Cost and Management AccountingQuestion 5433 of 251
All Questions

Question 1 (a) XYZ Company has an option to buy any one of the two machines N or M to manufacture its unique industrial component P. Each of the machines have the capacity to produce same quality of component P and are almost identical except for the fact that they are being manufactured by a different manufacturers. The specifications for each Machine are: Machine M: It has the capacity to produce 50,000 components of P per annum, the fixed costs being 1,50,000 and could generate a profit of 2,25,000 on the sale of all the components produced. Machine N: It is also having the equal capacity to produce same number of components as that of Machine M per annum and all the components thus produced could be sold in the open market without any difficulty. Fixed cost of Machine N is 60,000 less than that of Machine M and yield a profit of 1,60,000 by selling all the components that are produced. The selling price of each component of P is 100. Required: (i) Calculate break even sales in value for each machine. (3 Marks) (ii) Calculate sales levels in units where both the machines are equally profitable. (2 Marks) (b) PQR Ltd. manufactures a product in batches of 2,000 units. The following costs are incurred for each batch Particulars Amount (in`) Direct Material Cost per Batch 2,40,000 Direct Labour Cost per Batch 1,65,000 Overhead Absorption Rate (variable) 120 per machine hour Expected Rejection Rate 3% Scrap Value per Rejected Unit 75 Other Information: Particulars Details Selling Price per Good Unit ` 250 Total Available Machine Hours per month 3,000 hours Fixed Overheads per Month ` 1,25,000 Batches Manufactured per Month 10 batches Required: (i) Calculate contribution per unit of good units after adjusting rejected units. (3 Marks) (ii) Calculate the company's total monthly profit. (2 Marks) (c) The Cost Accountant of a Manufacturing concern has given the following details in respect of a raw material X: Difference between Minimum lead time and Maximum lead time is 4 days. Average Lead time to procure the Raw Material X is 7 days. Reorder Level 1,80,000 units Reorder Quantity 90,000 units Minimum Stock Level 1,00,000 units Maximum Stock Level 1,90,000 units Required to Calculate: (1) Maximum Consumption per day (2 Marks) COST AND MANAGEMENT ACCOUNTING (2) Minimum Consumption per day (2 Marks)

For any discrepancies in this question, email contact@cadada.in

Ad

Detailed Solution & Explanation

### (a) (i) Comparative Statement of Machine M and Machine N | Particulars | Machine M (Qty) | Machine M (Price ₹) | Machine M (Amount ₹) | Machine N (Qty) | Machine N (Price ₹) | Machine N (Amount ₹) | | :--- | :---: | :---: | :---: | :---: | :---: | :---: | | **Sales** | 50,000 | 100.0 | 50,00,000 | 50,000 | 100.0 | 50,00,000 | | **Less: Variable cost** | 50,000 | 92.5 | 46,25,000 | 50,000 | 95.0 | 47,50,000 | | **Contribution** | | 7.5 | 3,75,000 | | 5.0 | 2,50,000 | | **Less: Fixed Cost** | | | 1,50,000 | | | 90,000 | | **Net Profit** | | | 2,25,000 | | | 1,60,000 | **1. Profit Volume (P/V) Ratio:** P/V RatioM=ContributionSales×100=3,75,00050,00,000×100=7.5%\text{P/V Ratio}_M = \frac{\text{Contribution}}{\text{Sales}} \times 100 = \frac{3,75,000}{50,00,000} \times 100 = 7.5\% P/V RatioN=ContributionSales×100=2,50,00050,00,000×100=5.0%\text{P/V Ratio}_N = \frac{\text{Contribution}}{\text{Sales}} \times 100 = \frac{2,50,000}{50,00,000} \times 100 = 5.0\% **2. Break-even Sales (in ₹):** Break-even SalesM=Fixed CostP/V Ratio=1,50,0007.5%=₹20,00,000\text{Break-even Sales}_M = \frac{\text{Fixed Cost}}{\text{P/V Ratio}} = \frac{1,50,000}{7.5\%} = ₹20,00,000 Break-even SalesN=Fixed CostP/V Ratio=90,00,0005.0%=₹18,00,000\text{Break-even Sales}_N = \frac{\text{Fixed Cost}}{\text{P/V Ratio}} = \frac{90,00,000}{5.0\%} = ₹18,00,000 ### (a) (ii) Indifference Point (in Units) Let x\displaystyle x be the number of units where the profit of both machines is equal: ContributionM−Fixed CostM=Contributionn−Fixed CostN\text{Contribution}_M - \text{Fixed Cost}_M = \text{Contribution}_n - \text{Fixed Cost}_N 7.5x−1,50,000=5x−90,0007.5x - 1,50,000 = 5x - 90,000 2.5x=60,000  ⟹  x=24,000 units2.5x = 60,000 \implies x = 24,000 \text{ units} ### (b) (i) Calculation of Contribution per unit of Good Units | Particulars | Total Amount (₹) | Per Unit (₹) | | :--- | :---: | :---: | | **Selling Price** | 48,50,000 | 250.00 | | **Direct Material Cost** | 24,00,000 | | | **Direct Labour Cost** | 16,50,000 | | | **Variable Overhead** (₹120×3,000 hours\displaystyle ₹120 \times 3,000 \text{ hours}) | 3,60,000 | | | **Total Variable Cost** | 44,10,000 | 220.50 | | **Less: Scrap Value of Rejected Units** (₹75×20,000 units×3%\displaystyle ₹75 \times 20,000 \text{ units} \times 3\%) | (45,000) | | | **Net Variable Cost** | 43,65,000 | 225.00 | | **Contribution per Good Unit** | 4,85,000 | 25.00 | **Working Note:** Units manufactured=10 batches×2,000 units/batch=20,000 units\text{Units manufactured} = 10 \text{ batches} \times 2,000 \text{ units/batch} = 20,000 \text{ units} Good units sold=20,000 units×97%=19,400 units\text{Good units sold} = 20,000 \text{ units} \times 97\% = 19,400 \text{ units} ### (b) (ii) Calculation of Company's Total Monthly Profit | Particulars | Amount (₹) | | :--- | :---: | | **Contribution** | 4,85,000 | | **Less: Fixed Cost** | (1,25,000) | | **Total Monthly Profit** | **3,60,000** | ### (c) Calculation of Lead Time and Consumptions Let A\displaystyle A be the Minimum lead time and B\displaystyle B be the Maximum lead time. B−A=4— (Equation 1)B - A = 4 \quad \text{--- (Equation 1)} Average Lead Time=A+B2=7  ⟹  A+B=14— (Equation 2)\text{Average Lead Time} = \frac{A + B}{2} = 7 \implies A + B = 14 \quad \text{--- (Equation 2)} Solving Equation 1 and Equation 2, we get: A=5 weeks (Minimum lead time),B=9 weeks (Maximum lead time)A = 5 \text{ weeks (Minimum lead time)},\quad B = 9 \text{ weeks (Maximum lead time)} **(i) Re-order Level (ROL):** ROL=Maximum Lead Time×Maximum Consumption\text{ROL} = \text{Maximum Lead Time} \times \text{Maximum Consumption} 1,80,000 units=9×Maximum Consumption  ⟹  Maximum Consumption=20,000 units/week1,80,000 \text{ units} = 9 \times \text{Maximum Consumption} \implies \text{Maximum Consumption} = 20,000 \text{ units/week} **(ii) Minimum Consumption per week:** Maximum Stock=ROL+ROQ−(Minimum Consumption×Minimum Lead Time)\text{Maximum Stock} = \text{ROL} + \text{ROQ} - (\text{Minimum Consumption} \times \text{Minimum Lead Time}) 1,90,000=1,80,000+90,000−(Minimum Consumption×5)1,90,000 = 1,80,000 + 90,000 - (\text{Minimum Consumption} \times 5) 5×Minimum Consumption=80,000  ⟹  Minimum Consumption=16,000 units/week5 \times \text{Minimum Consumption} = 80,000 \implies \text{Minimum Consumption} = 16,000 \text{ units/week}

More Questions from Cost and Management Accounting

The value of N\displaystyle N in N!+17!=18!\displaystyle N! + \frac{1}{7!} = \frac{1}{8!} is

A person can go from place 'A' to 'B' by 11 different modes of transport but is allowed to return to 'A' by any mode other than the one earlier. The number of different ways in which the entire journey can be completed is:

If a man travels from place A to B in 10 ways then by how many ways can he come back by another train?

If n!10(n−1)!=(n−1)!(n−3)!\displaystyle \frac{n!}{10(n-1)!} = \frac{(n-1)!}{(n-3)!} find 'n'.

Which of the following is a correct statement.

nP3=2⋅nP2\displaystyle ^nP_3 = 2 \cdot ^nP_2. Find n\displaystyle n.

Ready to Master Cost and Management Accounting?

Practice all 251 questions with instant feedback, earn XP, track your streaks, and ace your CA Foundation exam.

Start Practicing — It's Free