Question 1 (a) Language Achievers, a renowned institute specializing in TOEFL preparation, has secured a spacious hall for 20,000 on weekly basis w...

Question

Question 1 (a) Language Achievers, a renowned institute specializing in TOEFL preparation, has secured a spacious hall for 20,000 on weekly basis with a seating capacity of 250 students. The instructor, highly qualified and experienced, is compensated generously with an honorarium of 1,500 per lecture. Additionally, he receives reimbursement for travel expenses of 200 per day along with refreshments costing 1,500 per week to ensure his comfort and focus during teaching sessions. Administrative and miscellaneous expenses, covering essential utilities and materials are, 500 per week. Language Achievers has meticulously planned its curriculum, scheduling batches of 2 lectures per day, 5 days a week for 30 weeks, ensuring comprehensive coverage of the TOEFL syllabus. Required: (i) Calculate the total cost per batch. (ii) Determine the minimum fee per student in a batch to cover costs, if the batch is fully occupied. (iii) Calculate the fee to be charged from. each student if batch is 80% filled and institute aims to achieve a profit margin of 25% on the fee. (5 Marks) COST AND MANAGEMENT ACCOUNTING (b) XYZ Ltd. declared a net profit of 2,25,000 based on their financial accounts for the year ending 31st March, 2024. The profit disclosed in cost books are not matched with financial accounts. The following information were revealed during the scrutiny of the figures of both the sets of books: Sr. No. Particulars 1. Preliminary expenses written off in financial accounts 35,000 2. Factory Overheads Over charged in cost accounts 20,000 3. Expenses on issue of shares in financial accounts 30,000 4. Undervaluation of closing stock in cost accounts 65,000 5. Interest on Bank Deposits in financial accounts 60,000 6. Under recovery of administration overheads in cost accounts 25,000 7. Notional Rent of own premises charged in cost accounts 30,000 8. Under recovery of selling overheads in cost accounts 35,000 9. Bad debts recovered in financial accounts 50,000 Required: Prepare Reconciliation Statement to arrive at net profit/loss as per Cost Accounts. (5 Marks) (c) JC Ltd. has a production capacity of 80,000 units per year. Presently a company produces 60,000 units. Its cost structure is as under: Material Cost 6 per unit Labour Cost 4 per unit Variable overheads 2 per unit Total fixed cost 3,00,000 per annum. Present selling price 20 per unit in the month of January, 2024 company received an offer from a Japanese client to supply 20,000 units at a price of 14 per unit with the additional shipping cost of 8,000. Required: (i) On the basis of changes in the profit, advice to the company, whether the offer should be accepted or not? (ii) Will your advice be different, if the customer is local one? (iii) If Japanese client offer for supply of 30,000 units to a price of 14 (part supply of order not accepted) and shipping cost treated as variable cost, analyze the impact on the profit of JC Ltd., if order accepted. (4 Marks)

Accepted Answer

Answer Solution: (a) (i) Calculation of Total cost per batch Particulars Amount () Hall Charges ( 20,000 x 30) 6,00,000 Honorarium of instructor ( 1,500 x 2 x 5 x 30) 4,50,000 Reimbursement of travel expenses ( 200 x 5 x 30) 30,000 Refreshment ( 1,500 x 30) 45,000 Administrative and miscellaneous expenses ( 500 x 30) 15,000 Total Cost 11,40,000 No. of Batches 1 Total cost per batch 11,40,000 (ii) Minimum fee per student in a batch to cover costs = Total cost per batch Students per batch = 11,40,000 250 = 4,560 (iii) Number of Students if batch is 80% filled = 250 students x 80% = 200 students Total Fee to be recovered to achieve 25% profit margin on the fee COST AND MANAGEMENT ACCOUNTING = 11,40,000 + ( 11,40,000 x 1/4th of sales or 1/3rd of the cost) = 15,20,000 Fee per student = Total Fee per batch Students per batch = 15,20,000 200 = 7,600 (b) Reconciliation Statement () () Profit (loss) as per Financial Accounts 2,25,000 Add: Preliminary expenses written off 35,000 Expenses on issue of shares in financial accounts 30,000 Under recovery of administration overheads in cost accounts 25,000 Under recovery of selling overheads in cost accounts 35,000 1,25,000 Less: Factory Overheads Over charged in cost accounts 20,000 Undervaluation of closing stock in cost accounts 65,000 Interest on Bank Deposits 60,000 Notional Rent of own premises charged in cost accounts 30,000 Bad debts recovered in financial accounts 50,000 (2,25,000) Net Profit as per Cost Accounts 1,25,000 (c) (i) Statement Showing “Cost and Profit under Both Situation” Particulars Existing Production (60,000 units) After Offer (80,000 units) () () Sales Existing (60,000 x 20) 12,00,000 12,00,000 Offer (20,000 x 14) - 2,80,000 Total Sales 12,00,000 14,80,000 Less: Direct Materials @ 6 3,60,000 4,80,000 Direct Labour @ 4 2,40,000 3,20,000 Variable Overheads @ 2 1,20,000 1,60,000 Contribution 4,80,000 5,20,000 Less: Additional Shipping cost - 8,000 Less: Fixed Cost 3,00,000 3,00,000 Profit 1,80,000 2,12,000 Since the Profit has increased by 32,000, the proposal of the Japanese client should be accepted (ii) Yes, the advice will be different, if the customer is local one since the company is currently selling at 20 in local market and therefore, selling at discounted price of 14 may impact its local market. (iii) Statement Showing “Cost and Profit” Particulars After Offer (80,000 units) () Sales Existing (50,000 x 20) 10,00,000 Offer (30,000 x 14) 4,20,000 Total Sales 14,20,000 COST AND MANAGEMENT ACCOUNTING Less: Direct Materials @ 6 4,80,000 Direct Labour @ 4 3,20,000 Variable Overheads @ 2 1,60,000 Additional Shipping cost ( 8,000/20,000 units) x 30,000 units 12,000 Contribution 4,48,000 Less: Fixed Cost 3,00,000 Profit 1,48,000 If offer of Japanese client to supply 30,000 units at a price of 14 is accepted, the Profit will decrease by 32,000 from the current level.

Detailed Solution & Explanation

Key Concepts to Understand

Supply

Net Profit

More Questions from Cost and Management Accounting

Ready to Master Cost and Management Accounting?