Subject: Accounting and Finance For managers

Cost management
Break_ even Point and CVP Analysis

Problem no. 1

From the following information of Sainath & company ltd. Calculate the break even point and turnover required to earn a profit of Rs 30,000
Fixed overheads Rs 21,000
Variable Costs Rs 2 per unit
Selling Price Rs 5 per unit
If the company is earning a profit of Rs 30,000, express the margin of safety available to it.

Problem No 2:
Four different situations are given below. In each case, provide the figures where question marks are shown

Particulars A B C D
Selling Price per unit Rs 10 ? 20 ?
Variable cost per unit Rs ? ? ? 5
Contribution Margin Per unit Rs ? ? ? ?
Fixed Cost per unit Rs ? ? ? 2
Contribution margin Ratio 0.4 0.5 ? ?
Total Fixed Coat Rs ? 1,00,000 1,60,000 60,000
Break � Even point in units 4,000 12,000 20,000 ?
Break-even point In Rs ? ? ? ?
Margin of safety in units ? 6,000 Zero 10,000
Net Income (loss) Before Tax Rs 30,000 50,000 (40,000) ?
Number of units sold ? 18,000 ? ?

Problem no 3:

From the following data, calculate the break even �point of sales in rupees.


Selling price Rs 20
Variable cost per unit:
Manufacturing Rs 10
Selling Rs 5
Overhead (fixed):
Factory overheads Rs 5,00,000
Selling overheads Rs 2,00,000


Problem 4:

The following information is extracted from the books of a company by a financial analyst:

Rs Rs
Sales 10,00,000
Variable cost:
Direct material 3,00,000
Direct labor 3,00,000
Factory overheads 80,000
Marketing Expenses 70,000
Administration Expenses 50,000
8,00,000
Contribution 2,00,000
Fixed costs
Factory overheads 50,000
Marketing expenses 30,000
Admn. Expenses 20,000
1,00,000
Net Profit 1,00,000
You are required to compute
i) The P/V ratio and the break- even point
ii) The company is considering a proposal of moderning its existing plant. This will need additional fixed costs of Rs 25,000, with the expectation of saving the same amount in each of the direct materials and the direct labour costs. Compute the P/V ratio, the break-even point and the profit of the company, if this proposal is accepted.

Marginal and Absorption Costing/ Cost Sheet/ Standard Costing

Problem 1:

From the following data calculate the
i) material price variance
ii) material usage variance
iii) material cost variance

Quantity of material purchased = 3,000 units
Value of material purchased = Rs 9,000

Standard quantity of material required for one tonne of finished product = 25 units
Standard rate of material = Rs 2 unit
Opening stock of material = nil
Closing stock of material = 500 units
Finished products during the period = 80 tonnes


Problem 2

From the following data, prepare statements of cost during to both absorption costing and marginal costing techniques:
Product X
Rs Product Y
Rs Product Z
Rs
Sales 15,000 30,000 40,000
Direct material 6,000 12,500 18,000
Direct labour 4,000 5,000 7,000
Factory Overheads
Fixed 3,000 4,000 3,000
Variable 1,000 1,500 2,500
Administrative Overheads
Fixed 500 1,000 1,000
Selling Overheads
Fixed 1,000 1,000 1,500
Variable 500 1,500 1,500

Problem No. 3
Prepare a cost sheet from the following details
Raw materials:
Opening Stock Rs 20,000
Purchases Rs 1,00,000
Closing Stock Rs 40,000
Direct wages Rs 40,000
Chargeable Expenses Rs 8,000
Machine Hours worked Rs 16,000
Machine Hours Rate Rs 2
Office overhead 10% of works cost
Selling overhead Rs 1.50 per unit
Cash discount allowed Rs 1,000
Interest on capital Rs 2,000
Units produced 4,000
Units sold @ Rs 50 each 3,600

Problem 4
The modern furniture Ltd, manufactures office chairs. It follows standard costing system. The direct material cost standard costing system. The direct material cost standards for its Executive brand are established as follows:
Production schedule for the
Month of December 97 5,000 chairs (Executive)
Direct material cost per chair
Material A 10 kgs @ Rs 30 Rs 300 per Kg
Material B 5 Kgs @ Rs 50 Rs 250 per Kg
Production records for the month of December 97 showed as follows:
Executive chairs manufactured 6,000

Direct material used
Material A 60,000 Kgs
Material B 32,000 Kgs
There was no closing stock in the month of November 97
You are required to,
a) calculate direct material cost variances
b) Write a brief report indicating the extent and causes of total direct material cost variance.

Problem 5:
Tripura Ltd. Is manufacturing three products
A, B, C. the costs of manufacture are as follows:


A B C

Rs Rs Rs
Direct material per unit 3 4 5
Direct labour per unit 2 3 4
Selling Price per unit 10 15 20
Output (units) 1,000 1,000 1,000

The total overheads are Rs 12, out of which Rs 9,000 are fixed and the rest are variable. It is decided to apportion theses costs over different products in the ratio of output.
On the basis of this information, prepare a statement showing the cost and profit of each product according to absorption costing.

Problem 6

Raja Hansa Enterprises Ld. has a production capacity of 2,00,000 units per year. Normal capacity utilization is at an average of 90%. Standard variable production cost is Rs 11 per unit. The fixed cost is Rs 3,60,000 per year. Variable selling cost is Rs 3 per unit and fixed selling cost is Rs 270000 per year. The unit selling price is Rs 20. In the year ended the production was 1,60,000 units and the sales were 1,50,000 units. The closing inventory was 20,000 units. The actual variable production cost for the year was Rs 35,000 higher than the standard cost.
i) Calculate the profit for the year by absorption costing method and by marginal costing method.
ii) Explain the difference in profit.