Marginal Costing ~ Assignment I QA Lid. manufacturing and sells four types of products. The sales mix in value comprise of: Products Percentage Al 33.13 A2 4123 AB 16.23 Aa 813 ‘The total budgeted sales are Rs. 6,00,000 per month. The variable costs are: A-1 60% of selling price, A-2 68% of selling price, A-3 80% of selling price and A-4 40% of selling price. Fixed cost Rs. 1,59,000 per month. Find break even point. Q2 A Company produces and sells two items A&B. Its F.C. is Rs.13,77,000 pa. VC per unit of A Rs. 7.80. VC per unit of B Rs. 8.90. Selling price A Rs. 15, B Rs. 20, 80% of total sales revenue is realized from sale of B. Find B.E,P. What should be sales revenue to result in 9 per cent post-tax profit on sales. Tax rate 55 per cent. (Hint: Gross Income =Net Income x 100. 100 ~ Tax rate) Q3 A and B are similar plants under the same management who want them to be merged for better operation. The details are as follows: E A Plant B Plant Capacity operated 100% 70% Turnover 200 210 I vic 150 140 | 40 40 Find out () the eapacity of the merged plant for break even (i turnover om the merged plant to give profit of Rs. 20. Q.4 A Company is considering expansion. F.C. is Rs, 4,20,000. It is expected to increase by 1.25,000 when expansion is completed. The present plant capacity is 80,000 units a year. Capacity will increase 50 per cent with the expansion. V.C. is Rs. 6.80 per unit and is expected to go down by 0.40 per unit after expansion S.P. Rs. 16 per unit, What are the B.E_ points under either alternative? When alternative is better and why? Assume sales is no problem. Q.5 From the following figures find B.E. volume: SP. per tone Rs. 69.50 V.C. per tone Rs. 35.50 Fixed cost Rs, 18.02 lakhs If this volume represents 40% capacity, what is the additional profit for an added production of 40 per cent capacity, the S.P. of which is 10% lower for 20% capacity production and 15% lower, than the existing price, for the other 20% capacity.Marginal Costing — Assignment IT Q.1 X Ltd., manufacturers only pens where the marginal cost of each pen is Rs. 3. It has fixed costs of Rs. 25,000 per annum. Present production and sales of pens is 50,000 units and selling price per pen is Rs. 5. Any sale beyond 50,000 pens is possible only if the company reduces 20% of its current selling price. However, the reduced price applies only to the additional units. The company wants a target profit of Rs. 1,00,000. How many pens to company must produce and sell if the target profit is to be achieved? Q.2 From the following data, calculate break-even point (BEP): Selling price per unit Rs. 20 Variable cost per unit Rs. 15 Fixed overheads Rs. 20,000 If sales are 20% above BEP, determine the net profit. Q.3 If fixed costs are Rs. 4,000 variable costs Rs. 32,000 and break-even point Rs. 20,000, find: (i) Profit-volume ratio; (ii) Sales; (iii) Net profit; (iv) Margin of safety. Q.4 (i) Ascertain profit, when sales = Rs. 2,00,000 Fixed Cost = Rs. 40,000 BEP = Rs. 1,60,000 (ii) Ascertain sales, when fixed cost. = Rs. 20,000 Profit = Rs. 10,000 BEP =Rs. 40,000 Q.5 From the following data, compute break-even sales and margin of safety: Sales Rs. 10,00,000 Fixed cost Rs. 3,00,000 Profit Rs._2,00,000 Q6 X Ltd. produces a single article. Following cost data is given about its product: Selling price per unit Rs. 200 Marginal cost per unit Rs. 120 Fixed cost per annum Rs, 8,000 Caleulate: (@) PIV ratio (b) Break-even sales (©) Sales to earn a profit of Rs. 10,000 (a) Profit at sales of Rs. 60,000 (©) New break-even sales, if sales price is reduced by 10%. Q.7 From the following data, find out (i) sales; and (ii) new break-even sales, if selling price is reduced by 10%: Fixed cost Rs. 4,000 Break-even sales Rs, 20,000 Profit Rs. 1,000 Selling price per unit Rs.Q.8 From the data given below, find out: (a) P/V ratio; (b) Sales, and (c) Margin of safety Fixed cost + Rs. 2,00,000 Profit : Rs. 1,00,000 BE. Point Rs. 4,00,000 Q,9 If fixed costs are Rs. 24,000, margin of safety Rs. 40,000 and break-even 80,000, find out: (1) Sales; (2) Profit-volume ratio; (3) Net profit; (4) Variable cost Q.10 Profit/Volume ratio of X Ltd. is 50%, while its margin of safety is 40%, If sales of the company are Rs. 50 lakh find out its (i) break-even sales and (ii) net profit. [Hint: Margin of Safety (in terms of %)= Actual Sales ~ Break even sales] Actual Sales Q.11 The profit/volume ratio of X Ltd. is 50% and the margin of safety is 40%. You are required to calculate the net profit if actual sale is Rs. 1,00,000. Q.12 The ratio of variable cost of sales is 70%. The break-even occurs at 60% of the capacity sales. Find the break even sales when fixed costs are Rs. 90,000. Also compute profit at 75% of the capacity sales. Q.13 The following figures are extracted from the books of X Ltd. for 2007-08: Direct material Rs. 2,05,000 Direct labour Rs. 75,000 Fixed overheads Rs. 60,000 Variable overheads Rs. 1,00,000 Sales Rs. 5,00,000 Calculate the break-even point (B.E.P.). What will be the effect of BEP of an increase of 10% in: (i) fixed expenses; and (ii) variable expenses? Q.14 A Lid. maintains a margin of safety of 37.5% with an overall contribution to sales ratio of 40%. Its fixed costs amount to Rs. 5 lakh. Calculate the following: (@ Break-even sales; (ii) Total sales; (iii) Total variable cost; (iv) current profit; (¥) New “margin of safety” if the sales volume is increased by 714%. Q.15 The trading results of PJ Ltd. for the two years have been: ‘Year Sales Rs. Profits Rs. 2007 3,40,000 12,000 2008 6,00,000 30,000 | Compute the following: (® P/V ratio; (ii) Fixed costs; (iii) Break-even sales,(iv) Margin of safety at a profit of Rs. 48,000 (v) Variable costs during the two year. Q.16 Following figures relating to the performance of a company of the year 2007 and 2008 are available. Assuming that (i) the ratio of variable cost to sales and (ji) the fixed costs are the same for both the years, ascertain: (@) The profit-volume ratio, (b) the amount of the fixed costs (c) the Break-even point, and (d) the budgeted profit for year 2009, if budgeted sales for that year are Rs. I crore.Total Sales (Rs. in ‘000) Total Costs (Rs. in *000) Year 2007 7,000 5,800 Year 2008 9,000 6,600 Q.17S. Lid., 2 multi-product company, finished following data relating to year 2007: 1*half of the year | 2™ half of the year Sales Rs. 45,000 Rs. 50,000 Total cost Rs. 40,000 Rs. 43,000 Assuming that there is no change in prices and variable costs and that the fixed expenses are incurred equally in the two half year periods, calculate for the year 2007: (® the profit volume ratio, (fi) the fixed expenses (ii) the break-even sales, and (iv) the percentage of margin of safety to total sales. Q.18 A company wants to buy a new machine to replace one, which is having frequent breakdown. It received offers for two models M and Mz. Further details regarding these models are given below: Mi M2 Installed capacity (units) 10,000 — 10,000 Fixed overhead per annum (Rs.) 2,40.000 | 1,00,000 Estimated profit at the above capacity (Rs.) 1,60,000 | 1,00,000 The product manufactured using this type of machine (Mi or Mz) is sold at Rs. 100 per unit. You are required to determine: (a) Break-even level of sales for each model. (b) The level of sales at which both the models will earn the same profit. (©) The model suitable for different levels of demand for the product. Q.19 Two competing companies ABC Ltd. and XYZ Lid. produce and sell the same type of product in the same market. For the year ended March 2008, their forecasted profit and loss accounts are as follows: Particulars ABC Lid XYZ Lid. Rs. Rs, Rs. Rs. Sales 2,50,000 2,50,000 Less: Variable Cost of Sales 2,00,000 1,50,000 Fixed Costs 25,000 75,000 2,25,000 2,25,000 Forecasted net operating profits 25,000 25,000 You are required to compute: P/V Ratio (2) Break-even sales volume You are also required to state which company is likely to eam greater profits in condition of: (a) low demand, and (b) high demand. Q.20 From the following data, calculate (i) P/V Ratio; (ii) Profit when sales are Rs. 20,000 and (iii) New break-even point if selling price is reduced by 20% Fixed expenses Rs. 4,000Break-even point Rs. 10,000 Q.21 A company has a fixed cost of Rs. 20,000. It sells two products — A and B, in the ratio of 2 units of A and 1 unit of B. Contribution is Re.1 per unit of A and Rs. 2 per unit of B. How many units of A and B would be sold at break-even point? Q.22 A company budgets for a production of 1,50,000 units. The variable cost per unit is Rs. 14 and fixed cost is Rs. 2 per unit. The company fixes its selling price to fetch a profit of 15% on cost. (a) What is the break-even point? (b) What is profit-volume ratio? (©) If it reduces its selling price by 5%, how does the revised selling price affect the break-even point and the profit-volume ratio? (@ If a profit increase of 10% is desired more than the budget, what should be the sale at the reduced prices? Q.23 From the following data, calculate: (@ Break-even point expressed in amount of sales in rupees; (ii) Number of units that must be sold to earn a profit of Rs. 60,000 per year. (ii) How many units must be sold to eam a net income of 10% of sales? Rs. Sales price 20 per unit Variable manufacturing costs U1 per unit Variable selling costs 3 per unit Fixed factory overheads Rs. 5,40,000 per year Fixed selling costs Rs. 2,52,000 per year Q.24 A company is intending to purchase a new plant. There are two alternative choices available. Plant X: The operation of this plant will result in a fixed cost of Rs. 4,80,000 and variable costs of Rs. 5 per unit; Plant Y: The purchase of this plant will result in a fixed cost of Rs. 5,20,000 and variable costs of Rs.4 per unit. ‘Compute the cost break-even point and state which plant is to be preferred and when. Q.25 X Ltd. a retail dealer in garments is currently selling 24,000 shirts annually. It supplies the following details for the year ended 31°' March: Selling price per shirt Rs. 400 Variable cost per shirt Rs. 250 Fixed cost: Staff salaries for the year Rs.12,00,000 General office costs for the year Advertisement costs for the year Rs. 8,00,000 Rs. 4,00,000 ‘As a Cost Accountant of the firm you are required to answer the following each part independently:(@ Calculate the break-even point and margin of safety in sales revenue and number of shirt sold. (ii) Assume that 20,000 shirts were sold in a year. Find out the net profit of the firm. ii) If t is decided to introduce selling commission of Rs, 30 per shirt, how many shirts would require to be sold in a year to earn anet income of Rs. 1,50,000. (iv) Assuming that for the year 2009 an additional staff salary of Rs. 3,30,000 is anticipated and price of a shirt is likely to be increased by 15%, what should be the break-even point in number of shirts and sales revenue? Q.26 Indian Plastics make plastic buckets. An analysis of their accounting reveals: ‘Variable cost per bucket Rs. 20 Fixed cost Rs, 50,000 for the year Capacity 2,000 buckets per year Selling price per bucket Rs. 70 | Required: (i) Find the break-even point (ii) Find the number of buckets to be sold to get a profit of Rs. 30,000 ii) If the company can manufacture 600 buckets more per year with an additional fixed cost of Rs. 2,000, what should be the selling price maintain to the profit per bucket as at (ii) above?