Marginal costing - problems and solutions PDF
| Title | Marginal costing - problems and solutions |
|---|---|
| Author | black horse |
| Course | Accounting for Managerial Decisions |
| Institution | Indira Gandhi National Open University |
| Pages | 15 |
| File Size | 338.3 KB |
| File Type | |
| Total Downloads | 49 |
| Total Views | 136 |
Summary
problems and solutions...
Description
Unit‐4 MODULE–6 AbsorptionandMarginal Costing
PracticalProblems
(withsolutions)
1. Pepsi Company produces a single article. Following cost data is given about its product:‐ Sellingpriceperunit Rs.40 Marginalcostperunit Rs.24 Fixedcostperannum Rs.16000 Calculate: (a)P/Vratio (b) breakeven sales (c)sales to earn a profit ofRs. 2,000 (d)Profit atsalesofRs.60,000(e)Newbreakevensales,ifpriceisreducedby10%. Solution: Weknowthat(S‐v)/S=F+P OR sxP/VRatio=Contribution So, (A)P/VRatio=Contribution/salesx100 =(40‐24)/40x100=16/40x100 OR 40% (B)Breakevensales SxP/VRatio=FixedCost (Atbreakevensales,contributionisequaltofixedcost) Puttingthisvalues:sx40/100=16,000 S=16,000x100/40=40,000 OR 1000units (C)ThesalestoearnaprofitofRs.2,000 SxP/VRatio=F+P Puttingthisvalues:sx40/100=16000+2000 S=18,000x100/40 S=Rs.45,000OR 1125units (D)Profitatsalesof60,000 SxP/VRatio=F+P Puttingthisvalues:Rs.60,000x40/100=16000+P 24,000=16000+P 24,000–16,000=P 8,000 (E)Newbreakevensales,ifsalepriceisreducedby10% Newsalesprice=40‐10% =40‐4=36 Marginalcost=Rs.24 Contribution =Rs.12 P/VRatio = Contribution/Sales = 12/36x100 OR 33.33% Now,sxP/VRatio=F (atB.E.P.contributionisequaltofixedcost) Sx100/300 =Rs.16000 S=16000x300/100 S=Rs.48,000.
2. Fromthefollowinginformation'sfindout: a.P/VRatio b.Sales& c.MarginofSafety FixedCost =Rs.40,000 Profit =Rs.20,000 B.E.P. =Rs.80,000 Solution: a.P/VRatio. WeknowthatS–V=F+P OR S(S–V)/S=F+P B.E.S.xP/VRatio=F(ValueofPiszeroatBESales) OR P/VRatio=F/BES Puttingthevalue, P/VRatio=40,000/80,000 = 50/100 OR 50% b.Sales. WeknowthatSalesxP/VRatio=F+P OR SalesxP/VRatio=Contribution ORSales=Contribution/P/VRatio So, =(40,000+20,000)/50/100 =(60,000x100)/50 =Rs.1,20,000 c.MarginofSafety. MarginofSafety=Sales–B.E.PSales So, MOS=1,20,000–80,000 MOS=Rs.40,000 3. BansicompanymanufacturesasingleproducthavingamarginalcostofRs.1.50per unit. Fixed cost is Rs.30,000per annum.The marketis such that up to 40,000 units can besoldatapriceofRs.3.00perunit,but anyadditionalsalemustbemadeatRs. 2.00perunit.Company hasaplannedprofitofRs. 50,000.Howmany unitsmustbe madeandsold? Solution: a.Contributiondesired=Fixedcost+DesiredProfit =30,000+50,000=80,000 b.Calculationofcontributionbyproducing40,000units. Contributionperunit=Sellingprice–Marginalcost =3.00–1.50 =1.50 c.Contributionforproducing40,000units. =1.50x40,000units =Rs.60,000 d.AdditionalunitstobeproducedandsoldatRs.2.00perunitafter40,000units. =Rs.80,000–Rs.60,000
=Rs.20,000 e.UnitstobeproducedforcontributionofRs.20,000afterchangeinprice. Contributionperunit=Rs.2.00–Rs.1.50=Rs.0.50 f.AdditionalunitstobeproducedforcontributionofRs.20,000. =(20,000x100)/50=40,000units. Totalunitstobeproducedtoearnplannedprofit=40,000+40,000=80,000units. 4. Mitanshi & company manufacture three products. The following is the cost data relatingtoproductsA,B,andC. Products A B C Total Rs. Rs. Rs. Rs. Sales 1,50,000 90,000 60,000 3,00,000 VariableCost 1,20,000 63,000 36,000 2,19,000 Contribution 30,000 27,000 24,000 81,000 FixedCost 40,500 Profit 40,500 Prove that how knowledge of marginal costing can help management in changing thesalesmixinordertoincreaseprofitofthecompany. Solution:Let’sfindoutrelativeprofitabilitysothatwecancompareitlateron. Products A B C Total Rs. Rs. Rs. Rs. Sales 1,50,000 90,000 60,000 3,00,000 VariableCost 1,20,000 63,000 36,000 2,19,000 Contribution 30,000 27,000 24,000 81,000 FixedCost 40,500 Profit 40,500 P/VRatio 20% 30% 40% 27% From the above table it is clear that with the comparison of product B and C, A is less profitable. Keeping total production same, company should change the sales mixinawaythatemphasisshouldbeonproducingproductCandB. Now assume that the company decides to use its production capacity more for product B and C than A. Let’s see the effect on profit if sale of product B and C is increasedbyRs.30,000eachandproductAbyreducingRs.60,000. Products A B C Total Rs. Rs. Rs. Rs. Sales 90,000 1,20,000 90,000 3,00,000 VariableCost 72,000 84,000 54,000 2,10,000 Contribution 18,000 36,000 36,000 90,000 FixedCost 40,500 Profit 49,500 Fromtheabovetable,we canobservethatproposedchangeinproductmixleadsto anincreaseinprofitfromRs.40,500toRs.49,500.
5.
AcompanyhasamachineNo.9 whichcan produceeither product A or B.Thecost datarelatingtomachineAandBareasfollows: Particulars Sellingprice Variable expenses Contribution
Product A Rs.20.00 Rs.14.00
ProductB Rs.30.00 Rs.18.00
Rs.6.00
Rs.12.00
AdditionalInformation: a.CapacityofmachineNo.9is1,000hrs. b.InonehrsmachineNo.9canproduce3unitsofAand1unitofB. WhichproductshouldmachineNo.9produced? Solution: StatementshowingcontributionperhourformachineNo.9 Particulars Product Product A B Sales 20.00 30.00 Variableexpenses 14.00 18.00 Contributionperunit 6 12 Contributionperhour 18.00 12.00 Contribution per 1, 000 18,000 12,000 units From theabovetable we can seethat companyshould produce product Awiththe helpofmachineNo.9. 6. Meet&companyLtd.hasthreedivisions eachof which makesadifferentproduct. Thebudgeteddataforthenextyearisasfollows: Divisions A B C Rs. Rs. Rs. Sales 1,12,000 56,000 84,000 Directmaterial 14,000 7,000 14,000 Directlabor 5,600 7,000 22,400 Variableoverhead 14,000 7,000 28,000 Fixedcost 28,000 14,000 28,000 Totalcost 61,600 35,000 92,400 The management is considering closing down division C. There is no possibility of reducingvariablecosts.AdvicewhetherornotdivisionCshouldbecloseddown.
Solution: MarginalCostStatement Division A B Rs. Rs, Sales 1,12,000 56,000 Marginalcost 33,600 21,000 (Direct material + Direct cost + Variableoverheads) Contribution 78,400 35,000 Fixedcost 28,000 14,000 Profit 50,400 21,000
C Rs. 84,000 64,400
19,600 28,000 (8,400)
7.Costdataforlastyear: Sales ‐ 60,00,000 (Operatingat75%capacity) Marginalcost(50%ofsale) ‐ 30,00,000 Contribution ‐ 30,00,000 Fixedcost ‐ 20,00,000 Profit ‐ 10,00,000 Percentageofprofitoversales ‐ 16.7% Areportontheperformancefortheyearstates: Sales ‐ 80,00,000 Profit ‐ 16,00,000 Percentageonprofitonsale ‐ 20% Should the performance of current year be commended? What option should be conveyed to the managing director on the basis of the Cost ‐ Volume ‐ Profit analysis? Solution: StatementshowingprofitforlastyearandprofitatasaleofRs.80,00,000 Particulars Lastyearperformance Performanceinpresent 75%capacity activitylevel,i.e.,100% Rs. Rs. Sales 60,00,000 80,00,000 Marginal cost 30,00,000 40,00,000 (50%ofsales) Contribution 30,00,000 40,00,000 Fixedcost 20,00,000 20,00,000 Profit 10,00,000 20,00,000
From the above table we can say that result of current year’s performance is not commendable because profit should have been 25% of sales after operating at 100%capacity,whereasitisonly20%ofsales. 8.Thefollowingbudgethasbeenpreparedat70%levelofhomemarket: Units ‐ 4,200 Wages ‐ 12,600 Materials ‐ 21,000 Fixedcost ‐ 7,000 Variablescost ‐ 2,100 Total ‐ 42,700 Theselling pricein India is Rs. 15. In SriLanka about800unitsmay besold only at Rs.10andinaddition25paiseperunitwillbeexpensesasfreightetc,Doyouadvise tryingforthemarketintheSriLanka? Solution: Particulars India SriLanka Total (4200units) (800units) (5000units) Rs. Rs. Rs. Sales(unitsxprice)(A) 63,000 8,000 71,000 Materials(Rs.5perunit) 21,000 4,000 25,000 Wages(Rs.3perunit) 12,600 2,400 15,000 Variables(Rs.0.50perunit) 2,100 400 2,500 Freight(OnlyforSriLankaRs.0.25perunit) ‐‐‐‐‐‐‐‐‐‐‐ 200 200 Marginalcost(B) 35,700 7,000 42,700 27,300 1,000 28,300 Contribution(A–B) Less:Fixedcost 7,000 ‐‐‐‐‐‐‐‐‐ 7,000 20,300 1,000 21,300 Suggestion: It is advisable to try for the Sri Lankan market at Rs. 10 per unit as by doingsothereisanincreaseofRs.1000. 9. Asianpaints manufacture1,000 tinsofpaintswhenworkingat normalcapacity.It incursthecostofRs.16inmanufacturingone unit.Thedetailsofthiscostaregiven below: Particulars Rs. Directmaterial 7.50 Directlabor 2.00 Variableoverheads 2.50 Fixedoverheads 4.00 Production cost (per 16.00 unit) Each unit of product is sold for Rs. 20 with variable selling and administrative expensesofRs.0.50perunitofproduction.
During the next 3months, only 500 unitscan be produced andsold.Management planstoclosedownthefactoryestimatingthat thefixedmanufacturing costcanbe reducedtoRs.2,000forthequarter. Whentheplantisoperating,thefixedoverheadcostsareincurredatauniformrate throughout the year. Additional cost of plant shut down for the three month is estimatedatRs.2,800. Express your view whether the plant should be shut down for three months, and calculatetheshutdownpointforthreemonthsinunitsofproducts. Solution: (A)StatementshowingContributionperunit: Particulars Perunit Rs. Directmaterial 7.50 Directlabor 2.00 Variableoverheads 2.50 Variablesellingand 0.50 administrativeexpenses Marginalcost(Total)(A) 12.50 Sales(B) 20.00 7.50 Contribution(A– B) (B)ComputationofLoss,iftheplantisoperated: 500unitstobeproduced: Contributionon500units: 500xRs.7.50 =Rs.3,750 Fixedcostforthreemonths 10,000x4x3/12 =Rs.10,000 ExpectedcostonOperation (Contribution–Fixedcost) =Rs.6,250 (C)Computationofloss,iftheplantisshutdown: UnfavorableFixedcost =Rs.2,000 AdditionalcostofShutdown =Rs.2,800 Totallossonshutdown =Rs.4,800 (D)Advise: From the above calculation, it is clear that it is in the interest of companytoshutdown. (E)Calculationofshutdownpoint: Avoidablefixedcostfortheperiod =Totalfixedcostsfortheperiod–unavoidablefixedcost‐additionalcostforshut down =Rs.10,000–Rs.2,000–Rs.2,800 =Rs.5,200 Shutdownpoint=Avoidablefixedcost/Contributionperunit =5,200/7.50 =693units.
10. A company is providing its product to the consumer through the wholesalers. The managingdirectorofthecompanythinksthatifthe company startssellingthrough retailersortotheconsumersdirectly,itcanincreaseitssales,chargehigherprices andmakemoreprofit. Onthebasisofthefollowinginformation,advisethemanagingdirectorwhetherthe companyshouldchangeitschannelofdistributionornot: Particulars Wholesaler Retailer Consumer Rs. Rs. Rs. Salesperunit 3.60 5.25 6.00 Estimated Sales per year 1,00,000 1,20,000 1,80,000 (units) Sellinganddistribution 0.40 1.00 1.50 overheads(perunit) Costofproduction:VariablecostRs.2.50perunit,FixedcostRs.50,000. Solution: Statementofprofit Particulars Wholesaler Retailers Consumers Rs. Rs. Rs. No.ofunitsold 1,00,000 1,20,000 1,80,000 Sales revenue (unit x 3,60,000 6,30,000 10,80,000 price)(A) Variablecost 2,50,000 3,00,000 4,50,000 1,20,000 2,70,000 Selling and distribution 40,000 overheads Marginalcost(B) 2,90,000 4,20,000 7,20,000 70,000 2,10,000 3,60,000 Contribution(A– B) Less:Fixedcost 50,000 50, 000 50,000 1,60,000 3,10,000 Profit (Contribution – 20,000 Fixedcost) Advise: Sales should be made directly to the consumers as this channel contributes higherprofit. 11.ThecostanalysisoftwoproductsAandBisgivenbelow: Particulars ProductA ProductB Rs. Rs. MaterialRs.2.50perunit 25 45 Labor@Rs.1perhour 12 ‐‐‐ Labor@Rs.1.50perhour ‐‐‐ 15 Variableoverheads 2 5 Sellingprice 70 80
On the basis of above information, which product would you recommend to be manufacturediflaboriskeyfactorandifmaterialiskeyfactor? Solution: Herefirstofallwehavetofindoutcontributiononthebasisofboth,materialasakey factorandlaborasakeyfactor. Statementshowingmarginalcostandcontribution Particulars ProductA ProductB Rs. Rs. Sellingprice(A) 70 80 Material 25 45 Labor 12 15 Overheads 2 5 Marginalcost(B) 39 65 31 15 Contribution(A– B) Contributionperunitof 31/10units=3.10 15/18=0.83 Material (25units/2.50=10units) (45units/2.50=18units) Contributionperlabor 0.258 1.50 Hour (31/12hrs) (15/10hrs) Advise:IflaboriskeyfactorthenproductBandifmaterialiskeyfactorthenproductA shouldbeproduced. 12. Amanufacturerproduces1500unitsofproductsannually.Themarginalcostofeach product is Rs. 960 and the product is sold for Rs. 1200. Fixed cost incurred by the companyis Rs.48, 000annually. CalculateP/VRatioandwhat wouldbethebreak‐ evenpointintermsofoutputandintermsofsalesvalue? Solution: A.Contributionperunit=Sales–Variablecost=Rs.1200–Rs.960=Rs.240 B.P/VRatio=Contribution/Salesx100=240/1200x100=20% C.Break‐evenpoint(inunits)=Fixedcost/Contributionperunit= =48,000/240=200units D.Break‐evenpoint(inRs.) =Break‐evenpointxsellingpriceperunit =200x1200=2,40,000 OR D.Break‐evenpoint(inRs.) =Fixedcost/P/VRatio =48,000/20%=2,40,000 13. FromthefollowingdatacalculateMarginofSafety. Particulars Rs. Sales 15,00,000 Fixedexpenses 4,50,000 Profit 3,00,000
Solution: P/VRatio =Fixedexpenses+Profit/Salesx100 =Rs.4,50,000+3,00,000/15,00,000x100 =7,50,000/15,00,000x100 =50% MarginofSafety=Profit/P/VRatio =3,00,000/50% =6,00,000 14.FollowingdataisofDevmanufacturingcompany. Costs Variablecost Fixedcost (%ofSales) Rs. Directmaterials 23.8 Directlabor 18.4 Factoryoverheads 21.6 37,980 Distributionexpenses 4.1 11,680 General&administrativeexpenses 11.1 13,340 BudgetedsalesforthenextyearareRs.3,70,000. Calculatethefollowings: Thesalesrequiredtobreakeven. Profitatthebudgetedsalesvolume Theprofit,ifactualsales–A.Increasesby5%fromthebudgetedsales andB.Drop by10%fromthebudgetedsales. Solution: A.Variablecost=23.8+18.4+21.6+4.1+11.1=79%(ofsales) So,itwillbe79%ofsales=3,70,000x79/100=2,92,300 B.Fixedcost=Rs.37,980+Rs.11,680+Rs.13,340=63,000 C.Contribution=100–79=21% D.P/VRatio =Contribution/Salesx100 =21/100x100=21% Break‐evenpoint=Fixedcost/P/VRatio =63,000/21% =Rs.3,00,000 ProfitatbudgetedsalesofRs.3,70,000 Contribution=SalesxP/VRatio =3,70,000x21% =Rs.77,700 Contribution =Fixedexpenses+Profit So,Profit =Contribution–Fixedexpenses =Rs.77,700–63,000 =Rs.14,700
Profitifactualsalesincreasedby5%fromthebudgetedsales. Particulars Rs. Sales 3,70,000 Add:5%increaseonRs.3,70,000 18,500 Revisedsales 3,88,500 Less: Variable cost 79% of Rs. 3, 88, 3,06,915 500 Contribution 81,585 Less:Fixedcost 63,000 Profit 18,585 Profitifactualsalesdroppedby10% Particulars Rs. Sales 3,70,000 Less:10%decreaseonRs.3,70,000 37,000 Revisedsales 3,33,000 Less:Variablecost79%of3,33,000 2,63,070 Contribution 69,930 Fixedcost 63,000 Profit 6,930 15. Gyanlimitedmanufacturesandsellsfourtypes ofproductsunderthe brandnames A,B,C,andD.Thesalesmixinvaluecomprises30%,40%, 20%,and10%ofA,B,C, and D respectively. The total budgeted sales are Rs. 60, 000 per month. The operatingcostsare: ProductA ‐60%ofsellingprice ProductB ‐70%ofsellingprice ProductC ‐80%ofsellingprice ProductD ‐70%ofsellingprice FixedcostRs. 12,000per month.Calculatethebreak‐evenpointandpercentageof marginofsafetyfortheproductonoverallbasis. Solution: CalculationofSalesMix Products A B C D Total Particulars 30% 40% 20% 10% 100% Rs. Rs. Rs. Rs. Rs. Sales 18,000 24,000 12,000 6,000 60,000 Less:Variablecost 10,800 16,800 9,600 4,200 41,400 Contribution 7,200 7,200 2,400 1,800 18,600 Less:Fixedcost 12,000 Profit 6,600
P/VRatio =Contribution/Salesx100 =18,600/60,000x100 =31% Break‐evenpoint=Fixedcost/P/VRatio =12,000/31% =38,709 Marginofsafety=Actualsales–Break‐evenpoint/Actualsalesx100 =60,000–38,709/60,000x100 =35.48% 16. Fromthefollowinginformation,calculateBreak‐evenpointandSalesto earnprofit ofRs.2,40,000. Particulars Rs. Sales 8,00,000 Fixedcost 3,60,000 Variablecost 5,60,000 Solution: Contribution=Sales–Variablecost =8,00,000–5,60,000 =2,40,000 P/VRatio=Contribution/Salesx100 =2,40,000/8,00,000x100 =30% SalestoearnaprofitofRs.2,40,000 =Fixedcost+DesiredProfit/P/VRatio =3,60,000+2,40,000/30% =6,00,00/30% =20,00,000 17. From the information given below, calculate P/V Ration, Fixed expenses, Expected profitifsalesisbudgetedatRs.90,000. Year sales Profit 2004 1,80,000 30,000 2005 2,60,000 50,000 Solution: P/VRatio=(ChangeinprofitRs./ChangeinsalesRs.)x100 =50,000–30,000/2,60,000–1,80,000x100 =20,000/80,000x100 =25% Contribution=SxP/VRatio =1,80,000x25% =45,000
Fixedcost =Contribution=F+Profit =45,000=F+30,000 =F=45,000–30,000 =F=15,000 WhensalesisbudgetedasRs.90,000 Contribution=SalesxP/VRation =90,000x25/100 =22,500 Profit=Contribution–Fixedcost =22,500–15,000=7,500 18.ThebudgetedresultsofDevlimitedcompanyincludethefollowing: Products SalesvolumeRs. P/V Ratio A 2,00,000 40% B 1,20,000 50% C 80,000 25% Total 4,00,000 30% Fixed overheads for the period are Rs. 80, 000. The management...
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