Q.No.

01

On the basis of the following information in respect of an engineering company, what is the
product mix which will give the highest profit attainable? Do you recommend overtime
working up to a maximum of 15,000 hours at twice the normal wages (overheads are ignored
for the purpose of this question)?

Products  A B C

Raw material per unit (kg.) 10 6 15

Labour hours per unit @ Re. 1 per hour (Rs) 15 25 20
Sales Price per unit (Rs.) 125 100 200
Maximum production possible (units) 6,000 4,000 3,000

1,00,000 kg raw materials are available @ Rs. 10 per kg; maximum production hours are
1,84,000 with facility for a further 15,000 hours on overtime basis at twice the normal wage
rate.

Q.No.02

M/s PQ Ltd. has been offered a choice to buy a machine between A and B.

Relevant data are given below:

Machine  A B
Annual output (units ) 10,000 10,000
Fixed cost (Rs.) 30,000 16,000
Profit at the above level of production (Rs.) 30,000 24,000

Market price of the product is expected to be Rs. 10 per unit.

You are required to compute:

(1) Break-even point for each of the machines;
(2) Level of sales at which both machines earn equal profits.
(3) Range of sales at which one is more profitable than the other.
Q.No.3

A firm produces 5 different products from a single raw material. Raw material is available in
abundance at Rs. 6 per kg. The labour rate is Rs. 8 per hour for all products. The plant
capacity is 21,000 labour hours for the budget period. Production facilities can produce the
products. The factory overhead rate is Rs. 8 per hour, comprising Rs. 5.60 per hour for fixed
overheads and Rs. 2.40 per hour for variable overheads. The selling commission is 10% of
the product price. Further information is provided to you as under:

Product Market demand Selling price Labour hours Raw material

(Units) Rs. per unit required per unit
(in gms.)
A 4,000 32 1.00 700
B 3,600 30 0.80 500
C 4,500 48 1.50 1,500
D 6,000 36 1.10 1,300
E 5,000 44 1.40 1,500

You are required –

(1) To suggest a suitable sales mix which will maximize the company’s profits.
(2) To determine the profits that will be earned at the selected sales mix.
(3) Assume, 3,500 hours of overtime working is possible. It will result in additional fixed
overheads of Rs. 20,000, a doubling of labour rates and a 50% increase in variable
overheads. Do you recommend the overtime working?

Q.No.04

Mr. X has Rs. 2,00,000 investments in his business firm. He wants a 15% return on his
money. From an analysis of recent cost figures, he finds that his variable cost of operating is
60% of sales. His fixed costs were Rs. 80,000 per year. Show computations to answer the
following questions:

(1) What sales volume must be obtained to break-even?

(2) What sales volume must be obtained to get 15% return on investments?
(3) Mr. X estimates that even if he closed the doors of his business, he would incur Rs.
25,000 as expenses per year. At what sales would he better-off by locking his
business up?