115000)
iii. BEP in rupees (575000)
iv. Sales required to earn a desired profit of Rs. 75,000 (950000)
v. Profit if sales is Rs. 600,000 (5000)
vi. Sales required earning after tax profit of Rs. 60,000 (If Tax rate is 35%) (1075000)

17. Everest Restaurant develops its cost structure and selling price of meal to
serve local meal taker for coming year 2018.

MBA-3rd Trimester
Boston International College
 Selling price per meal Rs. 30
Variable cost per meal Rs. 25
Fixed Cost:
Rent Rs. 240,000
Staff salaries 192,000
Electricity 18,000
Gas and others 66,000
Salary of sales person 60000
Total Fixed Cost Rs. 576,00
Required:
i. How many meals must be served to attain a profit before tax of Rs. 50,000.
–(62600 meals)
ii. What is the break-even point in number of meals served per month?
-(4800 meals)
iii. Restaurant’s salary of sales person raise to a total of Rs. 72,000, How many
meals must be sold to attain a profit before tax of Rs. 50,000?
-(63800 meals)
iv. Restaurant’s accountant estimate’s that his variable cost will increase by 15%
next year, by how much percent will increase in selling price to maintain original
operating income?
-(10%)
v. Assume that the restaurant’s BEP in number of meals 60,000 per year and
variable cost will increase by 15%, by how much selling price will increase to
maintain it?
-(2.60 or 8.67%)

18. A firm has two products, X and Y. Some data relating to them are given
below:
Product Variable cost Selling Price
X Rs. 80 per unit Rs. 100 per unit
Y Rs. 60 per unit Rs. 100 per unit
Fixed expenses of the firm is Rs. 5,000.
The sale of units of product X is three times that of units of product Y.
Required:
Compute break even for the overall company and individual product too.

19. Sushil Pashmina Udyog supplies you with following information:

Product
Plain Decorative
Use of fur in kg per piece 10 kg 15 kg
Contribution margin per pashmina Rs. 50 Rs.60
Maximum fur available for the production of Pashmina is 75,000 kgs.
Required:
i. Allocation of fur between plain and decoration Pashmina when product mix is
not significant. –(All to produce plain Pashmina)
ii. Allocation of fur between plain and decoration Pashmina when product mix is
6:9. –(23077 kg to plain and 51923 kg to decorative)
iii. Calculate net profit at a mix of 6:9. If fixed cost is Rs. 150,000. –(rs173060)

MBA-3rd Trimester
Boston International College
20. Raju Mo-Bike, a repair workshop, with no capacity and other uncertainties
regarding demand. Raju Ranjit, the Managing Director of the workshop, has made
the following sales forecast for the month of July 2018 under the condition of
demand uncertainty:
Demand of repair hours Probability
60 .1
100 .3
200 .4
600 .2
Allowed annual fixed costs of the shop is Rs. 50,000. Repair charge per hour is fixed
Rs. 400 and the variable costs per repair hour are expected to remain stable at Rs.
150 over the next year.
Required:
a. What is the expected demand?
b. What is the expected profit?
c. What is the standard deviation of demand?
d. What is the standard deviation of expected profit?
e. What is the expected margin of safety ratio? How safe is the business of Mr.
Raju in next year? Explain.
f. What is the probability that the shop being between Rs. 40,000 and Rs.
80,000 during the month July 2018?
g. What is the probability that the shop will suffer from a loss during the month of
July 2019?
h. What is the probability of demand falling to limit of 300 hours?
i. Probability of demand being in between 200 and 400 hours.
j. Probability of demand being in between 100 to 200 hours.

MBA-3rd Trimester
Boston International College