Cost and Management Accounting {CAF 3}
TRY YOURSELF / ASIGNMNETS
TYS#1A ICAP CAF ‘08’ Spring 2016
Himalayan Rivers (HR) is planning to install a new plant. Planned production from the plant
for the next year is 150,000 units. Cost of production is estimated as under:
Rs. in million
Direct material 6.00
Direct labour 5.00
Production overheads 10.29
Production overheads include the following:
(i) Factory premises would be acquired on rent at a cost of Rs. 1.8 million per annum.
(ii) Indirect labour has been budgeted at 30% of direct labour cost, 50% of which
would be fixed.
(iii) Depreciation of the plant would be Rs. 0.5 million.
(iv) Total power and fuel cost has been budgeted at Rs. 3 million. 80% of power
and fuel cost would vary in accordance with the production.
(v) All remaining production overheads are variable.
The sales and marketing budget includes the following:
(i) Employment of two sales representatives at a monthly salary of Rs. 25,000
each and a sales commission of 2% on sales achieved.
(ii) Hiring of a delivery van at Rs. 70,000 per month.
(iii) Launching an advertisement campaign at a cost of Rs. 1.5 million.
Required:
Calculate the breakeven sales revenue and quantity for the next year if HR expects to earn a
contribution margin of 40% on sales, net of 2% sales commission. (10)
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Cost and Management Accounting {CAF 3}
TYS#1B ICAP CAF ‘08’ Autumn 2021
Red Limited (RL) manufactures and sells plastic chairs. The relevant details at different demand
levels are as follows:
Demand in units 16,000 14,000 11,800 9,300
--------------------- Rupees --------------------
Sale price (net of 3% distributor 2,850 2,945 3,040 3,135
commission) per unit
Material 20,520,000 18,900,000 15,930,000 12,555,000
Conversion cost 11,403,600 10,750,000 9,374,000 8,299,000
Operating expenses 3,500,000 3,500,000 3,500,000 3,500,000
The management is considering manufacturing either 14,000 chairs or 16,000 chairs. In the above
table, fixed conversion cost increases by 10% if number of chairs manufactured exceeds
13,000. Further, material cost and variable conversion costs reduce by 5% and 3%
respectively, if number of chairs manufactured exceeds 15,000.
In order to achieve the desired level of sales, RL is also considering to offer 5% sale discount
on bulk order of 25 chairs and 10% sale discount on bulk order of 50 chairs. The
sales mix after introduction of discount is estimated to be in the ratio of 60:30:10
for normal sale, 5% sale discount and 10% sale discount respectively. It is
estimated that introduction of discount would result in increase in distributor
commission by 1% on bulk sale of 25 chairs and 2% on bulk sale of 50 chairs.
REQUIRED:
a. Determine the breakeven revenue and margin of safety units at the demand level of 14,000
and 16,000 chairs. {14}
b. Briefly discuss any conclusion which may be drawn from your calculation in (a) above.
{2}
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Cost and Management Accounting {CAF 3}
TYS#2A ICAP CAF ‘03’ Autumn 2019
Macchiato (Private) Limited (MPL) is planning to launch a new business of manufacturing
carpets and rugs. The extracts from the projected statement of profit or loss of the new business
are given below:
Rs. in '000
Sales 500,000
Cost of goods sold (360,000)
Gross profit 140,000
Operating expenses (90,000)
Profit before taxation 50,000
Taxation @ 35% (17,500)
Profit after taxation 32,500
Selling prices of carpets and rugs would be Rs. 24,000 and Rs. 4,000 per unit with contribution
margin of 25% and 20% respectively. Carpets and rugs would be sold in the ratio of 1:4.
Required:
(a) Compute the sales revenue at break-even and the margin of safety in units. (07)
(b) Determine the number of carpets and rugs that must be sold if MPL wishes to
maintain profit after taxation equivalent to 10% of sales. (05)
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Cost and Management Accounting {CAF 3}
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Cost and Management Accounting {CAF 3}
TYS#2B ICAP Study Text
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Cost and Management Accounting {CAF 3}
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Cost and Management Accounting {CAF 3}
TYS#3A
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Cost and Management Accounting {CAF 3}
TYS#4A ICAP CAF ‘08’ Autumn 2018
Basketball (Private) Limited (BPL) is in the process of planning for the next year. BPL is
currently operating at 70% of the production capacity. The management wants to achieve
an increase of Rs. 36 million in profit after tax of the latest year.
The summarized statement of profit or loss for the latest year is as follows:
Rs. in million
Sales 567
Cost of sales (60% variable) (400)
Gross profit 167
Operating expenses (40% variable) (47)
Profit before tax 120
Tax (25%) (30)
Profit after tax 90
Following are the major assumptions/projections for the next year’s budget:
(i) Selling price of all products would be increased by 8%. However, to avoid any
adverse impact of price increase, 10% discount would be offered to the large
customers who purchase about 30% of the total sales. Additionally, distributor
commission would be increased from 2% to 3% of net selling price.
(ii) Average variable costs other than distributor commission are projected to increase
by 4% while fixed costs other than depreciation are projected to increase by 5%.
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Cost and Management Accounting {CAF 3}
(iii) Depreciation for the latest year was Rs. 90 million and would remain constant.
Required:
(a) Compute the amount of sales required to achieve the target profit. (09)
(b) Determine the production capacity that would be utilized to achieve the sales as
computed in (a) above. (02)
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Cost and Management Accounting {CAF 3}
TYS#4B ICAP CAF ‘08’ Spring 2017
Sword Leather Limited (SLL) produces and sells shoes. The following information pertains to
its latest financial year:
Rs. in million
Sales (62,500 pairs) 187.5
Fixed production overheads 35.0
Fixed selling and distribution overheads 10.0
Variable production cost (in proportion of 40:35:25
for material, labour and overheads respectively) 60% of sale
Variable selling and distribution cost 15% of sale
To increase profitability, SLL has decided to introduce new design shoes and discontinue the
existing deigns. In this regard it has carried out a study whose recommendations are as follows:
(i) Replace the existing fully depreciated plant with a new plant at an estimated cost
of Rs. 50 million. The new plant would:
reduce material wastage from 10% to 5%;
decrease direct wages by 5%; and
increase variable overheads by 6% and fixed overheads by Rs. 15 million
(including depreciation on the new plant).
(ii) Improve efficiency of the staff by paying 1% commission to marketing staff and
annual bonus amounting to Rs. 1.5 million to other staff.
(iii) Introduction of new designs would require an increase in variable selling and
distribution cost by 2%.
(iv) Sell the newly designed shoes at 10% higher price.
(v) Maintain finished goods inventory equal to one month’s sale.
Required:
Compute the budgeted production for the first year if the budgeted sale has been determined
with the objective of maintaining 25% margin of safety on sale. (08)
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Cost and Management Accounting {CAF 3}
ICAP CAF ‘08’ Spring 2018
Washington Limited (WL) is a listed company having paid-up capital of Rs. 140 million. WL
deals in the manufacturing of washing machines. Following are the extracts from the budgeted
statement of profit or loss for the year ending 31 December 2018:
Rs. in ‘000
Sales revenue (Rs. 10,000 per unit) 168,000
Cost of goods sold (including fixed cost of Rs. 21.2 million) (127,000)
Gross profit 41,000
Operating expenses (including fixed cost of Rs. 4.5 million) (16,000)
Profit before taxation 25,000
Taxation @ 30% (7,500)
Profit after taxation 17,500
Additional information:
(i) An analysis of actual results for the first two months of the year 2018 shows that:
Due to change in import duty structure, imported products have become
available in the market at much cheaper prices. Consequently, it was decided
to reduce the selling price to Rs. 9,500 per unit with effect from 1 January
2018.
1,500 washing machines were sold during the period.
Due to increase in raw material prices with effect from 1 January 2018,
variable cost of sales has increased by 5%.
(ii) To boost the sales, WL has decided to launch a promotion campaign at an
estimated cost of Rs. 5 million.
The directors of WL wish to pay 5% dividend to its ordinary shareholders. However, according to
the agreement with the bank, WL cannot pay dividend exceeding 80% of its profit after taxation.
Required:
Calculate the minimum number of units to be sold in remaining 10 months to enable WL
to pay the desired dividend. {10}
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Cost and Management Accounting {CAF 3}
CBQ#9A Adapted from COLIN DRURY
A break-even chart is shown below for Windhurst Ltd:
You are required:
(i) To identify the components of the break-even chart labeled p, q, r, s, t, u, v, w, x and y;
(ii) To suggest what events are represented at the values of x that are labeled m and n on the chart.
(iii) To assess the usefulness of break-even analysis to senior management of a small company
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Cost and Management Accounting {CAF 3}
CBQ#9B Adapted from COLLING DRURY
From the following information you are required to construct:
A. A break-even chart, showing the break-even point and the margin of safety;
B. A chart displaying the contribution level and the profit level;
C. A profit-volume chart.
Sales 6000 units at£12 per unit = £72,000
Variable costs 6000 units at£7 per unit = £42,000
Fixed costs = £20,000
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Cost and Management Accounting {CAF 3}
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Cost and Management Accounting {CAF 3}
CBQ#9C Adapted from COLIN DRURY
A company produces and sells two products with the following costs:
Product X Product Y
Variable costs £0.45 £0.6
(per £ of sales)
Fixed costs £1,212,000 £1,212,000
Per Period
Total sales revenue is currently generated by two products in the following proportion:
Product X 70%
Product Y 30%
Required
(a) Calculate the break-even sales revenue per period, based on the sales mix assumed above.
(b) Prepare a profit-volume chart of the above situation for sales revenue up £4,000,000. Show on
the same chart effect of a change in the sales mix to product X 50%, product Y 50%. Clearly
indicate on the chart the break-even point for each situation.
(c) Of the fixed costs £455,000 are attributable to product X. Calculate the sales revenue on product
X in order to recover the attributable fixed costs and provide a net contribution of £700,000
towards general fixed costs and profit.
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