l

:'-."*,

Q. No. 10

Vimal Enterprises
Before Expansion
:

PAT

39

Return

on

Equity
Equity 300

13%o

Return on Capital

Employed

PBIT

80

TotalCapital

Employed

=
400

ZOTo

= Equity + Debt
After Expansion
:

Equity 15% Debt

400 200

Fixed Asset

Net W.C.

400 200

profit and Loss A/C Sales 1.4 x 500

VC .95 x 0.7 x 700

700

456.5
234.5
42.O

contribution

Cost 1.O5 x 40 Depr 40.0

Fixed 10

lnterest 15 x 2OO
PBT

40.0 152.5 30.0

722.5

CW

40;/"

49.0

?35
Return on

Equity-

73.5
=

18.38%

400
152.5

Return on CapitalEmployed =

=25.42%

Total Asset Turnover 500 Before Expansion

600

= 1.25

AfterExpansion=
600

=1'167

Q. No. 11

Shubham EnterPrises
{a) Contribution earned by Division B =

TP
1000

- VC

950 = Rs 50 Per unit

Total Contribution earned = 50 x 10,000 = Rs' 5,00,000/lf division A decides to buy it from outside the capacity at Division B as well as company will incur a out of pocket loss of Rs. 5,00,000/- per year
(b) Current Market Price Rs. 1000

Reduction in
Revised MP

MP

Rs.

80 Rs. 920
Rs- 30

lnternal VC at Div B Saving per unit 950-920 =

lf company buys at Rs. 920. lt will save 30 x 1000 = Rs. 3,00,000. Buy from outside when Market Price is lower than Variable Cost"

{c) When we utilize the full capacity

of Division B contribution earned by the company is Rs 5,00,000. lf this capacity could be sold for Rs. 14.5 lacs. The company stand to gain Rs. 14.5 lacs - Rs. 5 = Rs. 9.5 lacs. Sell it capacity to outsider.

Q.12

At S0% of capacity SP = Rs 200 Matl Cost Rs 100, Labout = Rs. 30, Factory O/H - Rs. 30. Admn O/H = Rs. 20. Total Cost/ Unit Rs. 80. Sincer factory O/H and Adm OH are semi variable. We need to separate the variable and fixed factory OH is 40% fixed. Fixed component of factory O/H is. 40 x 30 = Rs. 12 per unit there for annual fixed factory O/H t2 x 10,000 = Rs. 1,20,000. The variable component of factory OH is Rs. 18 per Unit. Admn o/H is Rs. 20/Unit and 50% in fixed so fixed Admn O/H = 50 x 20 = Rs. 10. Total fixed Admn O/H = 10 x 10,000 = Rs. 1,00,000. Variable Admn O/H is Rs. 10 per unit.

Budget at Different Capacity

<Aol
oVTo

80% 12,000 r6,000

19O x 16,000

Capacity in No. of Units

Sales Sales
2OO

10,000

x 1OOOO = 20,00,000
Rs. 100

196 x 12,OO0

23,52,0000
Rs. 102 12,24,OOO

30,40,000
Rs. 105

Variable Cost

Material Cost per Unit

Total Matl Cost
Labour Cost Var Fact O/H Var Adm O/H Fixed Factory O/H Fixed Admn O/H

10,00,000 3,00,000 1,80,000 1,00,000 1,20,000

1,O0,000

Total

18,00,000
Rs. 1,O0,0O0

3,60,000 2,16,000 1.20,000 1,20.000 1,00,000 21,40,000

2,12,OO0

16,80,000 4,80,000 2,88,000

r,20,000
1,20.000 1,00,000 28,28,000

Profit

2,r2,000

We find that profit at 6o% and 80% of the capacity is same. But we recommend that the company would better off if it works at 80% as we would produce more and keep our men and machine utilized better. we could also capture higher market share which benefits us in the long run.

Q. 13

Veena Television
Color TV (CTV) Black & White (8
TV)

Spare Park (SP)

235

Service 470

SG

Market Price
Cost Gross Profit

14,150 I'J.,420

5000

3500*
1,500

235/2.4 = 97.92
137.08

2,730

47A/4.5 = 704.44
36s.56
o

*we assume BW sells old

iS

taken as cost.
c

after repair and service and therefore the price given by Business Magzine

Profit after

allocated overheads and service commission.

C.TV BTV
SP SG

Gross Profit

2730
835

150&
665 250

137.08
32

Allocated Overheads
Service

356.56

r14

Commission Net Profit

1895

585

105.08

251.s6

spare Parts and sG cannot survive as independent division as they are fully dependent as BW BW May survive as independent profit center besides CTV.

Soniya Ltd,
Budget
Q.1 5ales

Budget
Q.2 40
21
7
1

Actual
Q.3 36
19 6
3

Factory Cost Marketing Cost

Freight

1A

Admn Exp Profit

FA CA (Cash+AR+tnv)

0.9

)(;
7q )n )9
48
7

o.8 3.2 10

8 20 30

20
32
52

Total Asset
ROr

50

8/so -- 16%

.5/48 = 15.63

70/52 = 1928%

Though Actual Rol of Quarter 1 is higher than budgeted. we should be concerned about achieving only 34/40 = 85% of Budgeted sales- This will bring down lnventory Turhover to ration and Accounts Receivable Turnover to Ratios. we find against budgeted Marketing cost of Rs. 7Cr, the actual spending only Rs.

second Quarter Budget is quite ok. There was a printing mistake fixed Assets are showing as Rs. instead of Rs. 20.

Out sales is lower as well as our lnventory to and A/R to is lower.

3 Cr. Thus we have not given sufficient effort to Market.