Question 3 (a) A chemical compound manufactured through two processes namely Process X and Process Y. Process Y is dependent on the output generated by Process X and the semi-finished chemical compound received from Process X shall be mixed up with further materials in Process Y. The details of costs and other particulars for each process are given as follows: Process X Process Y Direct Material 1,000 kgs @ ` 50 per kg 700 kgs @ ` 90 per kg Direct Labour ` 35,000 ` 35,000 ` 25,000 Process Plant time 200 hrs @ ` 60/hr 120 hrs @ ` 80/hr Expected output 75% of input 80% of input Actual output kgs 700 1150 Realizable value of Normal Loss ` 8 per kg ` 5per kg Notes: (i) The departmental overhead for the period was 30,000 and is absorbed in each process on direct labour cost. (ii) Process plant time represents the attributable plant run time with respect to each process and is a part of direct process cost. (iii) Assume no finished stock and work in progress either at the beginning and end of the period. Required: Prepare Process X Account, Process Y Account, Normal Loss Account and Abnormal Gain Account. (2 + 2 + 2 + 2 = 8 Marks) (b) SW Limited manufactures Lenin bed covers. The present cost data are as below: Variable Cost of manufacturing per unit : ` 200 Variable cost of selling and distribution per unit : ` 100 Fixed costs : ` 16,00,000 Selling price per unit : ` 800 Expected Profit for the coming year : ` 8,00,000 The management could sense a stage of stagnation/deterioration in future sales with the new entrant RK Enterprises. The SW limited has approached to one marketing consulting firm for the study of cost volume profit analysis. The firm suggested three alternatives to fuel the sales growth by tinkering with the selling price. Alternatives Reduce selling price % Projected increase in sales (units) % (from the sales level that would generate ` 8,00,000 profit) 1 10.00 15 2 12.50 20 3 15.00 25 COST AND MANAGEMENT ACCOUNTING Required: Calculate the effect on profits under each alternative and recommend which alternative is most likely to be adopted to get the maximum profit. (6 Marks)