Cost and Management AccountingQuestion 5456 of 251
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Question 1 (a) Axion Industries is a heavy industrial gear manufacturing company with a manufacturing setup based in Pune. Mr. Andrew, the CFO of the company furnished the following information to Mr. Joe who heads the Finance department. For FY 2024-25: Particulars Amount ` (in crores) Total Sales 1,00,000 Raw material cost 50,000 Direct wages 15,000 Fixed & variable overheads 25,000 Profit 10,000 Total Number of Units sold 40,000 units The market being very competitive and with the raw materials rates rising, Mr. Andrew raises his concern with Mr. Joe where he expects in the next financial year 2025-26 workers’ wages to rise by 20%, fixed costs component to decrease by ` 500 crores. Total fixed & variable overhead however is to be ` 28,500 crores. Total fixed & variable overhead however is to be ` 28,500 crores. The total number of units expected to be sold would be 50,000. Required: Calculate the minimum number of units to be sold to sustain the same per unit profit in the financial year 2025-26 also. (Ignore further effects on Fixed costs.) (5 Marks) (b) Aroma Park Ltd. Produces two perfumes named Floral, Oriental, and one Cologne, all created through a joint production process. Below are the data from the most recent month of production: Products Floral Oriental Cologne Sales Price ` 80 `200 ` 300 Quantity (in units) 5,000 3,000 2,000 Joint Cost ` 60 ` 60 ` 60 Cost after split off ` 40 ` 80 ` 100 Total cost ` 100 ` 140 ` 160 The management on reviewing the above cost data is of the opinion that either they are selling the largest – volume product at a loss or the product cost data is flawed. Required: (i) Prepare statement showing profit / loss for each product based on the given data. (2 Marks) (ii) Respond to the management perception by showing joint cost apportionment under Net Realisable Value method. (3 Marks) (c) Following information is given of a newly setup organization for the year ended on 31st March, 2025: Number of workers replaced during the period 78 Number of workers left and discharged during the period 28 Employee turnover rates using separation method 3.5% Required: Compute the employee turnover rates using: (i) Replacement method and (2 Marks) (ii) Flux method (2 Marks) COST AND MANAGEMENT ACCOUNTING

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Detailed Solution & Explanation

### (a) (i) Calculation of Variable Overhead Per Unit & Fixed Cost (F.Y. 2024-25) Variable Cost per unit=Difference in Total CostDifference in Units=₹28,500 crores−₹25,000 crores50,000 units−40,000 units=₹0.35 crore per unit\text{Variable Cost per unit} = \frac{\text{Difference in Total Cost}}{\text{Difference in Units}} = \frac{₹28,500 \text{ crores} - ₹25,000 \text{ crores}}{50,000 \text{ units} - 40,000 \text{ units}} = ₹0.35 \text{ crore per unit} Fixed Cost=Total Cost−Variable Cost=₹25,000 crores−(40,000×₹0.35 crore)=₹11,000 crores\text{Fixed Cost} = \text{Total Cost} - \text{Variable Cost} = ₹25,000 \text{ crores} - (40,000 \times ₹0.35 \text{ crore}) = ₹11,000 \text{ crores} - **Revised Fixed Cost (FY 2025-26):** ₹10,500 crores - **Desired Profit per unit:** ₹10,000 crores40,000 units=₹0.25 crore per unit\displaystyle \frac{₹10,000 \text{ crores}}{40,000 \text{ units}} = ₹0.25 \text{ crore per unit} **Statement of Contribution per unit (FY 2025-26):** | Particulars | Amount (₹ in crores) | | :--- | :---: | | **Selling Price per unit** | **2.50** | | **Less: Variable Cost:** | | | - Material | 1.25 | | - Labour (0.375×120%\displaystyle 0.375 \times 120\%) | 0.45 | | - Variable Overheads | 0.35 | | **Total Variable Cost** | **2.05** | | **Contribution per unit** | **0.45** | Let X\displaystyle X be the minimum number of units to be sold to sustain the same profit per unit: Profit=Contribution−Fixed Cost\text{Profit} = \text{Contribution} - \text{Fixed Cost} 0.25X=0.45X−10,500  ⟹  0.20X=10,500  ⟹  X=52,500 units0.25X = 0.45X - 10,500 \implies 0.20X = 10,500 \implies X = 52,500 \text{ units} **Alternative Case (If Overheads are ₹0.40 crore/unit):** Variable Cost per unit=₹29,000 crores−₹25,000 crores10,000 units=₹0.40 crore per unit\text{Variable Cost per unit} = \frac{₹29,000 \text{ crores} - ₹25,000 \text{ crores}}{10,000 \text{ units}} = ₹0.40 \text{ crore per unit} Fixed Cost=₹25,000−(40,000×0.40)=₹9,000 crores  ⟹  Revised Fixed Cost=₹8,500 crores\text{Fixed Cost} = ₹25,000 - (40,000 \times 0.40) = ₹9,000 \text{ crores} \implies \text{Revised Fixed Cost} = ₹8,500 \text{ crores} Contribution per unit=2.50−(1.25+0.45+0.40)=₹0.40 crore\text{Contribution per unit} = 2.50 - (1.25 + 0.45 + 0.40) = ₹0.40 \text{ crore} 0.25X=0.40X−8,500  ⟹  0.15X=8,500  ⟹  X=56,667 units0.25X = 0.40X - 8,500 \implies 0.15X = 8,500 \implies X = 56,667 \text{ units} ### (b) Apportionment of Joint Costs on the basis of Net Realisable Value (NRV) Method | Particulars | Floral (₹) | Oriental (₹) | Cologne (₹) | Total (₹) | | :--- | :---: | :---: | :---: | :---: | | **Sales Price after further processing** | 80.0 | 200.0 | 300.0 | | | **Less: Post split-off cost** | (40.0) | (80.0) | (100.0) | | | **Net Realisable Value per unit** | **40.0** | **120.0** | **200.0** | | | **Quantity (in units)** | 5,000 | 3,000 | 2,000 | | | **Total Net Realisable Value** | **2,00,000** | **3,60,000** | **4,00,000** | **9,60,000** | | **Apportioned Joint Cost (Ratio 5:9:10)** | **1,25,000** | **2,25,000** | **2,50,000** | **6,00,000** | | **Total Profit (NRV - Joint Cost)** | **75,000** | **1,35,000** | **1,50,000** | **3,60,000** | **Conclusion:** Profitability statement prepared after distributing joint cost based on NRV clearly shows that the company is not selling its largest volume product, i.e., Floral at a loss. It yields a profit of ₹75,000. ### (c) Labour Turnover Calculations Given: Labour Turnover Rate (Separation Method) = 3.5% Labour Turnover Rate=SeparationsAverage workers on roll×100\text{Labour Turnover Rate} = \frac{\text{Separations}}{\text{Average workers on roll}} \times 100 3.5%=28Average workers on roll×100  ⟹  Average workers on roll=8003.5\% = \frac{28}{\text{Average workers on roll}} \times 100 \implies \text{Average workers on roll} = 800 **1. Replacement Method:** Labour Turnover Rate=ReplacementsAverage workers on roll×100=78800×100=9.75%\text{Labour Turnover Rate} = \frac{\text{Replacements}}{\text{Average workers on roll}} \times 100 = \frac{78}{800} \times 100 = 9.75\% **2. Flux Method:** Labour Turnover Rate=Separations+ReplacementsAverage workers on roll×100=28+78800×100=13.25%\text{Labour Turnover Rate} = \frac{\text{Separations} + \text{Replacements}}{\text{Average workers on roll}} \times 100 = \frac{28 + 78}{800} \times 100 = 13.25\%

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