Table of Contents

1 Breakeven/CVP Analysis 1-43

2 Fixed & Variable OH Concepts Including High-low Method 44-51
3 Learning Curve 52-70
4 Marginal And Absorption Costing 71-89

5 Inventory Management/EOQ 90-115

6 Standard Costing / Variance Analysis 116-172

7 Overheads & Inventory Small Concepts 173-208

8 Decision Making 209-325

9 Process Costing 326-365

10 Inventory Valuation 366-369

11 Target Costing 370-381

12 Inventory / COGS / Factory ledger 382-390

13 Labour Costing 391-405

14 Cost Flow of Production 406-407

15 Reconciliation of Cost and Accounting Profits 408-409

 Cost & Management Accounting Practice Manual
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COST VOLUME PROFIT ANALYSIS

Question 1.

Categorize the following as Variable costs and fixed Costs

1. Direct Labour
2. Sales commission
3. Rent for premises
4. Raw material
5. Packing material
6. Depreciation

Question 2
Selling price per unit Rs 10
Variable cost per unit Rs 5
Fixed cost per anum Rs 300,000

Required
Calculate
1. Contribution margin per unit
2. Contribution margin ratio
3. Breakeven point in units
4. Breakeven point in rupees

Question 3.
XYZ company is planning for the next year for which it requires the contribution margin ratio of
last year. It has provided you with the following data:
Selling Price per unit Rs 90
Variable costs per unit Rs 40

Required
Calculate
1. Contribution Margin per unit
2. Contribution Ratio

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Question 4.
ABC company produces a product AXE the details of which are given below:
Variable costs per unit Rs 100
Sales Price per unit Rs 150
Fixed Costs per annum Rs 500,000
Required
Calculate
1. Breakeven point in units
2. Contribution Margin Ratio

Question 5

Breakeven point in units is 10,000 units

Direct material per unit = Rs 50
Direct labour per unit= Rs 30
Variable production overheads per unit= 20% of direct labour
Selling price per unit= Rs 100

Required
Calculate fixed cost per annum

Question 6.
You have been provided with the following data:
Selling Price per unit Rs 40
Direct Material per unit Rs 10
Direct Labour per unit Rs 5
Rent for the premises Rs 700,000

Required
Calculate
1. Breakeven point in RS
2. Contribution Margin Ratio

Question 7

Breakeven point in units is 10,000 units

Fixed cost per annum Rs 50,000

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Required
Calculate contribution margin per unit
Question 8
Breakeven point in units 10,000 units
Contribution margin per unit = Rs 50

Required
Calculate fixed cost per annum

Question 9.

Z company is engaged in the production of product X for which the production costs are as
under:
Per unit (Rs)
Direct Material 50
Direct Labour 30
Variable Production overheads 10
Variable selling overheads 5

In addition to this company would incur Fixed production overheads of Rs 400,000 and fixed
Selling overheads of Rs 500,000. Selling Price per unit is Rs 150

Required
Calculate
a. Breakeven point in Rs
b. Breakeven point in Units

Question 10.

QWE company produces a product Y for which the following data has been given for the year
ended 31 Dec 2021:
Selling Price per unit Rs 100
Variable Costs per unit Rs 50
Fixed Costs per annum Rs 500,000
Units sold 10,000 units
Required
Calculate
a) Breakeven point in units
b) Profit for the year

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Question 11
Selling price per unit Rs 120
Direct material per unit Rs 10
Direct labor Rs 20
Variable production overhead 30% of direct labour
Fixed production cost per annum Rs 300,000
Fixed selling cost Rs 300,000
Required
Calculate breakeven in units and Rs

Question 12
Selling price= Rs 100
Discount= 5% of Selling price
Variable cost= 25% of net selling price i.e. selling price less discount
Fixed cost= Rs 300,000
Required
Calculate breakeven in units and Rs

Question 13
Per unit cost for last year was:
 Direct material Rs 10
 Direct labour Rs 5
 Variable production overheads 25% of direct labour
 Fixed production overheads Rs 500,000
 Selling price Rs 100
For next year the following proposals have been made:
 Increase selling price by 50%
 Increase direct labour by 5 Rs
 Increase fixed cost by Rs 100,000
 Variable overhead costs and Direct Material cost remain same as last year
Required
Calculate for both years:
1) Breakeven in units and Rs

Question 14
Target profit= Rs 500,000
Selling price= Rs 10 per unit
Variable cost= Rs 1 per unit
Fixed cost= Rs 250,000

Required

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Calculate the no. of units required for breakeven

Question 15
Breakeven is to be achieved at 10,000 units
Selling price Rs 50
Variable cost other than commission= Rs 5
Fixed cost Rs400,000
Required
Calculate the amount of sales commission per unit

Question 16
Paid up capital of company 1,400,000 Rs
Dividend to be paid 5% of paid up capital
Profit to be transferred to retained earnings Rs 400,000
Fixed cost Rs 100,000
Selling price per unit Rs 100
Variable cost per unit Rs 10 per unit
Required
Calculate the no of units to breakeven

Question 17
Units to be sold 10,000
Units sold last year 5,000
Variable cost other than operating expenses per unit Rs 10
Selling price per unit Rs 50
Operating expenses Rs 50,000(last year=Rs 35000)
Required
Calculate breakeven in units and Rs

Question 18
Data for last year:
Selling price= 100
Direct material=Rs. 20 (wastage is 10%)
Direct labour= Rs 10
Fixed cost= Rs 400,000
For the next year direct material wastage will reduce to 5%. All other figures will remain the
same
Required
Calculate the breakeven for this year and last year in both units and Rs

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Question 19
Data for last year:
Selling price Rs100
Direct material Rs 20 (wastage is 10%)
Direct labour Rs 10
Fixed cost Rs 400,000
For the next year direct material wastage will reduce by 3%.
Labour efficiency will increase by 10%
All other figures will remain the same
Required
Calculate the breakeven for this year and last year in both units and Rs

Question 20

Data for last year:

Selling price per unit Rs 100
Direct material per unit Rs 20 (wastage is 10%)
Direct labour per unit Rs 10
Fixed cost Rs 400,000 (includes depreciation of Rs 100,000)
For the next year direct material wastage will reduce by 3%.
Labour efficiency will increase by 10%
Impact of inflation on all costs which are expected to inflate is 10%
All other figures will remain the same

Required
Calculate the breakeven for this year and last year in both units and Rs

Question 21

Data for the last year:

Selling price Rs100 per unit
Cost of Goods Sold Rs30,000
Operating expenses Rs40,000
Units sold: 1,000 units
Cost of Goods Sold included fixed cost of Rs. 10,000 while operating expenses included fixed
cost of Rs. 5,000
Total depreciation expense for the year included in fixed cost is Rs. 5,000
Impact of inflation will be 10% on all costs for the current year. All of the rest figures will remain
the same as the last year.

Required
Calculate breakeven for the current year

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Question 22

The total market demand of product is 100,000 units

We are expected to capture 30% of the market

Additional Information:
1) For Direct Material Supplier offered a price of Rs 10 per unit for 10,000 units and if greater
than 10,000 units’ price per unit will be reduced to Rs 8 per unit for every unit in excess of
10,000 units
2)Labour is expected to be paid at Rs 10 per unit however if units exceed 15,000 extra labour
will be employed which will be paid Rs15 per unit
3)Fixed cost for the last year was Rs 150,000 which included depreciation of Rs 30,000
4)Impact of inflation will be on fixed cost only and it will be of 10%

Required
Calculate the selling price to achieve breakeven at the demand of 30,000 units

Question 23

The following information is given by Z Ltd:

Margin of safety Rs. 1,87,500
Total cost Rs. 1,93,7500
Margin of safety 7500 units
Break-even sales 2500 units

Required:
Calculate Profit, P/V Ratio, BEP Sales (in Rupees) and Fixed Cost.

Question 24

The following particulars relates to ARM Company where no change is observed in the sales
price, variable cost per unit and fixed cost (total):
Particulars Total Sales Total Cost
Year 2009 2,223,000 1,983,600
Year 2010 2,451,000 2,143,200

Required:
Compute the following
1. Breakeven point
2. CM ratio
3. Fixed cost

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Question 25

Selling price 470

Variable Cost 329

Fixed Cost 6,345,000

Target profit 1,776,600
Tax 30%

Required:
Sales to achieve target profit

Question 26
Selling price 320
Variable Cost 192
Fixed Cost 3,302,400
Target Profit 5% of sales

Required:
Sales to achieve target profit

Question 27
Selling price 450
Variable Cost 216

Fixed Cost 9,652,500

Target Profit 3,000,000 and 4% of sales
Required:
Sales to achieve target profit

Question 28
Selling price 540
Variable Cost 324

Fixed Cost 8,640,000

Target Profit 4,320,000 and 4% of sales
Tax rate 40%

Required:

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Sales to achieve target profit.

Question 29
A B
Selling price 300 200
Variable Cost 150 110

Fixed Cost 4,680,000

Target Profit 5,200,000 along with 5% of Sales
Tax Rate 30%

Question 30

Profit and loss statement of ABC Limited at 31 December 2015 is as under:

Sales 680,000
Manufacturing Cost (450,000)
Operating Cost (300,000)
Loss before tax (70,000)
Tax ----
(70,000)

CM Ratio is 40%
The company wished to achieve sales which would ensure a dividend payment of Rs. 400,000
and a retained profit equal to 6% of sales.

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Advanced Questions
Question 31

ARM Company is marketing a new product called the “BBL”. The company has designed the
product in such a way that its cost structure is set at the standards given below. The company
will market the product in north east of the country where the company does not have proper
distribution channels. The company will require 3rd party distribution channels which are
subject to a commission of 10% on selling price inclusive of sales tax. The company shall also be
subject to direct and indirect taxes.

Cost Element (Rs per unit)

Raw materials 50
Direct Labour 93
Variable overhead 43

Selling price 500

Fixed cost per annum Rs. 2,227,500

Tax rate (Income tax) 40%

Tax rate (Sales tax) 20%

Required:
1. Breakeven number of units and amount of sales.
2. Units required to be sold to earn an after-tax profit of Rs. 3,523,500

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Question 32

ARM Company is in expansionary phase of its life cycle. A new product called the “Mongoos”
which fitting the definition of fashion of the age is about to be launched. The engineering and
costing department of the company are setting the target cost structure of the product. The
standard cost card which ensures a decent return on capital employed is set forth below.
Cost Elements (Rs per unit)
Raw materials 460
Direct Labour 350
Variable overhead 31
Selling price 2500
Fixed cost per annum Rs. 4,087,500
Tax rate (Income tax) 40%
Tax rate (Sales tax) 20%
The company will market the product all over the country including where there no formalize
distribution agreements with the local distribution by the company. The company will require
multiple 3rd party distribution channels which are subject to a commission on the following
manner to the following extent.
Commission (on list price)
 20% sales shall be subject to 10% commission
 25% sales shall be subject to 8% commission
 50% sales shall be subject to 7% commission
 5% sales shall be done by company’s own distribution channels.

The company is expecting that the discounts shall be given to the customers in the newly
penetrated markets in order to get a decent grip on the market. The sales experts are
projecting the flowing discounts:
Discount (on list price)
 44% sales shall be eligible for 12.5% discount
 20% sales shall be eligible for 10% discount

Required:
1. Breakeven number of units and amount of sales
2. Units required to be sold to earn after tax profit of Rs. 5.4 million.

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Question 33

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:

Production overheads include the following:

1) Factory premises would be acquired on rent at a cost of Rs. 1.8 million per annum.
2) Indirect labour has been budgeted at 30% of direct labour cost, 50% of which would be
fixed.
3) Depreciation of the plant would be Rs. 0.5 million.
4) 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.
5) All remaining production overheads are variable.

The sales and marketing include the following:

1) Employment of two sales representatives at a monthly salary of Rs. 25,000 each and a
sales commission of 2% on sales achieved.
2) Hiring of delivery van at Rs. 70,000 per month.
3) 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 sales of 2% sales commission.

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Question 34

A company produces mineral water. Based on the projected annual sales of 40,000 bottles of
mineral water, cost studies have produced the following estimates:
Total annual costs (in Variable cost percentage
rupees)
Material 193,600 100
Labour 90,000 70
Overhead 80,000 64
Administration 30,000 30
The production will be sold through dealers who would receive a commission of 8% of sales
price.
Required:
1. Compute the sales price per bottle which will enable management to realize a profit of
10% of sales.
2. Calculate the break-even point in rupees if sales price is fixed at Rs. 11 per bottle.

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Question 35

Z plc operates a single retail outlet selling direct to the public. Profit statements for August and
September are as follows:
August September
Sales 80,000 90,000
Cost of Sales 50,000 55,000
Gross profit 30,000 35,000
Less:
Selling and distribution 8,000 9,000
Administration 15,000 15,000
Net Profit 7,000 11,000

Required:
(a) Use the high and low points technique to identify the behavior of:
(i) Cost of sales
(ii) Selling and distribution costs
(iii) Administration costs

(b) Identify the monthly breakeven sales value and area of contribution.
(c) Assuming a margin of safety equal to 30% of the breakeven value, Calculate Z plc’s
annual profit.
(d) Z plc is now considering opening another retail outlet selling the same products. Z plc
plans to use the same profit margins in both outlets and has estimated that the specific
fixed costs of the second outlet will be Rs. 100,000 per annum.
Z plc also expects that 10% of its annual sales from its existing outlet would transfer to this
second outlet if it were to be opened.
Calculate the annual value of sales required from the new outlet in order to achieve the same
annual profit as previously obtained from the single outlet.

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Question 36

From the following particulars, you are required to calculate:

(i) P/V ratio
(ii) BEP for sales
(iii) Margin of safety
(iv) Profit when sales are Rs. 200,000
(v) Sales required to earn a profit of Rs. 40,000
Year Sales (Rs) Profit (Rs)
I 240,000 18,000
II 280,000 26,000

You may make plausible assumptions. Also evaluate the effect on II year’s profit of
(a) 20% decrease in sales quantity
(b) 20% decrease in sales quantity accompanied by 10% increase in sales price and
reduction of Rs. 3,500 in fixed costs

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Question 37

Emerald Limited (EL) is engaged in the manufacture and sale of a single product. Following
statements summarizes the performance of EL for the first two quarters of the financial year
20X2:

In the second quarter of the year EL increased the sale price, as a result of which the sales
volume and net profit declined. The management wants to recover the shortfall in profit in the
third quarter. In order to achieve this target, the product manager has suggested a reduction in
per unit price by Rs. 15.
The marketing director however, is of the opinion that if the price of the product is reduced
further, the field force can sell 650,000 units in the third quarter. It is estimated that to produce
more than 625,000 units the fixed factory overheads will have to be increased by Rs. 2.5
million.
Required:
(a) Compute the minimum number of units to be sold by EL at the reduced price, to recover
the shortfall in the second quarter profits.
(b) Determine the minimum price which could be charged to maintain the profitability
calculated in (a) above, if EL wants to sell 650,000 units

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Margin of safety

Question 38.
You have been given the following Data:
Total sales of the company Rs 900,000
Breakeven sales Rs 600,000
Required
Calculate Margin of safety as a % of sales

Question 39.
Selling price per unit Rs 20
Direct material per unit Rs 10
Direct labor Rs 5
Variable production overhead 30% of direct labour
Fixed production cost per annum Rs 300,000
Fixed selling cost Rs 300,000

Required
Calculate margin of safety if units sold are 100,000

Question 40

QWE company produces a product Y for which the following data has been given for the year
ended 31 Dec 2021:
Selling Price per unit Rs 100
Variable Costs per unit Rs 50
Fixed Costs per annum Rs 500,000
Units sold 11,000 units

Required
Calculate:
a. Margin of safety in Rs
b. Margin of safety in units

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Question 41

During the planning phase Company has the following expectations:

Selling Price per unit Rs 1,000

Variable Costs per unit Rs 500
Fixed Costs per annum Rs 1,000,000
Target Profit Rs 500,000

Required
Calculate
1. Units required to achieve Target Profit
2. Margin of safety in units

Question 42

You have been provided with the following data:

Contribution Margin Ratio 40%
Margin of safety Rs 800,000
Required
Calculate Profit for the year

Question 43

You have been provided with the following data:

Contribution Margin per unit Rs 29
Margin of safety 400 units
Required
Calculate Profit for the year

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Question 44
Per unit cost for last year was:
 Direct material Rs 10
 Direct labour Rs 5
 Variable production overheads 25% of direct labour
 Fixed production overheads Rs 500,000
 Selling price Rs 100
For next year the following proposals have been made:
 Increase selling price by 50%
 Increase direct labour by 5 Rs
 Increase fixed cost by Rs 100,000
 Variable Overheads remain the same
Required
Calculate for both years:
1. Margin of safety if units sold are 10,000

Question 45

Selling price Rs 100

Variable cost Rs 40
Target profit Rs 400,000
Fixed cost Rs 500,000

Required
Calculate the no of units to be sold

Question 46

Breakeven sales are 25% of margin of safety

Fixed cost Rs 300,000
Contribution margin per unit Rs 100

Required
Calculate total sales and margin of safety in units

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Question 47

Variable cost Rs. 30

Selling price Rs. 40
Fixed cost Rs. 70,000
Budgeted sales 40,000 units

Required:
a) Margin of safety as a % of sales

Question 48

Sales 450
Variable cost 220
Fixed cost 160

Calculate the percentage fall in sales that would be necessary before the company would begin
to incur losses.

Question 49

Direct material per unit Rs. 60

Direct labour per unit Rs. 30
Direct expenses per unit Rs. 16
Selling price per unit Rs. 200
Fixed cost Rs. 30,000
Variable factory overheads per unit Rs. 5

Calculate margin of safety if 2,000 units are sold.

Question 50

Units sold 25,000

Selling price per unit Rs. 16
Variable cost per unit Rs. 4
Fixed cost Rs. 240,000

Calculate margin of safety.

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Question 51

Target profit Rs. 100,000

Selling price per unit Rs. 9
Variable cost per unit Rs. 5
Fixed cost Rs. 600,000
Calculate the sales revenue to achieve the target profit.

Question 52

Budgeted production 8,000 units

Selling price per unit Rs. 80
CM ratio 60%
Fixed cost Rs. 360,000
Calculate margin of safety as percentage of sales.

Question 53

Data for the last year is as follows:

Sales and production units 8,000 units
Variable cost per unit Rs. 20
CM ratio 60%
Fixed cost per unit Rs. 25
Following changes are expected in the next year:
Selling price per unit 6% higher
Variable cost per unit 5% higher
Budgeted fixed cost 10% higher
Calculate the number of units to achieve a profit equal to last year profit. Assume units
produced during the last year were equal to units budgeted to be produced

Question 54

Selling price per unit Rs. 10

Budgeted sales Rs. 140,000
CM ratio 40%
Fixed cost per unit Rs. 48,000

Calculate margin of safety in units.

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Question 55

Monthly profit Rs. 2,000

Budgeted sales Rs. 128,000
Margin of Safety as % of sales 6.25%

Required:
a) The monthly fixed cost
b) The monthly sales to achieve a profit of Rs. 5,000

Advanced questions
Question 56
Twinkle Company Limited is expected to achieve a sale of Rs. 120 million during the current
year. The contribution margin is expected to be 20% whereas the margin of safety is estimated
at 25%.
During the next year, the company intends to reduce its prices by 5% and plans to market its
products vigorously to increase the sales volume.
Salaries constitute 40% of the total fixed costs and according to the union agreement an
increment of 20% is to be given to all staff. Other fixed costs are likely to remain constant.
Required:
Compute the percentage of increase in sales volume that the company should achieve so as
to maintain a safety margin of 25%.

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Question 57
Auto Industries Limited (AIL) manufactures auto spare parts. Currently, it is operating at 70%
capacity. At this level, the following information is available:
Break-even sales Rs. 125 million
Margin of safety Rs. 25 million
Contribution margin to sales 20%

AIL is planning to increase capacity utilization through the following measures:

1) Selling price would be reduced by 5% which is expected to increase sales volume by
30%.
2) Increase in sales would require additional investment of Rs. 40 million in distribution
vehicles and working capital. The additional funds would be arranged through a long-
term loan at a cost of 15% per annum. Depreciation on distribution vehicles would be
Rs. 5 million.
3) As a result of increased production, economies of scale would reduce variable cost per
unit by 10%

Required:
a) Prepare profit statements under current and proposed scenarios
b) Compute break-even sales and margin of safety after taking the above measures.

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Question 58

Digital Industries Limited (DIL) incurred a loss for the year ended 30 June 2017 as it could
achieve sales amounting to Rs. 89.6 million which was 80% of the break-even sales.
Contribution margin on the sales was 25%. Variable costs comprised of 45% direct material,
35% direct labour and 20% overheads.
During a discussion on the situation, the Marketing Director was of the view that no increase in
sales price was possible due to severe competition. However, sales volume can be increased by
reducing prices. The Production Director was of the view that since that plant is quite old, the
production capacity cannot be increased beyond the current level of 70%.
Accordingly, the management has developed the following plan:
1) A new plant would be installed whose capacity would be 20% more than installed
capacity of the existing plant. The cost and useful life of the plant is estimated at Rs. 30
million and 10 years respectively. The funds for the new plant would be arranged
through a long-term bank loan at a cost of 10% per annum. Capacity utilization of 85% is
planned for the first year of the operation.

The new plant would eliminate existing material wastage which is 5% of the input and
reduce direct labour hours by 8%.

The existing plant was installed fifteen years ago at a cost of Rs. 27 million. It has a
remaining useful life of three years and would be traded in for Rs. 2 million.

DIL depreciates its fixed assets on straight line basis over their estimated useful lives.

2) To sell the entire production, selling price would be reduced by 2%.

3) Material would be purchased in bulk quantity which would reduce direct material cost
by 10%.
4) Direct wages would be increased by 8% which would increase production efficiency by
10%.
5) Impact of inflation on overheads would be 4%.

Required:
Compute the projected sales for the next year and the margin of safety percentage after
incorporating the effect of the above measures.

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COMPOSITE BREAKEVEN

Question 59
A company sells 2 products A and B in the ratio of 4:3. The per unit data is as follows:
A B
Selling price Rs. 10 Rs. 20
Variable cost Rs. 5 Rs. 12

Required:
a) Composite sales
b) Composite contribution margin
c) Composite contribution margin ratio

Question 60

A company sells 2 products P and Q in the ratio of 5:2. The per unit data is as follows:
P Q
Selling price Rs. 150 Rs. 300
Variable cost Rs. 65 Rs. 180

Required:
a) Composite sales
b) Composite contribution margin
c) Composite contribution margin ratio

Question 61

A company sells 2 products R and S in the ratio of 3:2. The per unit data is as follows:
R S
Selling price Rs. 60 Rs. 155
Variable cost Rs. 35 Rs. 95

The total fixed cost of the company is Rs. 500,000

Required:
a) Composite sales
b) Composite contribution margin
c) Composite contribution margin ratio
d) Composite breakeven in rupees

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Question 62

A company sells 2 products X and Y in the ratio of 2:1. The per unit data is as follows:
X Y
Selling price Rs. 160 Rs. 355
Variable cost Rs. 100 Rs. 195

The total fixed cost of the company is Rs. 750,000

Required:
a) Composite sales
b) Composite contribution margin
c) Composite contribution margin ratio
d) Composite breakeven in rupees
e) Composite breakeven in units

Question 63

A company sells 2 products A and B in the ratio of 4:3. The per unit data is as follows:
A B
Selling price Rs. 10 Rs. 20
Variable cost Rs. 5 Rs. 12

The total fixed cost of the company is Rs. 1,000,000

Required:
Calculate the sales to achieve a profit of Rs. 300,0000

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Question 64

A company sells 2 products G and H in the ratio of 4:2. The per unit data is as follows:
G H
Selling price Rs. 160 Rs. 355
Variable cost Rs. 100 Rs. 195
Demand 2,000 units 1,000 units

The total fixed cost of the company is Rs. 250,000

In order to increase the sale, the company is launching a premium pack which will contain each
item of G and H and will be sold at 10% discount of existing price. Due to premium pack the
existing demand will decrease by 25% of each item
Required:
Calculate the number of premium packs to be sold to breakeven.

Question 65

A company sells 2 products J and K in the ratio of 5:3. The per unit data is as follows:
J K
Selling price Rs. 500 Rs. 700
Variable cost Rs. 350 Rs. 480
Demand 4,000 units 2,400 units

The total fixed cost of the company is Rs. 1,000,000

In order to increase the sale, the company is launching a premium pack which will contain each
item of G and H and will be sold at 15% discount of existing price and variable cost will also be
reduced by 5%. Due to premium pack the existing demand will decrease by 35% of each item.
Required:
Calculate the number of premium packs to be sold to breakeven.

Question 66

You have been given the following data for a set of products:
P Q R
Ratio of units in sales mix 15 65 20
Sales price per unit in Rs 200 100 150

Required
Calculate the units of each product sold at sales of Rs 300,000

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Question 67
You have been given the following data for a set of products:
P Q R
Ratio of units in sales mix 10 60 30
Sales price per unit in Rs 100 200 300
Variable costs per unit in Rs 20 40 15

Required
Calculate
1. Contribution Margin per packet
2. Contribution Margin ratio per packet

Question 68
The data is as under
The analysis of sale has revealed the following:
Products Selling Price per unit Ratio in units CM per rupee
A 75 6 20
B 25 7 25
C 20 8 20
D 40 3 60

Sales for the year were Rs 90.5 million while fixed costs were Rs 15 million

Required
Calculate the profit for the year

Question 69

You have been given the following data for a set of products:
P Q R
Ratio of units in sales mix 10 60 30
Sales price per unit in Rs 100 200 300
Variable costs per unit in Rs 20 40 15

Annual fixed costs for the company Rs 500,000

Required
1. Breakeven Point in units
2. Breakeven point in Rs

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Question 70

You have been given the following data for a set of products:
P Q R
Ratio of units in sales mix 15 65 20
Sales price per unit in Rs 200 100 150
Variable costs per unit in Rs 20 40 15
Fixed Costs per unit 10 15 20
Fixed costs have been allocated on the basis of normal capacity of 50,000 units,35000 units and
40,000 units of P, Q and R respectively

Required
1. Breakeven Point in units
2. Breakeven point in Rs

Question 71

You have been given the following data for a set of products:
Data for the last year:
P Q R
Ratio of units in sales mix 15 65 20
Sales price per unit in Rs 200 100 150
Variable costs per unit in Rs 20 40 15
Fixed Costs per unit 10 15 20

Fixed costs have been allocated on the basis of normal capacity of 50,000 units,35000 units and
40,000 units of P, Q and R respectively.
Data for the next year:
Selling price per unit for each product will increase by 10% whereas Variable costs per unit will
increase by 5%.
Required
Calculate for the next year
1. Breakeven Point in units
2. Breakeven point in Rs

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Question 72
You have been given the following data for a set of products:
Data for the last year:
P Q X R
Ratio of units in sales mix 15 45 20 20
Sales price per unit in Rs 200 100 75 150
Variable costs per unit in 20 40 21 15
Rs
Fixed Costs per unit 10 15 10 20
Fixed costs have been allocated on the basis of normal capacity of 50,000 units, 30,000,35000
units and 40,000 units of P, Q and R respectively.
Data for the next year:
Selling price per unit for each product will increase by 10% whereas Variable costs per unit will
increase by 5%.
Required
Calculate for the next year
1. Breakeven Point in units
2. Breakeven point in Rs

Question 73
You have been given the following data for a set of products:
P Q R
Ratio of units in sales mix 50 30 20
Direct Material per unit in Rs 200 196 104
Direct Labour per unit in Rs 30 26 24
Variable Overheads other than 70 54 52
commission per unit in Rs
Sales commission as a % of 5% 5% 5%
sales

Annual fixed costs for the company Rs 27,500

The Contribution Margin ratio is 40% of net sales i.e., sales less sales commission
Required
1. Breakeven Point in units
2. Breakeven point in Rs

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Question 74
You have been given the following data for a set of products:
P Q R
Sales in units 850,000 510,000 170,000
Planned Production in units 1,080,000 550,000 370,000
Direct Material per unit in Rs 250 200 100
Direct Labour per unit in Rs 15 26 24
Variable Overheads per unit in 70 54 52
Rs
Fixed Production Overheads in 12.5 11 10
Rs
Fixed Selling Overheads in Rs 2.5 2.5 2.5
Sales commission 5% 5% 5%
The Contribution Margin ratio is 40% of net sales i.e. sales less sales commission
Required
Calculate
1. Breakeven Point in units
2. Breakeven point in Rs

Question 75
The data for the last year is as under
The analysis of sale has revealed the following:
Products Selling Price per unit Ratio in units CM per rupee
A 150 6 40
B 50 7 45
C 40 8 50
D 80 3 60

Sales for the last year were Rs 181 million while fixed costs were Rs 30 million.
Following expectations are made for the next year:
1. Offer a combination with one unit of each of the products A, B and C for Rs 210
2. Total turnover increases by Rs 25%
3. 70% of the revenue will be from the sales of individual items in the existing ratio

Required
Calculate the impact on the profit for the next year

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Advanced questions
Question 76
ABC (Private) Limited operates a fast - food chain and has 15 outlets all over Pakistan. The
company’s turnover for the year ending June 30, 2011 is estimated at Rs. 181 million and the
annual fixed costs are estimated at Rs. 30 million. The analysis of sale has revealed the
following:
Products SP (Rs.) Ratio in Units CM per rupee
Burger 150 6 40
Fries 50 7 45
Cold Drink 40 8 50
Ice Cream 80 3 60

The company has witnessed very little growth in turnover and profitability during the past two
years. In order to increase the profitability, the management is considering introducing the
following deals:
 Deal 1 offering burger, fries and cold drink for Rs. 210
 Deal 2 offering burger, fries, cold drink and ice cream for Rs. 280

As a result, the total turnover is expected to increase by 25%. The ratio between sale of Deal 1
and Deal 2 would be 60% and 40% respectively. 70% of the revenues would be generated from
the sale of deals and 30% from the sale of individual items in the existing ratio.

Required:
Calculate the impact on profit of the company of this option.

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Question 77
ABC Limited deals in a single product called HGV. It had prepared budget for the year ending
December 31, 2009 which was based on the following key assumptions:
Sales 504,000 units @ Rs. 430
Variable cost (40% is direct labour) Rs. 300 per unit
Fixed cost for the year (including depreciation @ 10%) Rs. 25,000,000
Cost of raw material per kg Rs. 56.25
Raw material consumption per unit of finished product 2 kgs

However, the position as shown by the management accounts prepared up to May 31, 2009 is
not very encouraging and depicts the following actual results:
 105,000 units were sold @ Rs. 350 per unit.
 Average cost of raw material used amounted to Rs. 90/- per unit of finished product.
 Other variable costs were as per the budget.
The marketing department advised the management that the failure to achieve targeted sale is
because a competitor has introduced another product which has been very popular in the low-
income areas.
After due deliberations, the management has prepared a revised plan for the remaining period
of the financial year. The plan involves launching of a low-grade version of the existing product
named LGV, to capture the low-income market. Salient features of the plan are as under:
1) Sales mix of HGV and LGV is expected to be in the ratio of 1:2. Sales price of HGV would
be increased to Rs. 385, whereas sale price of LGV would be Rs. 270.
2) A new machine will have to be purchased for Rs. 1.2 million.
3) For LGV two different types of raw material i.e A and B will be used in the rato of 5:3.
However, the total weight of raw material used shall be the same in case of both
products. Presently A is available at the rate of Rs. 25 per kg whereas B is available at
the rate of Rs. 45 per kg. The raw material consumption per unit of HGV shall continue
to be Rs. 90 per unit.
4) Production of HGV is carried out by skilled workers. However, only unskilled workers
would be required for the production of LGV. The wages of unskilled workers would be
40% lower but labour hours per unit would be 10% higher than HGV.
5) Variable factory overhead cost per unit of LGV would be 10% lower than HGV.
6) Additional marketing cost would be Rs. 3 million.
Required:
Compute the sales amount and quantities for the remaining period, to achieve a breakeven in
2009.

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Question 78
Spicy Foods Limited (SFL) offers three types of spices BX, BY and BZ. The profitability of SFL is
declining and it has incurred a loss during the year ended 31 March 2012. The product wise
results are as under:
BX BY BZ
No of units sold 400,000 600,000 300,000
------------------------ Rupees in million ---------------------
Sales 140 180 126
Cost of Sales (105) (135) (120)
Operating Cost (30) (49) (13)
Net profit / (loss) 5 (4) (7)

Other relevant information is as under:

1) Cost of sales includes fixed cost of Rs. 135 million. Fixed costs have been allocated to the
products on the basis of labour hours. BX, BY and BZ require 1.50, 1.75, and 2.00 labour
hours per unit respectively.
2) Variable operating costs of BX, BY and BZ are Rs. 45, Rs. 49, and Rs. 26 per unit
respectively.
3) In order to increase sales and improve operating results, SFL is considering a proposal to
introduce a ‘Jumbo economy pack’. The details of the proposal are as under:
 The Jumbo pack would consist of one packet of each three types of spices. It would
be sold at a price equivalent to 90% of the total price of the three packs. It has been
projected that on introduction of the Jumbo pack, the sale of the individual packets
would reduce by 20%.
 The existing packing machine would need to replaced. The new machine would
reduce the variable costs of production by 2%. However, annual fixed costs would
increase by Rs. 3 million.
 To market the Jumbo pack, SFL plans to launch a sale campaign at a cost of Rs. 4
million.
Required:
Calculate the number of Jumbo packs that should be sold during the year to achieve a net
profit of Rs. 5 million.

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Question 79
PQR Company is budgeting a net after tax profit of Rs. 133,045 for the year 2003-04. Related
estimates are as under:
Production capacity 80,000 units
Direct Material Rs. 53 / unit
Direct Labour Rs. 18 / unit
Overheads expenses (Variable) Rs. 7 / unit
Overheads expenses (Fixed) Rs. 3.41 / unit
Administrative and selling expenses Rs. 497,454
Commission on sales 23%
Income tax rate 41%

The Manager Sales suggest that instead of paying 23% commission, the company may hire five
salesmen on monthly salary of Rs. 13,750 per person. He is of the opinion that the target to
earn desired net profit will be achieved easily by hiring the five salesmen rather than by the
commission-based sales.
Required:
As a management accountant, you are asked:
a) To verify Manager Sales opinion
b) Which option the company will select to achieve high level of Margin of Safety?

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Question 80
Mr. Ahmed Raza produces two types of cycles “by cycle” and “tri cycle”. The cost structure and
details of sales prices are as under:
Particulars By Cycle Tri Cycle
Sales price 20 50
Variable Cost 15 31
Fixed overheads 11,500 20,000
Expected Sales 4,000 units 2,000 units

The fixed overheads can only be avoided if neither of the products is manufactured. Facilities
are fully interchangeable between the products.
By cycle is sold on cash while the Tri Cycle is sold on a credit term of three months. Bad debts
and administration and factoring costs are generally expected to reach 4%
The company will be producing these products using manual processes. The company has an
option to go for automatic production mechanism. It will cut the variable cost by 15% but will
increase the fixed cost by Rs. 12,000 per month.
The company has a cost of capital of 2% per month.
Calculate breakeven point and point of indifference between the two methods of production if
a. Only by cycle is sold
b. By and tri cycle are sold in the ratio of 4:1

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Question 81

KPK Diaries Limited (KDL) is planning to introduce three energies flavored milk from 1 July 2015.
In this respect, following projections have been made:

KDL will sell its products through a distributor at a commission of 5% of sales price and expects
to earn a contribution margin of 40% of net sales i.e. sales minus distribution commission.
Required:
Compute breakeven sales in packets and rupees, assuming that ratio of quantities sold would
be as per projections.

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Question 82

Chrome Limited (CL) manufactures two products A and B in small and large packs. Following
information has been extracted from CL’s business plan for the period ending 31 December
2012:

Following information is also available:

(i) Product A:
 The variable cost of the large pack of product-A is 75% of its selling price.
 The variable cost of the small pack of product-A is 67.5% of the variable cost of
large pack.
 The ratio of the selling price of both the packs of product-A are same as the ratio
of their quantities.
 The annual sales of the small pack of product-A is estimated at 150,000 units.
(ii) Product-B:

 The ratio of contribution margin to variable cost for the large pack of product-B
is 2:3.
 The selling price of the small pack of product-B is 64% of the price of its large
pack.
(iii) Fixed overheads are estimated at Rs. 7,600,000 per month.

Required
Assuming CL is able to sell the budgeted quantities of both packs of product-A and large pack of
product-B:
(a) How many units of the small pack of product-B should be sold to achieve break-even?
(b) How many units of the small pack of product-B should be sold to earn a net income of
Rs. 10,530,000? Applicable tax rate for the company is 25%.
(c) Based on the results of (b) above, prepare a product wise and consolidated income
statement for the period ending 31 December 2012.

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Point of indifference

Question 83

ARM Company is considering launching a new monthly magazine which will have a selling price
of Rs. 1 per copy. Sales of the copies are expected to be 500,000 copies but it is possible that
the actual sales could differ quite significantly from this estimate.
Two different methods of producing the magazines are being considered and neither would
involve any capital expenditure. The estimated production cost for each of the two methods of
manufacturing together with additional marketing and distribution cost are summarized as
under:
Particulars Method A Method B
Variable Cost Re. 0.55 per copy Re. 0.50 per copy
Specific fixed costs Rs. 80,000 per month Rs. 120,000 per month
Semi Variable Cost

350,000 copies Rs. 55,000 per month Rs. 47,500 per month
450,000 copies Rs. 65,000 per month Rs. 52,500 per month
650,000 copies Rs. 85,000 per month Rs. 62,500 per month

It may be assumed that the fixed cost component of semi variable costs will remain constant
throughout the range of activity shown.

Required:
Calculate the point at which both methods will result in equal amount of profits.
Calculate for each production method, the net increases in company profits which will result
from the introduction of new magazine, at each of the following activity levels.
 450,000 copies
 550,000 copies
 600,000 copies

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Question 84

MAYURA CO. operates its plant on single shift basis. It can produce up to 8,000 units of output
per month without overtime. The fixed costs on single shift basis of operation amount to Rs.
30,000 per month. The average variable costs per unit is Rs. 10.
The output can be increased up to 15,000 units per month by working overtime. This entails no
increase in fixed costs, but the variable costs per unit during overtime will be Rs. 12 in excess of
8,000 units up to the capacity of 15,000 units. However, if a second shift is worked, the
maximum capacity of the second shift is 8,000 units per month. The variable costs of second
shift operation is Rs. 10.50 per unit and the incremental fixed costs involved in second shift
operations Rs. 6,000 per month.
 If the company’s demand for the product is 10,000 units, should the company work
overtime or second shift?
 At what level of output will the company consider working second shift instead of
working overtime? State the range of output for overtime working and second shift
operation.
During a particular month, the company predicted its demand to be 14,000 units and worked
second shift. At the end of the month, it was discovered that the company’s demand was only
11,000 units and the company accordingly produced only 11,000 units. Calculate cost of the
prediction error.

Question 85

Cost structure of product P and Q are

Product Variable Cost per unit Fixed Cost
P Rs. 9 Rs. 60,000
Q Rs. 5 Rs. 90,000

Required:
Calculate the indifference point.

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Question 86

Noureen Industries Limited produces and sells sports goods. The management accountant has
developed the following budget for the year ending June 30, 2011.
Budgeted Income Statement

The company has a policy of hiring salesmen on commission basis. The rate of commission
varied with the increase in sales. However, recently the sales team had informed the
management that they would be willing to work only if the rate of commission is fixed at 20%
irrespective of the amount of sales.
The only other alternative available to the company is to establish a full-fledged sales
department. It has been estimated that the annual cost of this department would be as follows:
Rs. In ‘000’
Salaries - Sales Manager 1,200
Salaries - Sales persons 2,400
Advertising 1,600
Travel for promotion 1,200
Training costs 600

In addition, a commission of 5% would also be payable to the sales team

Required:
Determine the volume of sales beyond which the company would be inclined to establish a
sales department instead of meeting the demand of the current sales force.

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Other concepts
Question 87
The following figures relate to the current year’s position in an engineering industry operating
at 70% capacity level;
Break-even point Rs. 80 crores
P. V ratio 40%
Margin of safety Rs. 20 crores
The Board at its last meeting have taken a decision to increase the output to 98% capacity level
with the following modifications:
1) Reduction in selling price by 5%.
2) Increase in fixed cost by Rs. 8 crores (including depreciation on addition but excluding
interest burden).
3) Reduction in variable cost by 5% of sales.
4) Additional finance for capital expenditure and working capital – Rs. 20 crores.
a) You are required to determine the revised sales figure necessary to yield the existing
quantum of profit plus additional profit of Rs. 4 crores on account of increased
activity and 20% interest burden on fresh capital inputs.
Also determine the revised (i) Break-even point. (ii) P.V Ratio. (iii) Margin of safety

Question 88 (Breakeven with limiting factor)

TQM Ltd, earned a profit of 10% before interest and depreciation on its sales in 2002. Interest
and depreciation, which are fixed, amounted to Rs. 150 lakhs.
The sales and variable cost structure of the three products sold in 2002 was as under:
Products (Rs. Lakhs)
A B C Total
Sales 200 600 400 1200
Raw Materials 90 200 200 490
(Imported)
Direct Labour 30 150 80 260
Variable overhead 20 100 60 180

While preparing the budget for the year 2003, the company observed that the raw material
prices will go up by 10% in 2003 as compared to 2002 prices. The company has, however, been
able to secure an import license for import of raw materials of the value of Rs. 700.50 lakhs in
2003. The company’s marketing division has assured an increase of sales volume by 50% of the
2002 sales volume in respect of each of the three products without any change in selling price.
Required:
1) Calculate the net profit/loss for 2002
2) Set optimal product mix for the year 2003.
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“Fixed & VOH Concepts including High-Low

Method”

Question #2
A company has established the following information for the cost and revenues at an activity
level of 500 units
Direct materials 2,500
Direct labor 5,000
Production overheads 1,000
Selling costs 1,250
Total Cost 9,750
Sales revenue 17,500
Profit 7,750

20% of the selling cost and 50% of the production overheads are fixed over all levels of activity.
What would be the profit at an activity level of 1,000 units?
A) 15,500
B) 16,250
C) 16,500
D) 17,750

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Question 4
A company achieves bulk buying discounts on quantitates above a certain level. These
discounts are only available for the units above the specified level and not on all the units
purchased.

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Question 5

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Question # 8

Question # 09

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Question #10
A manufacturing company has four types of cost identified as T1, T2, T3 and T4. The total cost
for each type at two different production level is;

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Question # 11

Question # 12
A supplier of telephone service charges a fixed rental per period. The first 10 hours of
telephone calls by the customer are free, after that all calls are charged at a constant rate per
minute up to a maximum, thereafter all calls in the period are again free.

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Question # 13

Question # 14

Question # 15

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Question # 16

What is the total cost of 3,000 units?

Question # 17

There is a step up of 5,000 in fixed costs when activity crosses 35,000 units.
What is the production cost of 37,500 units?
Question # 18
An organization has the following total costs at three activity levels:

Variable cost per unit is constant within this activity range and there is a step up of 10% in the
total fixed costs when the activity level exceeds 5,500 units.
What is the total cost at an activity level of 5,000 units?
Question # 19
The following information relates to the manufacture of Product LL in 20X8:

For output volumes above 350 units the variable cost per unit falls by 10%. (Note: this fall
applies to all units - not just the excess above 350).
Estimate the cost of producing 450 units of Product LL in 20X9.

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Chapter 2 “Learning Curve”

Question # 1
Calculate the learning rate in the following case:

No. of units produced Total time in hours

1 100
2 180
3 253.86
4 324
5 391.49

Question # 2
No. of units produced Total time in hours
1 150
7 781.14

Question # 3
Calculate average time per unit if:
Time for first unit: 50 hours
Total units produced: 80 units
Learning Rate 70%
Question # 4
Calculate total time if:
Time for first unit: 67 hours
Total units produced: 99 units
Learning Rate 60%
Question # 5
Calculate the time required for first unit if:
Learning Rate: 75%
Total Time Required 500 hours
Total units produced 30
Question # 6
Calculate the no of units produced if:
Learning Rate: 75%
Average time per unit 5 hours
Time for first unit 9 hours

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Question # 7
Calculate the no of units produced if:
Learning Rate: 75%
Total time 500 hours
Time for first unit 9 hours

“STOPPAGE OF LEARNING”
Question # 8
Calculate average time per unit if:
Time for first unit: 25 hours
Total units produced: 40 units
Learning Rate 70%
Learning stops at : 25th unit

Question # 9
Calculate total time if:
Time for first unit: 67 hours
Total units produced: 99 units
Learning Rate 90%
Learning stops at: 50th unit
Question # 10

Calculate the time required for first unit if:

Learning Rate: 75%
Average time per unit 500 hours
Total units produced 30
Learning stops at 20th unit

Question # 11
Calculate the no of units produced if:
Learning Rate: 75%
Average time per unit 500 hours
Time for first unit 900 hours
Learning stops at 20th unit

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Question # 12
Calculate the no of units produced if:
Learning Rate: 75%
Total time 100 hours
Time for first unit 9 hours
Learning stops at 20th unit

Time Required for further units if already some units have been produced
Question # 13
You have been provided with the following data:
Learning Rate 80%
Hours Required for first unit 400 hours
No. of units produced already 90
Total units required 165
Required
Calculate the hours that are further required for production

Question # 14
A company has already produced 160 units for which the data is as follows:
Total time 9,600 hours
Learning rate 80%
Required
Calculate the time required to produce further 75 units.

Question # 15
You have been given the following data for first unit:
Direct Labor @ Rs 5 per hour Rs 200
Variable Overheads 70% of Direct Labor
Learning Rate 90%
Required
Calculate the total amount of Variable Overheads for 20 units

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Variable costs with learning curve.

Question # 16
You have been given the following data for first unit:
Direct Labor @ Rs 5 per hour Rs 200
Variable Overheads 70% of Direct Labor
Learning Rate 90%
Required
Calculate the total amount of Variable Overheads for 20 units

Question # 17
You have been given the following data for first unit:
Direct Material Rs 500
Direct Labour @ Rs 5 per hour Rs 200
Variable Overheads 70% of Direct Labour
Learning Rate 90%
Selling Price Mark-up of 20%
Required
Calculate the selling price per unit if 20 units are produced

Question # 18
You have been given the following data for first unit:
Direct Material Rs 500
Direct Labour @ Rs 5 per hour Rs 200
Variable Overheads 70% of Direct Labour
Learning Rate 90%
Selling Price Mark-up of 20%
The company has already produced some units and they were sold for Rs 858.78 per
unit.
Required
Calculate the no. of units produced

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Question # 19
For the first unit you have been provided with the following data:
Direct Material Rs 4,000
Direct Labour Rs 5,000
Variable Overheads Rs 1,000
Selling price per unit Rs 9,000
Learning Rate 90%
Required
Calculate the number of units for which the company

Question # 20

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Question # 21

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Question # 22
Tum Say Na Hopayaega Limited (TSNHL) is a manufacturer of specialized leather jackets
and has recently introduced a new product. The production will commence on 1st
December 2009. The production was initially started with 250 workers, classified as class
A worker. Due to low pay rates 30% of workers left company on 30th January 2010. The
company took notice of this fact and pay rates were increased by 10% with effect from 1st
February 2010. On 1st March 2010 replacement workers were appointed, these new
workers, classified as class B workers were not as efficient in learning as the initially hired
workers and therefore the difference in learning rate of both classes of workers was 5%,
however the pay rates and the time they took to produce the first unit was same as that
of class A worker. On 21st November 2010, 20 more workers left the company. These
workers were the ones who initially started the production.
The completed units will be produced by a single worker and it took 36 hours to produce
the second unit which was produced in December 2009. The company expects a learning
curve rate of 90% for class A worker. It is expected that learning curve rate will continue
till production of 64 units for both classes of workers.
The total overheads of the company amount to Rs. 300,000,000 for the year 2010.
Whereas the rate of variable overheads is Rs. 4,000 per unit only. The cost of material per
unit is 250% of variable overheads initially but this will reduce by 25% in the last month
(December 2010). Whereas the cost of labour is 20.4545% of variable cost per unit for the
second unit of the leather jacket that the company produced in December 2009.
It is expected that each worker will work for an average of 87 hours per two weeks and
labour payments are on per hour basis.
Required
Calculate the minimum selling price that the company should charge if it wants to earn a
contribution margin in the range of 20% to 30% on selling price during the year 2010.
(write any reasonable assumptions to support your answer)

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Sales discount offered due to Learning Curve

Question # 23
You have been given the following data for first unit:
Direct Material Rs 500
Direct Labour @ Rs 5 per hour Rs 200
Variable Overheads 70% of Direct Labour
Learning Rate 90%
Selling Price Mark-up of 20%
The company has already produced some units and they were sold for Rs 858.78 per unit.
Required
Calculate the per unit discount that can be given on further 30 units

Question # 24
You have been given the following data for first unit:
Direct Material Rs 2000
Direct Labour (60 hours) Rs 1500
Variable Overheads (60 hours) Rs 750 per unit
Fixed Overheads Rs 100 per unit
Learning Rate 90%
Selling Price Mark-up of 5%
Required
a. Calculate Selling price per unit of first 60 units
b. Discount that can be given on further 50 units

Learning Curve in Batches

Question # 25
You have been provided with the following data for a batch of 500 units:
Direct Material Rs 250 per unit
Direct Labour (20 hours) Rs 300
Variable Overheads 50% of Direct Labour
Learning Rate applicable to batches 90%
Selling Price Rs 850 per unit
Required
Calculate the profit/loss for producing
a. First 1000 units
b. Further 1,500 units

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Question # 26
A company produces units in batches of 500 units. For the first batch you have been given
the following data:
Direct Material Rs 135,000
Direct Labour (2,000 hours) Rs 180,000
Variable Overheads Rs 90,000
Setup cost per batch Rs 50,000
Direct Fixed Cost per batch Rs 10,000
Learning Rate 90%
Setup cost per batch will reduce by 5% for every batch
Required
Calculate the total cost for first 18 batches

Question # 27
A company produces units in batches of 500 units. For the first batch you have been given
the following data:
Direct Material Rs 135,000
Direct Labour (2,000 hours) Rs 180,000
Variable Overheads Rs 90,000
Setup cost per batch Rs 50,000
Direct Fixed Cost per batch Rs 10,000
Learning Rate 90%(Learning will stop @ 8th batch)
Setup cost per batch will reduce by 5% for every batch (Will reduce up to 5th batch after
which it will remain constant)
Required
Calculate the total cost for first 18 batches

Question # 28
Average labor cost per batch for last year Rs 15,000 per batch
Lots produced last year 10 Lots
Target production for this year 700 batches
Learning stops @ 500th batch including batches produced last year
Learning Rate 90%
Required
Calculate the cost of labor for 700 batches for this year.

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Question # 29

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Question # 30

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Question # 31

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Question # 32

Question # 33

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Question # 34

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Question # 35

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Question # 36

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Question # 37

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“LEARNING CURVE WITH VARIANCES”

Question # 38

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Question # 39

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“Marginal & Absorption Costing”

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Absorption Costing
Question 01

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Question 02

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Question 03

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Marginal costing
Question 4

Required:
Prepare Profit and Loss as per
a) Marginal Costing
b) Absorption Costing

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Question 5

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Reconciliation Between Marginal and absorption costing

Question 06

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Question 07

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Question 08

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Question 09

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Question 10

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Question 11

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Marginal and absorption costing with Standard costing

Question 12

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Question 13

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Marginal and absorption costing with Process costing

Question 14

(c) Prepare T Accounts for each type of costing (Profit and Loss)
(d) Prepare profit reconciliations

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“Inventory Management/EOQ”
Question # 1
ZPZ Corporation uses several raw materials in its production schedule. The management wishes to use a
system of selective control. The following data have been compiled:

Material Code Yearly Usage Unit Cost (Rs.) Total Output (Rs.)
TX01 10,000 0.50 5,000
TX02 7,100 0.55 4,615
TX03 2,000 2.50 5,000
TX04 5,250 2.00 10,500
TX05 6,000 1.75 10,500
TX06 2,750 0.80 2,200
TX07 1,500 1.00 1,500
TX08 5,500 1.85 10,175
40,100 49,490
Required:

Assuming that the management adopts the ABC plan, prepare the necessary ABC Chart.

Question # 2

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Question # 3

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Question # 4

Question # 5

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Question # 6

Question # 7

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Question # 8

Question # 9

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Question # 10

Question # 11

Question # 12
Purchase quantity = 25,000 units. At the moment purchases in batches of 800 units.
Cost per unit = 16 rupees. Ordering cost = 32 rupees.
Holding cost = 4 rupees per unit + interest cost of 15% of cost price.
Required: Compute EOQ and the annual savings if this order quantity is replaced with the
current order size.

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Question # 13

Question
Question # 142

Demand 144,000 Units

Current policy
Order size 28,800 Units
Ordering cost Rs 45,000 (including fixed cost of Rs 15,000)
Holing Cost Rs 220,000 (Rs 32,800 is fixed)

Required
Calculate EOQ and the amount of savings EOQ will bring about.

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Question # 15
1) Demand 781,250 units.
2) Purchase Cost Rs.385/unit.
3) Fixed Warehousing rent Rs. 40,000 p.a.
4) Warehousing Cost per unit per year Rs.25.
5) Storekeeper salary Rs.5,000 p.a.
6) Fumigation Charges Rs.7,500 p.a.
7) Fixed Insurance Premium Rs. 2,000 per month.
8) Insurance Premium per unit per year Rs. 40.
9) Interest Cost 15% p.a.
10) Brokerage Expense Rs.10 per unit ordered.
11) Transportation Cost Rs. 1,250 per order.
12) Transportation Cost per unit Rs.5.
13) Out of pocket Rs.100 per order.
14) Order Chasing Cost Rs.650 per order.
Required:

Calculate EOQ.
Question
Question # 163

Calculate the average inventory and holding cost for the following stock
acquisition policies. Conclude from the results what effect safety stock has on
EOQ.

Units
Order Size Safety Stock
Policy A 14,000 5,000
Policy B 16,000 5,000
Policy C 28,000 5,000
Policy D 29,500 5,000

Holding cost per unit per year Rs 36.

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Advanced Questions
Question # 17

Question # 18

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Question # 19

Question # 20

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Question # 21

Question # 22

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Question # 23

Question # 24

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Question # 25

Question # 26

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Question # 27

Question # 28
Care Limited deals in a single product. Care Limited has a policy of maintaining safety stock
equivalent to 1.25% of expected Annual requirement of Raw Material Z which is the main
component of the product. For 2014-2015 the sale was projected at 43,556 kg. Raw Material Z
comprises 90% of total quantity of finished product. The process losses are expected to be 2%.
Orders are placed on the basis of Economic Order Quantity. The records which contained
details about total of holding and ordering cost are destroyed by fire. Only information
available from the company records is that holding cost per unit for the month of January was
Rupees 19 and expected to rise by Rupees 2 per month. The company computes Economic
Order Quantity by using holding cost per unit per year.
For the upcoming year (2015-2016) company expects that EOQ level will be 10% higher than
the current year and sales units will be 33.35% higher whereas the percentage of losses will
reduce by 50%. Holding cost and ordering costs are also expected to rise. The increase in
holding cost per unit is 20% of annual holding cost from previous year. The safety stock units
will not change from previous year quantity.
Required
1. Form an equation in terms of ‘x’ for economic order quantity where ‘x’ represents total
holding cost of the company for the year 2014-2015.
2. Provided EOQ for first year = 4,000 units’ compute Holding cost and Ordering cost for
the year 2014-2015.

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3. Compute percentage increase in ordering cost from previous year.

Question # 29

Question # 30

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Question # 31

Question # 32

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Question # 33

Question # 34

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Question # 35

Question # 36

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Question # 37

Question # 38

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Question # 39
Carrying cost = 18% p. a cost of purchases

Ordering Cost = 311.54

Purchase price = Rs. 4.50 / unit

Selling Price = Rs. 6.30 / unit

Variable Selling Cost = Rs. 0.30 / unit

Average Demand = 10,000 units / week

Demand may vary = 6000 – 14000 units / week

Probability distribution of two weeks’ period for sales

Sales (units) Probability

12,000 0.05
16,000 0.20
20,000 0.50
24,000 0.20
28,000 0.05

If there is a stock out of 25% of orders will be lost whereas 75% of customers will be willing to wait.

Required:

a) EOQ
b) Level of safety stock that should be carried.

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Question # 40
Annual Demand = 30,000
Working days per year = 300
EOQ = 3000
Lead time = 5 days
Holding Cost = Rs. 10 / unit
Stock out cost = Rs. 20 / unit

Usage during lead time (Units) No. of times Quantity was ordered (Times)
440 6
460 12
480 16
500 130
520 20
540 10
560 6
200
Required:
a) Reorder Level
b) Optimal Safety Stock
c) Reorder level including safety stock allowance

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Question # 41
Runswick Limited is a company that purchase toys from abroad for resale to retail stores. The
company is concerned about its stock (inventory) management operations. It is considering
adopting a stock management system based upon the economic order quantity (EOQ) model.
The company’s estimates of its stock management cost are shown below:
Percentage of purchase price of toys per year:
Storage cost 3
Insurance 1
Handling 1
Obsolescence 3
Opportunity cost of funds invested in stock 10

Fixed costs accepted with placing each order for stock are Rs.311.54
The purchase price of the toys to Runswick Limited is Rs. 4.50 per unit. There is a two-week delay
between the time that new stock is ordered from suppliers and the time that it arrives.
The toys are sold by Runswick Limited at a unit price of Rs.6.30. The variable cost to Runswick
Limited of selling the toys is Rs.0.30 per unit. Demand from Runswick’s customers for the toys
average 10,000 units per week, but recently this has varied from 6000 to 14000 units per week.
On the basis of recent evidence, the probability of unit sales in any two-week period has been
estimated as follows:
Sales unit Probability
12000 0.05
16000 0.20
20000 0.50
24000 0.20
28000 0.05
If adequate stock is not available when demanded by Runswick’s customers in any two-week
period approximately 25% of orders that cannot be satisfied in that period will be lost, and
approximately 75% of customers will be willing to wait until new stock arrives.
Required:
a) Ignoring taxation calculate the EOQ.
b) Estimate the level of safety stock that should be carried by Runswick Limited.

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c) If Runswick Limited were to be offered a quantity discount by it supplies of 1% for orders of

30000 units or more, evaluate whether it would be beneficial for the company to take
advantage of the quantity discount assume for this calculation that no safety stock carried.

Estimate the expected total annual costs of stock management if the economic order quantity
had been (1) 50% higher (2) 50% lower than its actual level. Comment upon the sensitivity of
total annual costs to changes in the economic order quantity. Assume for his calculation that no
safety stock is carried.
Question # 42

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Question # 43

Question # 44

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Question # 45

Question # 46

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“STANDARD COSTING/VARIANCE ANALYSIS”

Question 1
Following Data has been given:
Standard Costs per unit: Actual Costs per unit
Direct Material 4kg at 40 Rs per kg 5KG @ 30 Rs per kg
Direct Labour 5 hours @ Rs 10 per hour 3 hours @ Rs 20 per kg
Variable Overheads 5 rs per hour 10 rs per hour
Fixed Overheads Rs 2,880,000 Rs 2,500,000

Actual units produced and sold during the period were 10,000 units @ Rs 1,000
Fixed overheads were absorbed @ normal capacity i.e. 20,000 units
Required
Prepare
Flexed budgeted P and L
Actual Profit and Loss Statement

Question 2
A company manufactures a product in a process production system. There is some wastage in
production, and normal loss is 10% of the number of units input to the process.

The standard price per unit of direct material is Rs. 4.50 per unit.
What would be the standard direct material cost per unit of output:
a) If an ideal standard is used, and the standard does not provide for any loss in process?
b) If the standard cost allows for a loss of 10% of input materials is producing each unit
of output.

Question 3
A company produces sandwiches. Each sandwich requires two slices of bread and a loaf of
bread contains 24 slices. Each loaf of bread costs Rs. 6. It is estimated that currently 20% of
bread is wasted. Management would like to reduces this wastage to 10%.
Calculate a standard material cost for a sandwich based on
a) Ideal conditions
b) Current conditions
c) Attainable conditions

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Question 04

Product F uses a direct material, material M. The standard price of material M is Rs. 4 per kilo.
During one month, 2,500 units of product F were manufactured. These required 12,000 kilos of
material M and the material usage variances was Rs. 2,000 (A).

Required:
Calculate the standard direct material cost per unit of product F.

Question 05

The standard time required to make one unit of Product G is 1.25 hours of direct labour. During
one-month, total direct labour costs were Rs. 119,000. The company made 6,800 units of
Product G. These took 9,100 direct labour hours and the direct labour rate variance was Rs.
8,400 (F).

Required:
Calculate the standard direct labour cost per unit of product G.

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Material Variances
Question 6
Following Data has been given:
Actual and budgeted sales 5250 units
Opening inventory Nil
Closing Inventory 750 units

Standard cost per unit Actual cost per unit

Direct Material 5kg @ 316 Rs 4.833 kg @ 320 Rs
Required
Calculate
Direct Material Cost Variance
Direct Material Price Variance
Direct Material Usage Variance

Question 7
Budgeted and Actual Data is as follows
Budget Actual
Units to be produced/produced 13500 ----------
Raw material- X 8,000 Kg@ Rs 400 per kg 7,987 kg @ Rs 400 per kg
-Y 7,000 kg @ Rs 300 per kg 6535 Kg @ Rs 300 per kg
Loss on output 11.11% 6%

Budgeted and actual raw material are based upon budgeted and actual production
respectively
Required
Calculate
1. Material Usage Variance
2. Material Mix Variance
3. Material Yield Variance

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Question 8

Actual Output 10,000 units

Standard Usage of Material per unit 5 kg @ Rs 10/ kg
Actual Purchases 66,000 kg @ Rs 11
Closing Stock of Material 8,000 kg
Required
Calculate Material Price Variance if:
A. Company uses Standard costs for valuation
B. Company uses FIFO for valuation

Question 9
Standard Material price per kg Rs 25.6
Closing Inventory 2,028,400 kgs
Value of closing inventory under FIFO method 13,488,860 Rs
% of ending inventory to quantity consumed 11%
All purchases were evenly distributed throughout the year. The material price remained
same as standard during the first half of the year after which it increased by 10%.
Required
Calculate Material Price Variance assuming company used Standard cost to measure inventory
instead of FIFO method

Question 10
State the limitations of Variance analysis

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Question 11

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Advance Questions
Question 12

The Milano Company has established the following standard mix for producing 9 liters of
product A:

Rupees
5 liters of material X at Rs. 7 per liter 35
3 liters of material Y at Rs. 5 per liter 15
2 liters of material Z at Rs. 2 per liter 4
54

A standard loss of 10% of input is expected to occur. Actual input was:

Rupees
53,000 liters of material X at Rs. 7 per liter 371,000
28,000 liters of material Y at Rs. 5.30 per liter 148,400
19,000 liters of material Z at Rs. 2.20 per liter 41,800
100,000 561,200

Actual output for the period was 92,700 liters of product A.

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Question 13

GHI Company produced 817 kgs of ‘Y’ for which following standard chemical mix is used:

Material Standard Quality (Kgs) Standard Rate per kg (Rs)

A 750 38.00
B 150 53.00
C 50 59.50

Purchase department knowing the standard mix made efforts for reducing the average price of
material mix and achieved the results as under:

Rate (Rs)
A 37.00
B 56.25
C 62.75

Production department concentrating on yield aspect experienced a different ratio of raw

material mix and got 876 kgs out of following mix:

Quantity (Kgs)
A 750
B 185
C 65

Required:

Find out the effect of deviation from standards by calculating:

(a) Price Variance
(b) Mix Variance
(c) Yield Variance

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Question 14

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Question 15
A Limited produces an article by blending 2 raw materials. The following standards have been
set up for raw materials:

Material Standard Mix Standard Price (Rs. Per Kg)

A 40% 4
B 60% 3

The standard loss in processing is 15%. During September 2008, the company produces 1700
units of finished goods. The position of stock and purchases for the month of September 2008 is
as under:

Material Stock on 1-9-08 Stock on 30-9- Purchases during September 2008

08
Kg Cost (Rs)
A 35 5 800 3400
B 40 50 1200 3000

Required:
Calculate all material variances. Assume FIFO for the issue of material. The opening stock is to
be valued at standard price.

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Question 16

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Question 17

Labor Variances
Question 18

Standard Hours per unit 5 hours @ rs 16 per hour

Actual Output 15,000 units
Actual Hours paid 88,000 @ Rs 19.5 per hour
Actual Hours worked 78,000

Required
Calculate Labour Rate, efficiency and idle time Variance

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Question 19

A company manufactures two products A and B for which following data is given:
Standard Labor Hour for A 1 hour
Standard Labor Hour for B 1.5 hours
Budgeted Production of A 30,000 Units
Budgeted Production of B 20,000 units
Standard Direct Labor Rate per hour Rs 3
Actual Total Hours 60,000
Actual Production- A 40,000 units
B 20,000 units
Actual Total Direct Labor cost Rs 138,500
Required
Calculate
a. Direct Labor Rate Variance
b. Direct Labor Efficiency Variance

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Advance Questions
Question 20
Acca-Chem Co plc manufactures a single product, Product W, and have provided you with the
following information which relates to the period, which has just ended:
Standard cost per batch of Product W

Materials Kilos Price per kilo Total (Rs)

(Rs)
F 15 4 60
G 12 3 36
H 8 6 48
35 144
Less: Standard Loss 3
Standard Yield 32

Labour: Hours Rate per

hour (Rs)
Department P 4 10 40
Department Q 2 6 12
196
Budgeted sales for the period are 4096 kilos at Rs. 16 per kilo. There were no budgeted opening
or closing stocks of product W.
The actual materials and labour used for 120 batches were:
Materials Kilos Price per kilo Total (Rs)
(Rs)
F 1680 4.25 7,140
G 1650 2.80 4,620
H 870 6.40 5,568
4200 17,328
Less: Actual Loss 552
Actual Yield 3648

Labour Hours Rate per hour

(Rs)
Department P 600 10.60 6,360
Department Q 270 5.60 1,512
25,200
Required:

(i) Calculate all material variances

(ii) Calculate labour costs, rate and efficiency variances

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Question 21

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Overhead Variances in Absorption costing

Question 22
Budgeted Fixed Overhead Rs 250,000
Budgeted Volume 25,000 units
Actual Fixed Overheads Rs 260,000
Actual Volume 24,600 units
Required
Calculate
a. Over/ under applied overheads
b. Fixed Overhead Volume Variance
c. Fixed Overhead Expenditure Variance
Question 23
Budgeted Fixed Overhead Rs 240,000
Budgeted Volume 20,000 units
Actual Fixed Overheads Rs 250,000
Actual Volume 18,000 units
Standard hours per unit 3 hours
Actual Hours 56,000 hours
Required
Calculate
a. Fixed Overhead Volume Variance
b. Fixed Overhead Efficiency Variance
c. Fixed Overhead Capacity Variance

Question 24
Budgeted Output 8,000 units
Budgeted Fixed overheads Rs 1,200,000
Standard hours per unit 3 hours
Actual Output 8,600 units
Actual Fixed Overhead Rs 20,000 more than applied
Actual Hours 25,000 hours
Variable Budgeted Cost Rs 2,400,000
Actual Overheads Rs 3,900,000

Required
Calculate all Variances for overheads

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Question 25

Actual Overheads Rs 1,020,000

Under absorbed Overheads Rs 69,600
Actual Labor Hours 72,000 hours
Budgeted Labour Hours 75,000 hours

Required
Calculate Fixed Overhead Variances

Question 26
A company manufactures two products X and Y. In year 1 it budgets to make 2,000 units of
Product X and 1,000 units of Product Y. Budgeted resources per unit and costs are as follows:
Product X Product Y
Direct materials per unit:
Material A 2 units of material 1.5 units of material
Material B 1 unit of material 3 units of material
Direct Labour hours per unit 0.75 hours 1 hour

Costs
Direct Material A Rs. 4 per unit
Direct Material B Rs. 3 per unit
Direct Labour Rs. 20 per hour
Variable production overhead Rs. 4 per direct labour
Fixed production overheads per unit are calculated by applying a direct labour hour absorption
rate to the standard labour hours per unit, using the budgeted fixed production overhead costs
of Rs. 120,000 for the year.

Required:

Calculate the standard full production cost per unit of:

(a) Product X, and

(b) Product Y

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Question 27
A company manufactures two products, Laurel and Hardy. In year 1 it budgets to make 6,000
units of Product Laurel and 2,000 units of Product Hardy. Budgeted resources per unit ad costs
are as follows:

Laurel Hardy
Direct materials per unit:
Material X 3 kg 1 kg
Material Y 2 kg 6 kg
Direct Labour hours per unit 1.6 hours 3 hours

Costs
Direct Material X Rs. 3 per unit
Direct Material Y Rs. 4 per unit
Direct Labour Rs. 25 per hour
Variable production overhead Rs. 5 per direct labour

Fixed production overheads per unit are calculated by applying a direct labour hour absorption
rate to the standard labour hours per unit, using the budgeted fixed production overhead costs
of Rs. 180,000 for the year.

Required:

Calculate the standard full production cost per unit of:

(a) Product Laurel, and
(b) Product Hardy

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Question 28

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Advance Questions
Question 29

The Britten Company Co. Ltd manufactures a variety of products of basically similar
composition. Production is carried out by subjecting the various raw materials to number of
standardized operations, each major series operation being carried out in a different
department. All products are subjected to the same initial processing which is carried out in
department A, B and V; the order and extent of further processing then depending upon the
type of end product to be produced.

It has been decided that a standard costing system could be usefully employed within Britten
and a pilot scheme is to be operated for six months based initially only on department B, the
second department in the initial common series of operations. If the pilot scheme produces
useful results then a management accountant will be employed and the system would be
incorporated as appropriate throughout the whole firm.
The standard cost per unit of output of department B is:

Rupees Rupees
Direct Labour (14 hours at Rs. 2 per hour) 28
Direct materials:
(i) Output of department A
(3 kg at Rs. 9 per kg) 27
(ii) Acquired by and directly input to
Department B Material X (4 kg at Rs. 5 per kg) 20 47
Variable overhead (at Rs. 1 per direct labour hour worked) 14
Fixed production overheads
(i) Directly incurred by department B (note 1)
Manufacturing overhead (per unit) 3
(ii) Allocated to department B general factory
Overhead (per unit) 8 11
Standard cost per unit 100

In the first month of operation of the pilot study (month 7 of the financial year), department B
had no work in progress at the beginning and the end of the month.

The actual costs allocated to department B in the first month of operation were:

Rupees Rupees
Direct Labour (6500 hours) 14,000
Direct Materials:
(i) Output of department A (1400 kg) (note 2) 21,000

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(ii) Material X (1900 kg) 11,500 32,500

Variable Overhead 8,000
Fixed Overhead:
(i) Directly incurred manufacturing overhead 1,600
(ii) Allocated to department B (note 3) 2,900 4,500
59,000

Note 1: Based on normal monthly production of 400 units

Note 2: Actual cost of output of department A
Note 3: Based on the actual expenditure on joint manufacturing overheads and allocated
to departments in accordance with labour hours worked.

The production manager feels that the actual costs of Rs. 59,000 for production of 500 units
indicates considerable inefficiency on the part of department B. He says, I was right to request
that the pilot standard costing system be carried out in department B as I have suspected that
they are inefficient and careless – this overspending of Rs. 9000 proves I am right.

Required:
(a) Prepare a brief statement which clearly indicates the reasons for the performance of
department B and the extent to which that performance is attributable to department
B. The statement should utilize variance analysis to the extent it is applicable and
relevant.
(b) Comment on the way the pilot standard costing system is currently being operated
and suggest how its operation might by improved during the study period.

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Question 30

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Question 31

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Question 32

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Question 33

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Fixed Overhead Variances with Marginal costing

Question 34
Budgeted Output 16,000 units
Budgeted Fixed overheads Rs 2,400,000
Standard hours per unit 6 hours
Actual Output 17,200 units
Actual Fixed Overhead Rs 40,000 more than applied
Actual Hours 50,000 hours
Variable Budgeted Cost Rs 4,800,000
Actual Overheads Rs 7,800,000
Required
Calculate all Variances for overheads as per both marginal and absorption costing

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Advance Questions
Question 35

You have been provided with the following data for S plc for September:

Accounting Method Absorption Marginal

(Rupees) (Rupees)
Variances 1900 (A) 1900 (A)
Sales Volume 4500 (A) 7500 (A)
Fixed Overhead expenditure 2500 (F) 2500 (F)
Fixed Overhead Volume 1800 (A) N/A

During September production and sales volumes were as follows:

Sales Production
Budget 10,000 10,000
Actual 9,500 9,700

Required:

Calculate:
(i) The standard contribution per unit
(ii) The standard profit per unit:
(iii) The actual fixed overhead cost total.

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Actual or Standard costs from variances

Question 36

The budgeted Material for 40,000 units of finished goods is 80,000 kgs @ Rs 15 per kg
Material Price Variance Rs 96,000 adv
Material Usage Variance Rs 90,000 adv
Actual Output 45,000 units

Required
Calculate
a. Actual Quantity of Material
b. Actual price of Material

Question 37

Actual Fixed Overheads Rs 395,000

Material Price Variance RS 16,000 fav
Fixed Overhead Variance Rs 20,000 adv
OAR per Hour Rs 7.5
Hours per unit 10 hour
Standard Material Price per unit Rs 5
Actual Material Price per unit Rs 4.875
Applied FOH is equal to Budgeted FOH
Required
Calculate Budgeted Output in units and Actual Kgs of Material purchased

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Advance Questions
Question 38

The following data relate to actual output, costs and variances for the four-weekly accounting
period number 4 of a company that makes only one product. Opening and closing work in
progress figures were the same.

Rupees (000)
Actual production of Product XY 18000 units
Actual cost incurred:
(i) Direct Materials purchased and used (150,000 kg) 210
(ii) Direct wages for 32,000 hours 136
Variable Production Overhead 38

Rupees (000)
Variances
Direct materials price 15 F
Direct material usage 9A
Direct Labour rate 8A
Direct labour efficiency 16 F
Variable production overhead expenditure 6A
Variable production overhead efficiency 4F

Variable production overhead varies with labour hours worked.

A standard marginal costing system is operated.

You are required to:

Present a standard product cost sheet for one unit of Product XY.

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Question 39

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Question 40

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Question 41

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Question 42

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Question 43

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Question 44

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Reconciliation
Question 45
Standard Cost sheet is as follows
Direct Material per unit Rs 16
Direct Labour Per unit Rs 12
Fixed Overhead per unit Rs 24
Budgeted Production 14,000 units
Actual Cost Sheet was as follows:
Production 14,800 units
Direct material Rs 250,000
Direct Labor Rs 184,000
Fixed Overhead Rs 340,000
Required
Prepare a reconciliation between Flexed budgeted expenditure and actual expenditure

Question 46
Standard cost card per unit as per absorption costing is as follows:
Direct material(5kg) Rs 1580
Direct Labor (3 hours) Rs 900
Production Overheads Rs 720
Budgeted Fixed Overheads and production was Rs 3,300,000 and 11,000 units
Actual Data was:
Direct Material(58,000kg) Rs 18,560,000
Direct Labor (35,000 hours) Rs 10,850,000
Variable Overheads Rs 5,950,000
Production 12,000
Fixed Overheads Rs 400,000 less than applied
Closing Inventory 1,500 units
Actual as well as budgeted sales were same units @ Rs 4000 per unit
Required
1. Reconciliation between actual and budgeted profit under marginal costing with the
help of variances
2. Reconciliation between actual profit under marginal and absorption costing

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Question 47
BS Limited manufactures one standard product and operates a system of variance accounting
using a fixed budget. As assistant management accountant, you are responsible for preparing
the monthly operating statements. Data from the budget, the standard product cost and actual
data for the month ended 31 October are given below.

Using the data given, you are required to prepare the operating statements for the month
ended 31 October to show the budgeted profit; the variances for direct materials, direct wages,
overhead and sales, each analyzed into causes; and actual profit.

Budgeted and standard cost data:

Budgeted sales and production for the month: 10,000 units

Standard cost for each unit of product:
Direct Material: X: 10 kg at Rs. 1 per kg
Y: 5 kg at Rs. 5 per kg
Direct wages 5 hours at Rs. 3 per hour
Fixed production overhead is absorbed at 200% of direct wages
Budgeted sales price has been calculated to give a profit of 20% of sales price.

Actual data for month ended 31 October:

Production: 9500 units sold at a price of 10% higher than that budgeted.
Direct Materials consumed:
X: 96,000 kg at Rs. 1.20 per kg
Y: 48,000 kg at Rs. 4.70 per kg

Direct wages incurred 46,000 hours at Rs. 3.20 per hour

Fixed production overhead incurred Rs. 290,000

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Question 48
Newcastle Limited uses variance analysis as a method of cost control. The following information
is available for the year ended 30 September 2001:
Budget Production for the year 12,000 units

Standard Cost per unit Rupees

Direct Materials (3 kg at Rs. 10/kg) 30
Direct Labour (4 hours at Rs. 6/hour) 24
Overheads (4 hours at Rs. 2/hour) 08
62

Actual Actual production units for year 11,500 units

Labour – hours for the year 43,350 hours

Labour – Cost for the year Rs. 300,000
Material – kg used in the year 37,250 kg
Material – Cost for the year Rs. 345,000

Required:
Prepare a reconciliation statement between the original budgeted and actual prime costs.

Question 49
The trading results of Jack & Jackson Ltd for the year 1991 and 1992 were as follows
1991 1992
Material Consumed 100,000 132,000
Wages 60,000 66,000
Variable Overheads 12,000 14,000
Fixed Overheads 20,000 24,000
Net Profit 8,000 17,000
Sales Value of Products 200,000 253,000

Material prices and wage rates were increased in 1992 by 10 percent and sales prices were
increased by 10 percent.

Required:
Prepare a statement showing how much each factor had contributed to the variation of
profit.

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Question 50
The summarized results of operations of A Ltd are given below:

For the year ended on 31st March

1993 – 94 1994 – 95
(Rupees in lacs)
Sales 120 129.6
Cost of Sales
- Material 80 91.1
- Variable Overheads 20 24.0
- Fixed Expenses 15 18.5

During 1994 – 95, average prices increases over those of the previous years by:
20 percent in the case of sales
15 percent in the case of materials
10 percent in overheads

Required:
Prepare a profit variation statements.

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Advance Questions
Question 51
SK Limited makes and sells a single product ‘Jay’ for which the standard cost is as follows:
Rupees per unit
Direct Material 4 kilograms at Rs. 12.00 per 48.00
kg
Direct Labour 5 hours at Rs. 7.00 per hour 35.00
Variable production overhead 5 hours at Rs. 2.00 per hour 10.00
Fixed production overhead 5 hours at Rs. 10.00 per hour 50.00
143.00
The variable production overhead is deemed to vary with the hours worked.

Overhead is absorbed into production on the basis of standard hours of production and the
normal volume of production for the period just ended was 20,000 units (100,000 standard
hours of production).

For the period under construction the actual results were:

Production of Jay 18000 units

(Rupees)
Direct material used – 76,000 kg at a cost of 836,000
Direct Labour cost incurred – for 84,000 604,800
hours worked
Variable production overhead incurred 172,000
Fixed production overhead incurred 1,030,000

You are required

(a) To calculate and show, by element of cost, the standard cost for the output for the
period;
To calculate and list the relevant variances in a way which reconciles the standard cost with
the actual cost. (Note: Fixed production overhead sub-variances of capacity and volume
efficiency (productivity) are not required).

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Question 52

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Question 53

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Question 54

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Question 55

The summarized results of a company for the two years ended 31 st December 1998 and 1997
are given below:

1998 1997
Rs. in lacs Rs. in lacs
Sales 770 600
Direct Materials 324 300
Direct Wages 137 120
Variable Overheads 69 60
Fixed Overheads 150 80
Profit 90 40

As a result of reorganization of production methods and extensive advertisement campaign

used, the company was able to secure an increase in the selling prices by 10% during the year
1998 as compared to the previous year.

In the year 1997, the company consumed 120,000 kgs of raw materials and used 24,00,000
hours of direct labour. In the year 1998, the corresponding figures were 135,000 kgs of raw
materials and 26,00,000 hours of direct labour.

You are required to:

Use the information given for the year 1997 as the base year information to analyze the
results of the year 1998 and to show in a form suitable to the management the amount of
each factor has contributed by way of price, usage and volume to the change in profit in
1998.

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Question 56

United Limited company, which uses standard marginal costing, furnishes the following details
relating to a single product manufacturing and sold in a quarter:

Budget Actual
Sales Unit 6,000 6,400

Rupees (000) Rupees (000)

Sales 1500 1696
Direct materials 240 270
Direct labour 360 416
Variable Overheads 600 648
Total Variable Costs 1200 1334

The sales budget is based on the expectation of the company’s estimate of market share is 12%.
The market report reveals that the actual sales of the product in the whole country in the
quarter is 60,000 units.

Further data are given under:

Standard Actual
Direct Material 8 7.50
Direct Labour rate per hour 6 6.40

Required:
i) Compute the following variances for the quarter
a. Gross margin sales volume variance
b. Market size variance
c. Market Share variance
d. Sales price variance
e. Direct material usage and price variance
f. Direct labour efficiency and rate variances
g. Variable overheads efficiency and expenses variances.

ii) Prepare an operating statement reconciling the budgeted contribution with actual
contribution.

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Question 57

The budgeted output of a single product manufacturing company for the year ending 31 st
March was 5,000 units. The financial results in respect of the actual output of 4,800 units
achieved during the year were as under:

Rupees
Direct Material 29,700
Direct Wages 44,700
Variable Overheads 72,750
Fixed Overheads 39,000
Profit 36,600
Sales 2,22,750

The standard wage rate is Rs. 4.50 per hour and the standard variable overhead rate is Rs. 7.50
per hour.

The cost accounts recorded the following variances for the year:

Favorable Adverse
Rupees Rupees
Material Price --- 300
Material Usage --- 600
Wage Rate 750 ---
Labour Efficiency --- 2,250
Variable Overhead Expenses 3,000 ---
Variable Overhead Efficiency --- 3,750
Fixed Overhead Expenses --- 1,500
Selling Price 6,750 ---

Required:

(i) Prepare a statement showing the original budget.

(ii) Prepare the standard product cost sheet per unit.
(iii) Prepare a statement showing the reconciliation of originally budgeted profit and
actual profit.

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Question 58

The following information is available in respect of Y Limited for a week:

(a) 400 kg of raw material were actually used in producing product ‘EXE’. The purchase cost
thereof being Rs. 24,800. The standard price per kg of raw material is Rs. 60. Expected
output is 12 units of product ‘EXE’ from each kg of raw material. The material price
variance and usage variance as computed by cost accountant are (adverse) and Rs. 600
(adverse) respectively.

(b) The week is of 40 hours. The standard time to produce one unit of ‘EXE’ is 30 minutes.
The standard wage rate is Rs. 5 per labour hour. The company employs 60 workers have
been paid hourly wage rate as under:

Number of workers 6 8
46
Hourly wage rate (Rs) 4.80 5.20 5.00

(c) Budgeted overheads for four-weekly period is Rs. 81,600. The actual fixed overhead
spent during the said week are Rs. 19,800.

(d) Entire output of ‘EXE’ has been sold at its standard selling price of Rs. 15 per unit.

You are required to:

(i) Compute the variances relating to labour and overheads.

(ii) Prepare a statement showing total standard costs, standard profit and actual
profit for the week.

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Question 59

The accountant of a company has presented the following operating statement to the General
Manager of Department ‘P’ for the month of May 2004.

Particulars Budget Actual Variance

May 2004 (Rupees)
Sales 24,00,000 22,00,000 200,000
Direct Materials 600,000 520,000 80,000
Direct Labour 800,000 756,000 44,000
Factory Overheads (V) 200,000 184,000 16,000
Factory Overheads (F) 100,000 116,000 (16,000)
Selling Overheads (V) 300,000 288,000 12,000
Selling Overheads (F) 200,000 184,000 160,000
Total 22,00,000 20,48,000 152,000
Profit 200,000 152,000 (48,000)
Direct Labour Hours 100,000 95,000
Units of Production and 20,000 18,000
Sale

The general Manager was surprised to see that his operations have resulted in the adverse
profit variance of Rs. 48000 for the month. On the basis of budgeted profit of Rs. 10 per unit, he
expected that he would make a profit of Rs. 180,000 on a sale of 18,000 units of production in
May 2004 instead of the budgeted profit of Rs. 200,000 resulting in an adverse profit variance
of Rs. 20,000 only.

You are required:

(a) Redraft the above statement to show the original budget, flexible budget, actual
expenses incurred and variations for May 2004.
(b) Calculate all variance relating to sales, direct material, direct labour and overheads.

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Question 60

The following information is available from the record of Sunrise Limited which produces only
one product:

Budgeted Income Statement: January 1995

Rupees Rupees Rupees
Sales Revenue (20,000 units at Rs. 5) 100,000
Production Costs:
Direct Materials
- A (10,000 kg @ Rs. 0.30) 3,000
- B (10,000 kg @ Rs. 0.70) 7,000 10,000
Direct Labour
- Skilled (9,000 hrs @ Rs, 3.00) 27,000
- Un-skilled (5,200 hrs @ Rs. 2.50) 13,000 40,000
Production Overhead:
- Fixed 20,000
- Variable (20,000 units @ Rs. 10,000
0.50)
80,000
Add: Opening Stock (1,000 units @ Rs. 4,000
4)
84,000
Deduct: Closing Stock (1,000 units @ Rs. 4,000
4)
80,000
Budgeted Profit 20,000

During January 1995 production and sales were both above budget and the following income
statement was prepared:

Income Statement: January 1995

Rupees Rupees Rupees
Sales Revenue:
(14,000 units @ Rs. 5) 70,000
(8,000 units @ Rs. 4.75) 38,000

Production Costs:
Actual Production 24,000 units
Direct Materials
- A (16,000 kg @ Rs. 0.20) 32,00

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- B (10,000 kg @ Rs. 0.80) 8,000 11,200

Direct Labour
- Skilled (13,000 hrs @ Rs. 2.95) 38,350
- Un-Skilled (6,300 hrs @ 2.60) 16,380 54,730
Production Overhead:
- Fixed 18,020
- Variable (24,000 units @ Rs. 15,000
0.625)
98,950
Add: Opening Stock (1,000 units @ Rs. 4,000
4)
1,02,950
Less: Closing Stock (3,000 units @ Rs. 4) 12,000
90,950
Actual Profit 17,050

During the period 1,000 abnormal idle hours for skilled labour due to machine breakage was
reported.

In the above statement stock is valued at standard cost of Rs. 4 per unit.

Required:

Prepare a standard costing statement analyzing the difference between the budget actual
performance. In your analysis include calculations of the sales volume and sales variances;
direct material price, mix, yield and usage variances; direct labour rate, inefficiency and
efficiency variances; overhead expenditure and volume variances.

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Question 61

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Question 62

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Question 63

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Standard Costing with Process Costing

Question 64

 Standard Cost card per unit

Direct Material (5kg) Rs 200
Direct Labor (1.5 hours) Rs 240
Fixed Overheads absorption rate Rs 120
Variable Overheads Rs 192
 Fixed Overheads absorbed on normal capacity of 75,000 hours per month
 Actual Data for the month was:
Opening work in process (80% completed) 16,000 units
Started during the month 100,000 units
Transferred to Finished Goods 96,000 units
Closing Work in process (60% completed) 14,000 units

Material Issued to production- @ Rs 76 per kg Rs 3,800,000

@ Rs 84 per kg Rs 16,800,000
Direct Labor @ Rs 84 per hour Rs 12,096,000
Variable Factory overheads Rs 6,350,000
Fixed Factory Overheads Rs 5,700,000
 Material is added at the beginning while Conversion costs are incurred evenly. Losses
upto 3% of input are considered normal and are determined at the inspection which
takes place when the units are 90% complete
 The company uses FIFO method for valuation of inventories
Required
Compute all the Variances

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Advance Questions
Question 65

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Question 66

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OVERHEADS
Question 1
State whether the following are overheads or not:
1. Direct Labor for production department
2. Direct Labor for support department
3. Direct Material for production department
4. Direct Material for support department
5. Rent for premises
6. Depreciation
7. Lighting and Power

Question 2
A company manufactures two products A and B. The total overheads for the company for year
2016 are Rs. 50,000. Units of product A and product B produced during the year are 5 units for
each product. One unit of A takes 10 direct labour hours per unit whereas One unit of B takes 1
hour per unit.
Required
Total amount of overheads to be absorbed if i) Costs are absorbed on per unit basis ii) Costs are
absorbed on labour hour basis.

Question 3
You have been given the following data:
Rs
Direct Material 400,000
Direct Labor 100,000
Fuel and Power 50,000
Rent for the premises 75,000

Direct Labour Hours 10,000 hours

Required
Calculate the single overhead absorption rate on the basis of labour hours

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Question 4
A company has two service departments and one production department for which following
data is given:
Production Service Department A Service Department
Department B
Depreciation for Rs 900,000 Rs 500,000 Rs 500,000
machinery
Indirect Material Rs 100,000 Rs 75,000 Rs 65,000
Direct Labour hours 45,000 hours --------------------- --------------------
worked

Required
Calculate Single Overhead Absorption rate

Question 5
A company has two service departments and one production department for which following
data is given:
Machining Canteen Maintenance
Department
Depreciation for Rs 450,000 Rs 250,000 Rs 400,000
machinery
Indirect Material Rs 75,000 Rs 65,000 Rs 12,000
Direct Labour hours 90,000 hours --------------------- --------------------
worked
Calculate
Single Overhead Absorption rate

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Question 6
A company manufactures two products A and B for which the following data is given:
A B
Units produced 10 15
Labour hours per 1.5 2
unit

The total overheads for the year were Rs 100,000.

Required
Total amount of overheads to be absorbed if
i) Costs are absorbed on per unit basis
ii) Costs are absorbed on labor hour basis

Question 7

You have been given the following data:

Rs
Direct Material 240,000
Direct Labour 1,680,000
Depreciation 600,000
Indirect Wages 150,000

The data for the production during the year is given as under:

Products Production(Units) Direct Labour Hours per Machine Hours per

unit unit
A 12,000 6 2
B 20,000 7 3
C 45,000 9 4

A. Calculate the single overhead absorption rate on the basis of:

1. labour hours
2. Units Produced
3. Machine hours

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Question 08

Apollo Industries apportioned its overheads using the following bases:

i) Direct material cost iv) Machine values

ii) Direct labour cost v) Area in square meters
iii) Machine hours vi) Number of employees in the department

You have been requested by the Production Manager to reassess the overhead apportionment
basis. You are required to provide an appropriate basis for each of the following overheads:

1. Rent and property tax

2. Repair and maintenance
3. Electric power
4. Direct material handling
5. Indirect materials
6. Indirect labour wages
7. Workmen canteen expenses
8. Insurance
9. Medical insurance
10. Factory security

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Question 09

Allocation of service department overheads to Production Departments

Question 10
The budgeted data is given as follows:
Production Production Production Service Service
Department Department Department Department Department
A B C A B
Direct Material Rs 500,000 Rs 400,000 Rs 200,000 Rs 400,000 Rs 300,000
Overheads costs Rs 250,000 Rs 375,000 Rs 400,000 Rs 200,000 Rs 75,000
Services provided 10% 50% 40% ---------------- ---------------
by SD A
Services provided 30% 20% 40% 10% ----------------
by SD B

REQUIRED
Allocate the costs of service departments to the production departments.

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Question 11
The budgeted data is given as follows:
Production Production Production Service Service
Department Department Department Department Department
A B C A B
Direct Material Rs 500,000 Rs 400,000 Rs 200,000 Rs 400,000 Rs 300,000
Overheads costs Rs 250,000 Rs 375,000 Rs 400,000 Rs 200,000 Rs 75,000
Services provided 10% 30% 40% ---------------- 20%
by SD A
Services provided 30% 20% 40% 10% ----------------
by SD B

Required
Allocate the cost of service departments to the production departments using:
Simultaneous Equation Method
Repeated Distribution Methods
Direct Method

Question 12
There are two production departments i.e. F and G while two service departments. Total
allocated and apportioned general overheads for each department are as follows.

F G Canteen Maintenance
Rs125,000 Rs80,000 Rs20,000 Rs40,000
Canteen and Maintenance perform services for both production departments and Canteen also
provides services for Maintenance in the following proportions.

F G Canteen Maintenanc
e
% of Canteen to 60 25 - 15
% of Maintenance 65 35 - -
to
Required
What would be the total overheads for production department G once the service department
costs have been apportioned?

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Question 13
The budgeted data is given as follows:
Production Production Production Service Service
Department Department Department Department Department
A B C A B
Direct Material Rs 100,000 Rs 600,000 Rs 1240,000 Rs 4210,000 Rs 213,000
Overheads costs Rs Rs 1,375,000 Rs 400,000 Rs 120,000 Rs 123,000
1,250,000
Services provided 5% 30% 35% ---------------- 30%
by SD A
Services provided 30% 20% 40% 10% ----------------
by SD B

Required
Allocate the cost of service departments to the production departments using:
Simultaneous Equation Method
Repeated Distribution Methods
Direct Method

Question 14
A manufacturing company has two production departments, P1 and P2 and two service
departments, S1 and S2. The following information is available.

Apportion the overheads to the two production departments.

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Question 15 (Apportionment where service department use each other’s services)

Method # 1 Repeated distributions method
- Keep on repeating the apportionment action unless a very negligible amount is left behind.
- Rounding off matters are not subject to penalty in exams (the answers may vary a bit)
- Start with any one of the two departments

A manufacturing company has two production departments, Machine and Assembly, and two
service departments. Repairs and Quality Control. The following information is available.

Question 16 (Apportionment where service department use each other’s services)

Method # 2 Simultaneous equations method

- Form two equations using basic mathematic concepts for service departments
- Solve simultaneously

Use data as in Question # 7 and solve the question using simultaneous equations method.

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Question 17

ADVANCED QUESTIONS
Question 18

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Question 19

Department Wise Overheads

Question 20
A company has two production departments and one service department for which following
data is given:
Production Production Service Department
Department A Department B
Depreciation for Rs 900,000 Rs 500,000 Rs 500,000
machinery
Indirect Material Rs 100,000 Rs 75,000 Rs 65,000
Direct Labour hours 45,000 hours 40,000 hours --------------------
worked
Service Provided by 60% 40%
service department
Calculate
Department wise overhead absorption rate

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Question 21
The budget for the year ended 31 Dec 2021 has been prepared as follows:
Production Production Service Total(Rs)
department A department B department
Direct 365,000 46,000 411,000
Material(rs)
Power ------------------ ---------------- ---------------- Rs
400,000
Light and heat ---------------- ---------------- ---------------- Rs
100,000
Warehousing ---------------- ---------------- ---------------- Rs
Cost 900,000
Rent and rates ---------------- ---------------- ---------------- Rs
350,000
OTHER DATA
Floor 2,000 500 500 3,000
Area(m2)
Machine 25,000 15,000 40,000
hours
No of 8 2 3 13
employees
Net book 20,000 8,000 4,000 32,000
Value of
Assets
Direct Labour 12,000 8,000 6,000 26,000
hours
70% of service departments time is utilized in maintenance of machinery whereas remaining
time is consumed in cleaning and maintenance of building
Required
Calculate department wise overhead absorption rate

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Question 22
The budget for the year ended 31 Dec 2021 has been prepared as follows:
Production Production Service Total(Rs)
department A department B department
Direct 365,000 46,000 411,000
Material(rs)
Power ------------------ ---------------- ---------------- Rs
900,000
Light and heat ---------------- ---------------- ---------------- Rs
200,000
Warehousing ---------------- ---------------- ---------------- Rs
Cost 800,000
Rent and rates ---------------- ---------------- ---------------- Rs
700,000
OTHER DATA
Floor 2,000 500 500 3,000
Area(m2)
Machine 25,000 15,000 40,000
hours
No of 8 2 3 13
employees
Net book 20,000 8,000 4,000 32,000
Value of
Assets
Direct Labour 12,000 8,000 6,000 26,000
hours

65% of service departments time is utilized in maintenance of machinery whereas remaining

time is consumed in cleaning and maintenance of building
Required: Calculate department wise over/under absorbed overheads

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Question 23
Following data has been given
Production Production
Budget dept. A dept. B
Overhead cost Rs36,000 Rs5,000
Direct materials cost Rs32,000
Direct labour cost Rs40,000
Machine hours 10,000
Direct labour hours 18,000
Units of production 1,000
Required
Calculate the department wise absorption rate on the basis of most suitable basis

Question 24
A company has two production departments and one service department for which following
data is given:
Production Production Service Department
Department A Department B
Depreciation for Rs 120,000 Rs 123,456 Rs 312,149
machinery
Indirect Material Rs 70,000 RS 25,000 Rs 75,000
Direct Labour hours 39,000 hours 21,000 hours --------------------
worked
Service Provided by 90% 10%
service department

Calculate
Department wise overhead absorption rate

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Question 25
A manufacturing company has two service departments A and B. It also has one service
department, canteen.
The overheads for each of the department are as shown below:
Department A - Rs. 100,000
Department B – Rs. 200,000
Canteen – Rs. 30,000

The canteen costs are to be apportioned on the basis of number of employees. Department A
has 20 employees whereas Department B has 10 employees.
The overhead rate for department A is to be calculated on the basis of machine hours, which
are in total 120.
The overhead rate for department B is to be calculated on the basis of direct labour hours,
which are in total 210.
Required
Compute overheads absorption rate for each department.

Question 26
The names of each department and overheads are as follows
Department A – Rs. 100,000
Department B – Rs. 200,000
Canteen – Rs. 35,000
Quality control – Rs. 15,000

75% of QC departments time is spent on Department A and 25% is spent on Department B.

The number of employees in department A, B and Quality control are 10, 20 and 5.
Required
Compute total (apportioned) overheads for department A and department B before the
department wise overheads absorption rate is calculated.

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ADVANCE QUESTIONS
Question 27

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Question 28

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Question 29

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Question 30

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Question 31

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Question 32

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Question 33

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Under/Over-applied Overheads
Question 34
Budgeted Labour Hours 45,000 hours
Budgeted Overheads Rs 400,000
Actual Overheads Rs 500,000
Actual Labour hours 40,000 hours
Required
Calculate the under/over applied overheads

Question 35
A manufacturing company uses a machine hour rate to absorb production overheads, which
were budgeted to be Rs. 261,000 for 18,000 machine hours’ Actual overheads incurred were Rs
256,960 and 17,600 machine hours were recorded.
Required
What was the total under absorption of production overheads?

Question 36
An organization absorbs overheads on a machine hour basis. The planned level of activity for
last month was 60,000 machine hours with a total overhead cost of Rs.495000 Actual results
showed that 56 000 machine hours were recorded with a total overhead cost of Rs.476 000.
Required
What was the total under absorption of overheads last month?

Question 37
A cost center has an overhead absorption rate of Rs.8.5 per machine hour, based on a budgeted
activity level of 24 800 machine hours.
In the period covered by the budget, actual machine hours worked were 2% more than the
budgeted hours and the
actual overhead expenditure incurred in the cost center was Rs.112778.
Required
What was the total over or under absorption of overheads in the cost center for the period?

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Question 38

A company uses an overhead absorption rate of Rs.7.00 per machine hour, based on 64,000
budgeted machine hours for the period. During the same period the actual total overhead
expenditure amounted to Rs. 435,500 and 60,000 machine hours were recorded on actual
production.
Required
By how much was the total overhead under or over absorbed for the period?

Question 39
The actual and Budgeted data for ABC company for the year to 31 March 2021 are as follows.

Budgeted Actual
Direct labour hours 9,000 9,900
Direct wages Rs34,000 Rs35,500
Machine hours 10,100 9,750
Direct materials Rs55,000 Rs53,900
Units produced 120,000 122,970
Overheads Rs63,000 Rs61,500

Overhead is absorbed on the basis of Labour Hours.

Required
Calculate the amount of under– or over-absorbed overheads

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Question 40

The budget for the year ended 31 Dec 2021 has been prepared as follows:
Production Production Service Total(Rs)
department A department B department
Direct 267,000 50,000 317,000
Material(rs)
Power ------------------ ---------------- ---------------- Rs
450,000
Light and heat ---------------- ---------------- ---------------- Rs
250,000
Warehousing ---------------- ---------------- ---------------- Rs
Cost 700,000
Rent and rates ---------------- ---------------- ---------------- Rs
450,000
OTHER DATA
Floor 1,000 500 500 2,000
Area(m2)
Machine 12,500 7,500 20,000
hours
No of 8 2 3 13
employees
Net book 10,000 4,000 2,000 16,000
Value of
Assets
Direct Labour 6,000 4,000 10,000 20,000
hours
Actual Rs 1,622,500 Rs 737,500
Overheads(Rs)

25% of service departments time is utilized in maintenance of machinery whereas remaining

time is consumed in cleaning and maintenance of building

Required
Calculate department wise over/under absorbed overheads

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ADVANCE QUESTIONS
Question 41

Question 42

Question 43

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Question 44

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Question 45
Hi-way Engineering Limited uses budgeted overhead rate for applying overhead to production
orders on a direct labour cost basis for department A and on a machine hour basis in
department B.
The company made the following forecasts for August 2006:
Deptt. A Deptt. B
Budgeted Factory Overhead (Rs.) 216,000 225,000
Budgeted direct Labour (Rs.) 192,000 52,000
Budgeted machine hours 500 10,000

During the month, 50 units were produced in Job no. CNG-011. The job cost sheet for the
month depicts the following information:
Deptt. A Deptt. B
Material issued (Rs.) 1,500 2,250
Direct labour Cost (Rs.) 1,800 1,250
Machine Hours 60 150

Actual data for the month were as follows:

Deptt. A Deptt. B
Factory overhead (Rs.) 240,000 207,000
Direct labour Cost (Rs.) 222,000 50,000
Machine Hours 400 9,000

Required:
(a) Compute predetermined overhead rates for each department.
(b) Work out the total costs and unit cost of Job no. CNG-011.
(c) Compute the over / under applied overhead for each department.

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Allocation of Overheads to products

Question 46

You have been given the following data:

Rs
Direct Material 240,000
Direct Labour 1,680,000
Depreciation 1,200,000
Indirect Wages 300,000

The data for the production during the year is given as under:

Products Production(Units) Direct Labour Hours per

unit
A 24,000 6
B 40,000 7
C 90,000 9

a. Calculate the single overhead absorption rate on the basis of: labour hours
b. Continuing from part (a) above allocate the overhead costs to each product

Question 47
A company is involved in the production of two products X and Y
The actual overheads for two production departments A and B were Rs 100,000 and Rs.
150,000 respectively. Department A worked 70% of its total time to produce X while 30% of the
time for Y.
Department B worked 60% of its total time to produce X while 40% of the time for Y.
Required
Allocate actual overheads to both the products

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Question 48
A manufacturing company has two production departments. Each department is involved in
making two products, X and Y. Information about costs and production volume in the year is
shown below:
Production Departments Products
Department Department Product Product
P1 P2 X Y
Overhead Costs Rs. 60,000 Rs. 90,000
Direct labour
hours/unit:
Product X 0.5 hours 2 hours
Product Y 3.5 hours 1.5 hours
Units Produced 2,000 4.000

Required:
Calculate the total production overhead cost/unit for Product X and Product Y using:
(1) Separate departmental overhead rates for department P1 & P2
(2) a single absorption rate for the entire factory.

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Question 49

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Question 50

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Question 51

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Question 52

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Calculating amount of Overheads from given data

Question 53
For two products A and B Following data has been given:
A B
Sales Rs 153,750 Rs 173,000
Profit 20% of selling price
Direct Material Rs 60,000 Rs 80,000
Direct Labour Rs 40,000 Rs 32,000

Production Overheads and Admin Overheads are expressed as a percentage of Direct Material
and Direct Labour respectively.
Required
Calculate the amount of production and admin overheads.

QUESTION 54

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“DECISION MAKING”

Limiting Factor and Make or Buy

Question 1

Requirement
Which machine is the limiting factor?

Question 2

Requirement
What is the optimal production plan?

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Question 3

Requirement:
Prepare the optimal production plan

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Question 4

Requirement:
Prepare the optimal production plan

Question 5

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Question 6
A company has the following production planned for the next four weeks. The figures reflect
the full capacity level of operations. Planned output is equal to the maximum demand per
product.
Product A B C D
$ per unit $ per unit $ per unit $ per unit

Selling price 160 214 100 140

Raw material cost 24 56 22 40

Direct labour cost 66 88 33 22

Variable overhead cost 24 18 24 18

Fixed overhead cost 16 10 8 12

Profit
30 42 13 48

Planned output 300 125 240 400

Direct labour hours per unit 6 8 3 2

It has now been identified that labour hours available in the next four weeks will be limited to
4,000 hours.
Required
In what order should the products be manufactured, assuming that the company wants to
maximize profits in the next four weeks?

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Question 7

Question 8

Required

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Advance Questions
Question 9
A market gardener is planning his production for next season and has asked you as a cost
accountant to recommend the optimal mix of vegetable production for the coming year. He has
given you the following data relating to current year.

Potatoes Turnips Parsnips Carrots

Area occupied (acres) 25 20 30 25
Yield per acre (tonnes) 10 8 9 12
Selling price per tonne (Rs) 100 125 150 135
Variable Cost per acre (Rs)
- Fertilizers 30 25 45 40
- Seeds 15 20 30 25
- Pesticides 25 15 20 25
- Direct wages 400 450 500 570

Fixed overhead per annum Rs. 54000

The land that is being used for the production of carrots and parsnips can be used for either
crop but not for potatoes or turnips. The land being used for potatoes and turnips can be used
for either crop, but not for carrots or parsnips. In order to provide an adequate market service,
the gardener must produce each year at least 40 tonnes each of potatoes and turnips and 36
tonnes each of parsnips and carrots.
(a) You are required to present a statement to show:
(i) The profit for the current year.
(ii) The profit for the production mix that you would recommend.
(b) Assuming that the land could be cultivated in such way that any of the crops could be
produced and there was no market commitment, you are required to:
(i) Advise the market gardener on which crop he should concentrate his
production;
(ii) Calculate the profit if he were to do so;
(iii) Calculate in rupees the break-even point of sales.

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Question 10

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Question 11
A company manufactures two products (X and Y) in one of its factories. Production capacity is
limited to 85,000 machine hours per period. There is no restriction on direct labour hours.
The following information is provided concerning the two products:
Product X Product Y
Estimated demand (000) units 315 135
Selling price (per unit) Rs. 11.20 Rs. 15.70
Variable Costs (per unit) Rs. 6.30 Rs. 8.70
Fixed Costs (per unit) Rs. 4.00 Rs. 7.00
Machine Hours (per 000 units) 160 280
Direct Labour hours (per 000 units) 120 140

FOH is absorbed into unit costs at a rate per machine hour based upon.
Required:
(a) Calculate the production quantities of Product X and Y which are required per period
in order to maximize profit in the situation described above.

(b) Prepare a marginal costing statement in order to establish the total contribution of
each product and the net profit per period based on selling the quantities calculated in
(a) above.

(c) Calculate the production quantities of Product X and Y per period which would fully
utilize both machine capacity and direct labour hours, where the available direct
labour hours are restricted to 55,000 per period. (The limit of 85,000 machine hours
remains).

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Question 12
Sub-way Furnishers (Pvt.) Limited manufactures three garden furniture products – Chairs,
Benches and Tables. The budgeted data of each of these items is as under:
Chairs Benches Tables
Budgeted Sales Volume 4,000 2,000 1,500
Selling price per unit (Rs.) 3,000 7,500 7,200
Cost of Timber per unit (Rs.) 750 2,250 1,800
Direct Labour per unit (Rs.) 600 1,500 1,600
Variable overhead per unit 450 1,125 1,200
(Rs.)
Fixed overhead per unit (Rs.) 675 844 1,350

The budgeted volume was worked out by the sales department and the management of the
company is of the view that the budgeted volume is achievable and equal to the demand in the
market.
The fixed overheads are allocated to the three products on the basis of direct labour hours.
Production department has provided the following information:
Direct Labour rate Rs. 40 per hour
Cost of Timber Rs. 300 per cubic meter

A memo from Purchase manager advises that because of the problem with the supplier only
25,000 cubic meters of timber shall be available.
The Sales Director has already accepted an order for the following quantities which if not
supplies would incur a financial penalty of Rs. 200,000.
Chairs 500
Benches 100
Tables 150

These quantities are included in the overall budgeted volume.

Required:
Work out the optimum production plan and calculate the expected profit would arise on
achievement of this plan.

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Question 13

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Question 14

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Question 15

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Question 16
Susan Limited produces 2 products namely, Yoyo and Koko. Both the products use same labor
force which is restricted to 38,000 hours per month. Yoyo takes two hours per unit whereas,
Koko takes 1 hour per unit. Total estimated manufacturing and selling cost of the products are
as under:

Production Yoyo Koko

Units 6,000 8,000 20,000 24,000
Cost per month 850,000 1,050,000 1,600,000 1,840,000

The company is considering pricing options. It has estimated sales demand at various selling
prices as under:
Yoyo Koko
Selling Price Units Demand Selling Price Units Demand
138 6,000 81.50 20,000
136 7,000 81.00 21,000
134 8,000 80.50 22,000
132 9,000 80.00 23,000
130 10,000 78.00 24,000
127 11,000 76.00 25,000

Required
1. Find the optimal sales mix, considering that the labor force is unlimited in supply.
2. Find the optimal sales mix, considering the labor force as restricted to 38,000 units.

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Question 17

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Question 18

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Question 19

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Question 20

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Question 21

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Question 22
The management term at MN limited is considering the budgets it prepared for the year ending
31. December 20X3. It has now been revealed that in June 20X3 the company will be able to
product only 10,000 liter of material Q (all other resources will be fully available). In the light of
new information, the management team wants to revise its plants for June to ensure that profit
is maximized for that month.
MN limited can product, three products from the same labor and main raw material Q, though
different amount are required for each product. The standard resource requirement, cost are
selling and prices, and the customer demand for delivery in June (including those order already
accepted) for each of his finished product are as follows.
Product V Product S Product T
Resources per unit :
Material Q 10 liters 8 liters 5 liters
Direct labor 8 hour 9 hour 6 hour
Selling price and cost RS per unit RS per unit RS per unit
:
Selling price 145.00 134.00 99.00
Material Q 25.00 20.00 12.50
Other material 10.00 4.00 8.50
Direct labor 40.00 45.00 30.00
Overhead :
Variable 10.00 11.25 7.50
Fixed * 24.00 30.00 12.00
109.00 110.25 70.50
Costumer demand 1,100 units 950 units 1,450 units
*based on budgeted cost of RS 95,000 per month.
MN limited has already accepted costumer order for delivery in June 20X3 as follows:
Product V 34 units
Product S 75 units
Product T 97 units
The management team has decided that these costumer orders must be satisfied as the
financial and non- financial penalties that would otherwise arise are very significant. Given the
Shortage of material Q, the management team has now set the following stock level for June.
Opening stock Closing stock
Material Q** 621 liters 225 liters
Product V 20 units 10 units
Product S 33 units 25 units
Product T 46 units 20 units
** This would mean that 10,396 liters of material Q would be available during the period.
Required: Prepare a production budget for June 20X3 that clearly shows the number of units
of each product that should be produced to maximize the profits of limited for June 20X3

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Question 23
Harvey is currently preparing its budget for the year ending 30 September 20X2. The Company’s
manufactures and sells three product, beta, delta and gamma. The unit selling price and cost
structure of each product is budget as follows.
Beta (Rs.) Delta (Rs.) Gamma (Rs.)
Selling price 100 124 32
Variable costs:
Labor 24 48 6
Material 26 7 8
Overhead 10 5 6
60 60 20

Direct labor rate is budgeted at RS 6 per hour and fixed costs at RS 1,300,000 per annum. The
Company has a maximum production capacity of 228,000 direct labor hours. A meeting of the
board of directors has been convened to discuss the budget and to resolve the problem as to
the quantity of each product which should be made and sold. The sales director presented the
result of a recent market survey which reveals that market demand the company’s product will
be as follows.
PRODUCT UNIT
Beta 24000
Delta 12000
Gamma 60000

The production director proposes that since Gamma only contribution Rs 12 per units, the
product should no longer be produced and the surplus capacity transferred to produce
additional quantities of Beta and Delta. The sales director does not agree with the proposal.
Gamma is considered necessary to complement the product range and to maintain customer
goodwill. If Gamma is not offered, the sales director believes that sales of Beta and Delta will be
seriously affected. After further discussion the board decided that a minimum of 10,000 units of
each product should be produced. The remaining production capacity would then be allocated
so as to achieve the maximum profit possible.

Required:
Prepare a budget statement which clearly shows the maximum profit which could be
achieved in the year ending 30september 20X2

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Question 24
FB Company produces 3 products X, Y and Z. FB is facing problem with its cash flows and in the
current month only Rs. 1,300,000 will be available for production. Other data of the products
is as follows:
Products X Y Z
Per unit:
SP 95 110 95
Labor (Rs 20/hour) 40 60 30
Other variable cost 20 20 25
Fixed cost 15 22.5 11.25

Units demand 4,000 8,000 6,000

Opening inventory 1,000 2,000 1,500
Ending required 1,100 1,500 950

Fixed cost is absorbed on the products on labor hours. Budgeted hours for the month are
40,000.
Required:
Production plan for the month.

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Question 25

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Question 26

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Question 27
AY Ltd produces two products Ala and Umda from the same material which is in short supply
and during the year only 350,000 kgs are available. Ala uses 4 kgs and Umda uses 6 kgs per unit.
Estimated cost of production is as follows:
Products Ala Umda
Units 2,000 6,000 4,000 8,000
Cost per month 1,000,000 1,800,000 800,000 1,300,00

Selling prices at different sales demands are as follows:

Ala Umda
SP Units SP Units
276 12,000 163 40,000
272 14,000 162 42,000
268 16,000 161 44,000
264 18,000 160, 46,000
260 20,000 156 48,000

Required:
 Find the optimal sales mix if material is in unlimited supply.
 Find the optimal sales mix if only 350,000 kgs are available.

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Question 28

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Question 29
HN produces and markets three products viz. Aba, Cada and Dada. Following information is
available from HN’s records for the manufacture of each unit of these products:
Aba Cada Dada
Selling price 33 44 53
Material-A (Rs.2 per kg) (Rs.) 4 0 6
Material-B (Rs.) 6 9 12
(Rs.3 per kg)

Direct labor (Rs. 5 per hour) (Rs.) 12.5 15 12.5

Variable overhead based on:
− Labor hours (Rs.) 0.75 0.9 0.75
− Machine hours (Rs.) 0.53 0.52 0.51
Total (Rs.) 1.28 1.42 1.26
Other data:
Machine hours 4 3.5 3
Maximum demand per month (units) 450 1,500 2,500

Additional information:
(i) HN is also engaged in the trading of a fourth product Bata, which is very popular in the
market and generates a positive contribution. HN currently purchases 300 units per
month of Bata from a supplier at a cost of Rs. 20 per unit. In-house manufacture of Bata
would require:
1.25 kg of material-B, 0.5 hour of direct labor and 1 machine hours.
(ii) Materials A and B are purchased from a single supplier who has restricted the supply of
these materials to 11,000 kg and 17,000 kg per month respectively. This restriction is
likely to continue for the next 8 months.
(iii) HN has recently accepted a Government order for the supply of 100 units of Aba, 150
units of Cada and 200 units of Dada each month for the next 8 months. These quantities
are in addition to the maximum demand stated above.
(iv) There is no beginning or ending inventory.
Required
Determine whether HN should manufacture Bata internally or continue to buy it from the
supplier during the next 8 months.

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Question 30
Galaxy Engineers (GE) manufactures and sells a wide range of products. One of the raw materials XPI is in
short supply and only 80,000 kg are available in GE's stores. Following information pertains to the products in
which XPI is used:
Product A Product B Product C
Budgeted local sales/requirement Units 4,500 1,000 2,500
Committed export sales as per agreement
Units - 800 -
------------------ Per unit ------------------
Sales price Rs. 20,000 14,100 For internal use
Material XPI (Rs. 500 per kg) kg 14 12 2
Other material (Rs. 300 per kg) kg 5 3 1
Direct labor hours (Rs. 100 per hour) hours 20 15 5
Variable overheads based on labor cost % 80% 80% 80%
Fixed overheads per direct labor hour Rs. 95 75 60

Product C is used in other products made by GE. If it could not be produced internally, it has to be purchased
from market at Rs. 3,000 per unit.

Required:
Determine the number of units of each product that should be manufactured, to earn maximum profit.

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Question 31
Miller Company has realized a significant increase in demand for its products and is presently
producing at a full capacity level of 100,000 units. The company is considering expanding
output to 125,000 units by adopting of one of the following alternatives.
1. The additional 25,000 units could be purchased from an outside source at a price of Rs.7
per unit.
2. The company could expand its production capacity, which would result in added direct
fixed expenses of Rs. 60,000 per year.
The company’s sales and cost data at the 100,000 unit level of output are:
Rs.
Sales 750,000
Direct material 100,000
Direct labor 150,000
Variable Overhead 50,000
Direct fixed Overhead 250,000
Allocated fixed overhand 75,000
Net income 125,000

Common fixed costs allocated to production would increase from Rs. 75,000 to Rs. 95,000 since
the common fixed overhead is allocated on the basis of sales volume, although the firm’s total
common fixed costs would not increase under either alternative.
Required:
Which of the two alternatives should the company adopt?

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Question 32
Binary Limited manufactures and sells rams. The present cost to manufacture a ram is as
follows:
Rupees
Direct material 220
Direct labor 105
Variable overheads 30
Fixed overheads:
Depreciation 30
General overheads 15
Total cost per unit 400

The company manufactures 200,000 units annually. The equipment being used for
manufacturing ram has worn out completely and requires replacement. The company is
presently considering the following options:

(A) Purchase new equipment which would cost Rs. 120 million and have a useful life of
three years with no salvage value. The company uses straight-line method of
depreciation. The new equipment has the capacity to produce 300,000 units per
year. It is expected that the use of new equipment would reduce the direct labor by
5% and variable overhead cost by 10%.
(B) Purchase from an external supplier at Rs.365 per unit under a two year contract
The total general overheads would remain the same in either case. If the Company starts
purchasing from supplier it can rent out a part of premises at yearly rent of 2M.
Required
(a) Which course of action would you recommend to the company assuming that 200,000
units are needed each year? (Show all relevant calculations)
(b) What would be your recommendation if the company’s annual requirements were
300,000 units?

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Question 33

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Question 34
A firm needs a component in an assembly operation. If it wants to do the manufacturing itself,
it would need to buy a machine for Rs.4 lakhs, which will last for 4 years with no salvage value.
Manufacturing costs in each of the four years will be Rs. 6 lakhs, Rs.7 lakhs, Rs. 8 lakhs and Rs.
10 lakhs respectively. If the firm had to buy the component from the supplier, the cost would
be Rs. 9 lakhs, Rs.10 lakhs, Rs. 11 lakhs and Rs. 14 lakhs respectively in each of the four years.
However, the machine would occupy floor space, which would have been used for another
machine. This latter machine would be hired at no cost to manufacture an item, the sale of
which would produce net cash flows in each of the four years Rs. 2 lakhs. It is impossible to find
room for both the machines and there are no other external effects. The cost of capital is 10%.
Required:
Should the firm make the component or buy from outside?

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Question 35
Panchawati cement limited produces “43 grade cement” for which the company has an assured
market. The output for the year has been budgeted at 180,000 units at 90% capacity utilization.
The cost sheet based on output per unit is as follows:
Particulars Rs
Sp 130
Direct material 30
Component EH one unit 9.4
Wages (7per hour) 28
Factory OH (50% fixed) 24
Selling and Admin (75% variable) 16
Administrative OH 5

The Factory OH is applied on the basis of direct labor hours.

The company is presently producing component EH which is used in “43 grade cement”. The
cost data for 15000 units is as follows:
Particulars Rs.
Material 30,000
Labor 52,500
Variable OH 25,500
Fixed OH 33,000
Total 1,41,000

EH is available in the market at Rs.7.9/u. If the company starts buying EH from outside it can
either:
 Rent out released capacity at Re.1/hr
 Manufacture GYP which can be sold in the market at Rs. 8/u.
The cost data for 15000 units of GYP is:
Particulars Rs.
Material 42,000
Labor 31,500
Variable OH 13,500
Fixed OH 25,500
Total 1,12,500
Required:
Whether EH should be purchased or manufactured?
Which alternative should company adopt if it is decided to buy EH from market?

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Question 36

Required:
(a) Assume that if Gujrat Engineering Ltd., purchases spindles from outside vendor,
thefacility (including workers) where the spindles are currently manufactured will
remain idle. Should the company accept the offer from outside vendor at the
anticipated production and sale volume of 24,000 units?
(b) Whether your decision in (a) above will change if facilities can be used to upgrade the
washing machine which will result in an incremental revenue of Rs. 550 per machine.
The variable cost of upgrading would be Rs. 450 and tooling cost would be Rs.
400,000.
(c) Assume that facilities will be used as stated in (b) above. Further, assume that with
better planning, Gujrat Engineering Ltd., will be able to manufacture these spindle in
the batch size of 4,000 units (instead of 2,000 units), if it decides to produce spindles
in-house. What will you advise? Show all workings

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Question 37

The numbers of flights and above costs are expected to remain unchanged in the foreseeable
future, if the airline continues to operate locally. Contractual direct cost will be made
redundant.
No redundancy cost will be incurred. Non-contractual direct cost and variable overhead are
avoidable and fixed overhead would be reduced by Rs. 100,000 per annum and allocated other
overheads will remain unchanged, if local operations got outsourced. Vacant facilities after
outsourcing will generate a cash flow of Rs. 800,000 per annum. Blue Shine Limited, a local
airline, has offered to operate required number of flights per annum at a price of Rs. 170,000
per flight.

Required:
Would you recommend the outsourcing to local operations of Blue Shine Limited?
Substantiate your answer with analyses.

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Capacity Related Decisions

Advance Questions
Question 38

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Question 39

Question 40
AS a result of an expansion program, Whitworth Enterprises has excess capacity of 20,000
machine hours, which is expected to be absorbed by the domestic market in a few years. The
company has received inquiries from two companies located in another country. One offers to
buy 210,000 units of product F-W at Rs.0.60 per unit; second offers to buy 300,000 units of
product D-FW at Rs.0.70 per unit. Whitworth Enterprises can accept only one of these two
offers.
The standard costs for these products are as follows:
F-W D-FW
Materials 0.25 0.35
Direct labor 0.10 0.12
Factory overhead 0.20 0.28
Total standard cost 0.55 0.75

Factory overhead is applied on a machine hour basis at Rs.5.60 per hour; 75% of the factory
overhead is estimated to be fixed. No marketing and administrative expenses would be
applicable to either order; transportation charges are to be paid by the buyer.

Required:
The order that should be accepted?

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Shut Down
Question 41
Company V makes four products, P, Q, R and S. The budget for next year is as follows:

P Q R S Total
Rs.000 Rs.000 Rs.000 Rs.00 Rs.000
Direct materials 300 500 400 0700 1,900
Direct labor 400 800 600 400 2,200
Variable overheads 100 200 100 100 500
800 1,500 1,100 1,200 4,600
Sales 1,800 1,650 2,200 1,550 7,200
Contribution 1,000 150 1,100 350 2,600
Directly attributable fixed (400) (250) (300) (300) (1,250)
costs
Share of general fixed costs (200) (200) (300) (400) (1,100)
Profit/(loss) 400 (300) 500 (350) 250

‘Directly attributable fixed costs’ are cash expenditures that are directly attributable to
each individual product. These costs would be saved if operations to make and sell the
product were shut down.
Requirement
Decision would be required regarding whether any of the products should be withdrawn from
the market.

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Question 42
The Euro Company is a wholesaler who sells its products to retailers throughout Europe. Euro’s
headquarters is in Brussels. The company has adopted a regional structure with each region
consisting of 3 – 5 sales territories. Each region has its own regional office and a warehouse
which distributes the goods directly to the customers. Each sales territory also has an office
where the marketing staff are located. The Scandinavian region consist of three sales territories
with offices located in Stockholm, Oslo and Helsinki. The budgeted results for the next quarter
are as follows:

Stockholm Oslo Helsinki Total

(Rs. 000) (Rs. 000) (Rs. 000) (Rs, 000)
Cost of goods sold 800 850 1000 2650
Salesperson Salaries 160 200 240 600
Sales office rent 60 90 120 270
Depreciation of sales office 20 30 40 90
equipment
Apportionment of warehouse 20 6 22 58
equipment
Regional and headquarters costs
- Cause and effect allocations 120 152 186 458
- Arbitrary apportionments 360 400 340 1100
Total costs assigned to each 1564 1762 1972 5298
location
Reported profit / (loss) 236 238 (272) 202
Sales 1800 2000 1700 5500

Assuming that the above results are likely to be typical of future quarterly performance should
Helsinki territory be discontinued?

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Question 43

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Question 44

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Question 45

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Question 46

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Question 47

Proposals:
(a) Close down Sialkot factory and expand the operations of the Faisalabad factory for which capacity is
existed there. This proposal will involve the following changes:
(i) Sales revenue of Faisalabad factory will increase by 25%
(ii) The factory fixed cost of Faisalabad factory will increase by 10%
(iii) Fixed selling and administrative costs of the said factory will increase by 5%
(iv) Variable distribution costs of the additional output will increase by Rs. 600 per unit.

(b) Close down Sialkot factory and expand the operations of the Shaikhupora factory subject to the
following changes in the result of Shaikhupora factory:
(i) Sales revenue will increase by Rs. 1,200 million
(ii) Factory fixed costs will increase by 20%
(iii) Fixed selling and administrative costs will increase by 10%
(iv) Variable distribution costs in respect of the additional units will increase by Rs. 750 per unit.
(c) Close down Sialkot factory and enter into a long-term contract with an independent manufacturer to
serve the customers of Sialkot factory. The manufacturer will pay the royalty of Rs. 750 per unit to
the company. In that event the sales of the area served by the Sialkot factory will fall by 25%.
(d) Close down Sialkot factory and discontinue serving the present customers of the area.

Required: Evaluate each of the above proposals and advise the management for the action to be taken in
the interest of improving profitability of the company.

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Question 48

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Question 49

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Further Processing
Question 50
A company produces two joint products from a common process. For every 100 kilograms
of input to the common process, output consists of 40 kilograms of joint product 1 (JP1)
and 60 kilograms of joint product 2 (JP2). The costs of the common process are Rs.400 per
100 kilograms of input.
JP1 can be sold for Rs.10 per kilogram and JP2 can be sold for Rs.16 per kilogram.
Alternatively, JP1 can be processed to make a finished product, FP1. Costs of further
processing consist of variable costs of Rs.6 per kilogram and fixed costs of Rs.120,000 per
year. Of these fixed costs, Rs.96,000 would be directly attributable to the further
processing operations, and the remaining Rs.24,000 would be an apportionment of
general fixed overhead costs. The further processed product (FP1) would have a selling
price of Rs.28 per kilogram.
It is estimated that 15,000 kilograms of JP1 will be produced each year. There are no losses
in any process.
Required
Should JP1 be sold as soon as it is produced from the common process, or should it be further
processed into Product FP1?

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Question 51

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Question 52
A company processes a raw material into five products. In process 1, products AXE BXE are
produced in the ratio 1:1. Product AXE is then processed in process 2 and produced CXE and
DXE. BXE is processed in process 3 and produced EXE.
Product AXE yield products CXE and DXE in the ratio 7:3 CXE is processed further in process 4
after which it is sold at Rs. 18/u. DXE may be sold at SOP at 14.4 or can be further processed in
process 5 and sold at Rs. 20.8/u. EXE can be processed further in process 6 where there is
normal spoilage of 5% occurs which can be sold at Rs. 2/u. EXE can be sold after further process
at Rs. 15.2/u or can be sold at SOP at Rs. 12.52/u.
Cost data is as follows:
Process 1 2 3 4 5 6
Output (Units) 100,000
Variable Costs 541,500 150,000 108,000 130,000 100,000 97,000
(Rs)

Required:
Determine whether DXE and EXE should be further process or not.

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Question 53
ABC produces single product, Zeta from a single production process. Presently, ABC is
considering the following proposals:
 Expansion of the existing facility by installing a new plant
 Installation of a refining plant to sale after refining
To assess the above proposals, following data has been gathered:
(I) Actual cost incurred in the month of December 2017:
Rs. in '000
Direct material 30,000
Variable conversion costs (Rs. 330 per hour) 8,490
Fixed overheads 1,600

(ii) Actual production and selling price for the month of December 2017:
Liters Selling Price
Zeta 11,300 5,000

(iii) There is no process loss.

(iv) Details of the proposed plan are as follows:

Expansion of existing Installation of
facility refining plant
Capacity in machine hours per month 5,000 5,000
Rs in ‘000’
Cost of plant and its installation 40,000 40,000
Estimated residual value at the end of life 400 1,800
Estimated useful life of plant 20 20
Estimated additional fixed overheads per 250 500
month

(v) Estimated variable cost of refining and sales price of refined products:
Zeta
Rs. Per Litr
Direct material 180
Conversion cost (250/hr) 140
Selling Price 5,925

(vi) There would be no loss during the refining process.

Required:
Evaluate each of the above proposals and give your recommendations.

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Question 54
ABC company is engaged in the manufacturing of perfumes. The standard perfume is highly
branded and successfully sold at a price of Rs. 39.98 per 100 milliliters (ml). ABC Co is
considering processing some of the perfume further by adding a hormone for male and female.
Research cost incurred by the Co is Rs.3500.
The output selected for further processing is 1,000 litres, about a tenth of the company’s
normal monthly output. Of this, 99% is made up of diluted solvent which costs Rs. 20 per litre.
The rest is a blend of aromatic oils costing Rs. 18,000 per litre. The labor required to produce
1,000 litres of the basic perfume before any further processing is 2,000 hours at a cost of Rs. 15
per hour. Of the output selected for further processing, 200 litres (20%) will be for male
customers and 2 litres of hormone costing Rs. 7,750 per litre will then be added. The remaining
800 litres (80%) will be for female customers and 8 litres of hormone will be added, costing Rs.
12,000 per litre. There is no processing loss.
The Co has sufficient existing machinery to carry out the test processing.
The new processes will be supervised by one of the more experienced supervisors currently
employed by the Co. His current annual salary is Rs.35,000 and it is expected that he will spend
10% of his time working on the hormone adding process during the test month. This will be split
evenly between the male and female versions of the product. Extra labor will be required to
further process the perfume, with an extra 500 hours for the male version and 700 extra hours
for the female version of the hormone-added product. Labor is currently fully employed,
making the standard product. New labor with the required skills will not be available at short
notice. The Co. allocates fixed overhead at the rate of Rs. 25 per labor hour to all products for
the purposes of reporting profits.
Sales price after further process:
Male 75 per 100 ml
Female 60 per 100 ml.

Required:
Should Co. further process or not?

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Question 55
Hassan Chemicals makes four products (A, B, C & D) from an input of raw material to
production department for initial production. Output of each product from initial production
can be sold immediately or it can be further refined and processed in Process 1 for product A ,in
Process 2 for Product B, in Process 3 for Product C and in Process 4 for product D and sold at
higher price.
Scrap value in initial production would be Rs.0.5/Litre.
The Costs incurred during initial production in production department are apportioned to each
product according to the volume of output from initial production. Over heads related to
production can be absorbed as a percentage of direct wages.
Relevant Information related to production is as follows:
Direct Material cost at Rs.1.25/ litre = Rs. 100, 000
Production O/H = Rs. 66,000
Labor Cost related to Initial production and other departments would be as follows:

Production Process 1 Process 2 Process 3 Process 4

Process
Wages (Rs.) 48,000 12,000 8,000 4,000 16,000

Product A B C D
Output (Liters) from initial production 22,000 20,000 10,000 18,000
Products A B C D
Rupees
Selling Price (If further processed) 4 3 2 5
Expected Selling Price (If sold at end of 2.5 2.8 1.2 3
initial production)

Required:
Advice the company which product should be further processed and which should be
immediately sold without further processing.

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Question 56
Akbar Limited produces three products Alpha, Beta and Gama from a single process.
Following information is available:
Material 30,000kg @ 25
Labor 28,900hrs @ 20
FOH 15/Lab hr
Joint cost allocated on the basis of output.

Following details related to output:

Product Output Selling Price

Alpha 60% 95
Beta 22% 175
Gama 18% 52.5

Alpha and beta can be further processed at a fixed cost of Rs 15,000 in the ratio 7:3 and
variable
cost per unit of output is 1.5.
In further process 5% is normal loss. After further process Alpha can be sold at Rs.103 and Beta
at Rs 186.

Required:
Further process or not?

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Question 57

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Question 58
Company caries on process in two processes. Material is passed through process I in and
compound is produced. A loss in weight takes place at start or process. The following data is
given for the month just ended.
Quantity (kgs) Cost (Rs.)
Material 200,000 Material 75,000
Op. WIP 40,000 Processing Cost 102,000
Completed 160,000 Op. WIP 32,000 (Mat 20,000,
processing cost
12,000)
Cls WIP 30,000

Any quantity of compound can be sold at Rs.1.60/kg. Alternatively, it can be further processed
in process II and to be sold as “Super comp” at Rs.2/kg. Material is also added in process II
which yield two kgs of super comp for every kg of process I compound.
Out of 160,000 kgs of compound produced 120,000 kgs are processed further and 40,000 kgs
are sold as compound. In process II max 160,000 kgs can be processed per month. Monthly cost
of process II other than cost of compound is as follows:
Cost element For 120,000 kgs For 160,000 kgs
Material Rs. 120,000 Rs. 160,000
Processing Cost Rs. 120,000 Rs. 140,000

Required:
 Evaluate whether it would be profitable to further process 120,000 kgs of compound.
 If there is a potential buyer can be found of Super comp what would be the minimum
acceptable selling price for 40,000 kgs

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Question 59
A chemical factory process raw material and produce similar products P1, P2 and P3 out of a
joint process. Input of raw material is 5000 kgs. Raw material is purchased at the rate of Rs.
2.4/kg. The product P1, P2 and P3 can be sold at 5, 6 and 6.5 per kgs respectively without
further processing. Normal loss in initial process is 10%.
However, product P1 and P2 can be jointly further processed at Rs.2 per kg of input to get J1.
The further processing cost of J1 is Re.1 per unit of output. Similarly, P2 and P3 can be jointly
further processed at Rs.5 per kg of input to get J2. The further processing cost of J2 is Rs.2 per
unit of output. The normal loss of processing J1 is 5% of input. The selling prices and input
composition is as follows:
Input Output J1 Output J2 Output weight ratio
P1 40% 3
P2 60% 50% 4
P3 50%
Price / kg 10 12

Required:
Which product should be produced J1 or J2?

Question 60

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Question 61

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Question 62

Kamran and company incurs joint production cost of Rs 450,000 for the production of two joint
products, A and B. Both products require further processing before they can be sold. 15,000
units of product A and 3,000 units of product B is produced from this process. Further variable
cost of processing A is Rs 12/u and of B is 15/u. Sales price of A and B is 60 and 45 respectively.
The joint costs of Rs. 450,000 consists of Rs. 315,000 fixed cost and variable cost of Rs 7.5 per
unit of output. A new customer has approached the company with an offer to purchase 900
units of product B at a price of Rs. 37.5.
Required:
Should the company accept this offer under the following situations?
 Extra units of A can be sold at Rs. 4.35/u without further processing.
 Extra units of A can be sold at Rs. 19.5/u with further processing.

Question 63
Hamden and company produces two products X and Y from the same process and a Byproduct
Z is also produced from this process. Joint production cost of Rs 800,000 is incurred for the
production of these joint products. Both products require further processing which is done in
Process 2 before they can be sold. However, Z is sold in the same condition. The joint costs of
Rs. 800,000 consists of Rs. 375,000 fixed cost and variable cost of Rs 8.5 per unit of output. A
new customer has approached the company with an offer to purchase 10,000 units of product
Y at a price of Rs.40. Other details are as follows:
Product Units SP Process 2 cost per
unit of input
X 25,000 18 15
Y 20,000 35 19
Z 5,000 5 --

Further processing loss is 5%

Required:
Should the company accept this offer under the following situations?
 Extra units of X can be sold at Rs. 8/u without further processing.
 Extra units of A can be sold at Rs. 22/u with further processing.

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Other Decisions
Question 64

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Question 65

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Question 66

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Question 67

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Question 68

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Question 69

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Question 70

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Question 71

Required:
Calculate the maximum price that GB should pay for perfect information about the
expansion’s exact effect on MEMBERSHIP NUMBERS.

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Question 72

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Question 73

Question 74
Doda limited produces and markets two products viz. Olive and Mint. Following information is
available from DL’s records for the year ended 30 June 2017:
Olive Mint
Selling price per unit Rs. 760 550
Variable cost of production per unit Rs. 520 430
Selling and distribution expenses per unit Rs. 40 20
Fixed cost Rs. 4,400,000 5,200,000
Number of units produced and sold 120,000 150,000
The above sales volumes are based on the market demand for these products. DL is currently
operating at 75% of the installed capacity. Time required for producing each unit of Olive and
Mint is the same. In order to utilize the spare capacity of the plant, the marketing department
has suggested the following options to the management:
Option 1: Introduce a single pack of both the products Olive and Mint. The price of the
single pack would be 90% of the combined price of separate products. It would
increase overall market demand for these products resulting in utilization of full
capacity. However, it is estimated that the sale of separate units of each product
would reduce by 18%.
Option 2: To launch a new product Salsa at a price of Rs. 380 per unit. Soda is estimated to
have a demand of 80,000 units per annum and a unit variable cost equal to 40%
of the variable cost of Olive. It would result in additional fixed costs of Rs.
3,200,000 per annum.
Required:
Evaluate the above options and advise the management about the
most feasible option.
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Question 75
Print – Fine Company produces and sells ribbon cartridge for electronic printers. The ribbons
are sold to computer dealer for Rs.5.20 each. The firm’s controller has determined that
following cots are currently required for the ribbons:
Rs.
Variable cost per ribbon
Direct material 2.20
Direct labor 0.40
Manufacturing overhead 0.35
Selling 0.05
Total 3.00
Fixed cost per month
Manufacturing overhead 24,000
Selling and administrative 6,000
Total 30,000
The variable selling costs are freight charges incurred to ship the ribbons to the retail outlets.
The firm has the capacity to produce 30,000 ribbons per month with – out working overtime,
although the current production level is only 25,000 ribbons. The company is seeking ways to
better utilization the production capacity and improve its profitability.
Required:
1. Use differential analysis, an importer in South America has offered to buy 5,000
ribbons at a price of Rs.3.80 each. The importer would pay all freight costs, but Print –
Fine estimates that it would require additional selling and administrative expense of
Rs.600 if the offer is accepted.

2. A French importer has offered to buy 8,000 ribbons on a one – time – only basis for
Rs.4 each. The importer would pay all freight costs, but Print – Fine estimates that
additional selling and administrative expenses of Rs.900 would be required with the
offer. Assume that the firm cannot work overtime to increase its production capacity
of 30,000 ribbons.

3. An importer of Chine has offered to buy 6,000 ribbons at Rs.4 each. The importer
would pay all freight costs, but Print – Fine estimates that additional selling and
administrative expenses of Rs.700 would be required with the offer. Assume that the
firm can work overtime to produce any ribbons required in excess of its production
capacity of 30,000. Direct labor costs for ribbons produced during overtime would
increase by 50%.

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Question 76

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Question 77

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Relevant costing
Question 78

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Question 79

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Question 80

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Question 81

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Question 82

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Question 83

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Question 84

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Question 85

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Question 86

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Question 87

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Question 88

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Question 89

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Question 90

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Question 91

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Question 92
You are the management accountant of publishing and printing company, which has been
asked to quote for the production of a program for the local town fair. The work would be
carried out in addition to the normal work of the company. Because of existing commitments,
some weekend working would be required to complete the printing of the program. A trainee
accountant has produced the following cost estimates based upon the resources required as
specified by the production manager:
Rs.
Direct material
- Paper (book value) 5,000
- Inks (purchase price) 2,400
Direct labor
- Skilled 250 hours @ Rs.4.00 1,000
- unskilled 100 hours @ Rs.3.50 350
Variable overhead 350 hours @ Rs.4.00 1,400
Printing press depreciation 200 hours @ Rs.2.50 500
Fixed production costs 350 hours @ Rs.6.00 2,100
Estimating department costs 400
Total costs 13,150

You are aware that considerable publicity could be obtained for the company if you are able to
win this order and the price quoted must be competitive. The following notes are relevant to
the cost estimated above:
(a) The paper to be used is currently in stock at a value of Rs. 5,000. It is of an unusual color,
which has not been sued for some time. The replacement price of the paper is Rs. 8,000,
whilst the scrap value of that in stock is Rs. 2,500. The production manager does not
foresee any alternative use for the paper if it is not sued for the town fair program.
(b) The inks required are not held in stock. They would have to be purchases in bulk at a
cost of Rs. 3,000. 80% of the ink purchases would be used in printing the programs. No
other use in foreseen for the remainder.
(c) Skilled direct labor is in short supply and to accommodate the printing the program, 50%
of the time required would be worked at weekends for which a premium of 25% above
the normal hourly rate is paid. The normal hourly rate is Rs.4.00 per hour.
(d) Unskilled labor is presently under – utilization and at present 200 hours per week is
recorded as idle time. If the printing work were carried out at a weekend, 25 unskilled
hours would have to occur at this time, both the employees concerned would be given
two hours’ time off (for which they would be paid) in lieu of each hour worked.
(e) Variable overhead represents the cost of operating the printing press and binding
machines.

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(f) When not being used by the company, the printing press is hired to outside companies
for Rs.6 per hour. This earns a contribution of Rs.3 per hour. There is unlimited demand
for this facility.
(g) Fixed production costs are absorbed into production, using an hourly rate based on
budgeted activity.
(h) The cost of Estimating department represent time spent in discussion with the town fair
committee concerning the printing of its program.

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Question 93
JB Ltd is a small specialist manufacturer of electronic components and much of its output is
used by the makers of aircraft for both civil and military purposes. One of the few aircraft
manufacturers has offered a contract to JB Ltd for the supply, over the next 12 months, of 400
identical components. The data relating to the production of each component is as follows:
(1) Material requirements
3 kg material M1 – see note (i) below
2 kg material P2 – see note (ii) below
1-part No. 678 – see note (iii) below

Notes:
(i) Material M1 is in continuous use by the company. 1,000 kg are currently held in
stock at a book value of Rs. 4.70/kg but it is known that future purchases will cost Rs.
5.50/kg.

(ii) 1,200 kg of material P2 are held in stock. The original cost of this material was Rs.
4.30/kg but, as the material has not been required for the last two years, it has been
written down to Rs. 1.50/kg scrap value. The only foreseeable alternative use is as a
substitute for material P4 (in current use) but this would involve further processing
costs of Rs. 1.60/kg. The current cost of material P4 is Rs. 3.60/kg.

(iii) It is estimated that the part No. 678 could be bought for Rs. 50 each.
(2) Labor requirements
Each component would require five hours of skilled labor and five hours of semiskilled labor. An
employee possessing the necessary skills is available and is currently paid Rs.5/hour. A
replacement would, however, have to be obtained at a rate of Rs. 4/hour for the work which
would otherwise be done by the skilled employee. The current rate for semi-skilled work is Rs.
3/hour and an additional employee could be appointed for this work.
(3) Overhead
JB Ltd absorbs overhead by a machine hour rate, currently Rs. 20/hour, of which Rs. 7 is for
variable overhead and Rs. 13 for fixed overhead. If this contract is undertaken, it is estimated
that fixed costs will increase for the duration of the contract by Rs. 3,200. Spare machine
capacity is available and each component would require four machine hours. A price of Rs. 145
per component has been suggested by the large company which makes aircraft.
Required:
State whether or not the contract should be accepted and support your conclusion with
appropriate figures for presentation to management.

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Question 94
BB Company has received an enquiry from a customer for the supply of 500 units of a new
product, product B22. Negotiations on the final price to charge the customer are in progress
and the sales manager has asked you to supply relevant cost information.
The following information is available:
(1) Each unit of product B22 requires the following raw materials:
Raw material type
X 4 kg
Y 6 kg

(2) The company has 5,000 kg of material X currently in stock. This was purchased last year
at a cost of Rs.7 per kg. If not used to make product B22, this stock of X could either be
sold for Rs.7.50 per kg or converted at a cost ofRs.1.50 per kg, so that it could be used as
a substitute for another raw material, material Z, which the company requires for other
production. The current purchase price per kilogram for materials is Rs.9.50 for material
Z and Rs.8.25 per kg for material X.
(3) There are 10,000 kilograms of raw material Y in inventory, valued on a FIFO basis at a
total cost of Rs. 142,750. Of this current inventory, 3,000 kilograms were purchased six
months ago at a cost of Rs.13.75 per kg. The rest of the inventory was purchased last
month. Material Y is used regularly in normal production work. Since the last purchase
of material Y a month ago, the company has been advised by the supplier that the price
per kilogram has been increased by 4%.
(4) Each unit of product B22 requires the following number of labor hours in its
manufacture:
Type of labor:
Skilled: 5 hours
Unskilled: 3 hours
Skilled labor is paid Rs.8 per hour and unskilled labor Rs.6 per hour.

(5) There is a shortage of skilled labor, so that if production of B22 goes ahead it will be
necessary to transfer skilled workers from other work to undertake it. The other work
on which skilled workers are engaged at present is the manufacture of product B16. The
selling price and variable cost information for B16 are as follows:

Rs./unit
Selling price 100
Less: variable costs of production
Skilled labor (3 hours) (24)
Other variable costs (31)

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Total V.C 55
C.M 45
(6) The company has a surplus of unskilled workers who are paid a fixed wage for a 37-hour
week. It is estimated that there are 900 hours of unused unskilled labor time available
during the period of the contract. The balance of the unskilled labor requirements could
be met by working overtime, which is paid at time and a half.

(7) The company absorbs production overheads by a machine hour rate. This absorption
rate is
Rs.22.50 per hour, of which Rs.8.75 is for variable overheads and the balance is for fixed
overheads. If production of product B22 is undertaken, it is estimated that an extra Rs.
4,000 will be spent on fixed costs. Spare machining capacity is available and each unit of
B22 will require two hours of machining time in its manufacture using the existing
equipment. In addition, special finishing machines will be required for two weeks to
complete the B22. These machines will be hired at a cost of Rs. 2,650 per week, and
there will be no overhead costs associated with their use.

(8) Cash spending of Rs. 3,250 has been incurred already on development work for the
production of B22. It is estimated that before production of the B22 begins, another Rs.
1,750 will have to be spent on development, making a total development cost of Rs.
5,000.

Required:
Calculate the minimum price that the company should be prepared to accept for the 500
units of
product B22. Explain briefly but clearly how each figure in the minimum price calculation has
been obtained.

(Note: The minimum price is the price that equals the total relevant costs of producing the
items.
Any price in excess of the minimum price will add to total profit).

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Question 95
The Ahsan Co. makes beds. It has recently received a request from a customer to provide a one-
off order of sofas, in excess of normal budgeted production. The following notes are relevant:
Notes:

 The fabric is regularly used by Ahsan Co. There are currently 200 m2 in inventory, which
cost Rs.18 per m2. The current purchase price of the fabric is Rs.18.50 per m2.400 m2 of
fabric is required for the project.

 Wood is regularly used by the Co. and usually costs Rs.8.20 per m2. However, the
company’s current supplier’s earliest delivery time for the wood is in three weeks’ time.
An alternative supplier could deliver immediately but they would charge Rs.8.50 per m2.
Ahsan Co. already has 1000 m2 in inventory but 980 m2 of this is needed to complete
other existing orders in the next two weeks. The remaining 20 m2 is not going to be
needed until four weeks’ time. 100 m of wood will be required by the project.

 400 hours of skilled labor is needed. The skilled labor force is employed under
permanent contracts of employment under which they must be paid for 40 hours’ per
week’s labor, even if their time is idle due to absence of orders. Their rate of pay is Rs.20
per hour, although any overtime is paid at time and a half. In the next two weeks, there
is spare capacity of 300 labor hours.

 600 hours of semi-skilled hours is required. There is no spare capacity for semi-skilled
workers. They are currently paid Rs.16 per hour or time and a half for overtime.
However, a local agency can provide additional semi-skilled workers for Rs.20 per hour.

 Rs. 5 absorption rate is standard factory overhead absorption rate; Rs.2.50 per hour
reflects the cost of the factory supervisor’s salary and the other Rs.2.50 per hour reflects
general factory costs. The supervisor is paid an annual salary and is also paidRs.16 per
hour for any over time he works. He will need to work 20 hours’ overtime if this order is
accepted.
Required:
Prepare, on a relevant cost basis, the lowest cost estimate which could be used as the basis
for the quotation. Explain briefly your reasons for including or excluding each of the costs in
your estimate.

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Question 96
Pathan Electronics Limited is contemplating outsourcing some of its production. The company’s
management accountant has asked for your advice on the relevant costs for the contract. The
following information is available:
Materials
The contract requires 3,000 kg of material K, which is a material used regularly by the company
in other production. The company has 2,000 kg of material K currently in stock which had been
purchased last month for a total cost of Rs. 19,600. Since then the price per kilogram for
material K has increased by 5%.
The contract also requires 200 kg of material L. There are 250 kg of material L in stock which are
not required for normal production. This material originally cost a total of Rs. 3,125. If not used
on this contract, the stock of material L would be sold for Rs. 11 per kg.
Labor
The contract requires 800 hours of skilled labor. Skilled labor is paid Rs. 9·50 per hour. There is
a shortage of skilled labor and all the available skilled labor is fully employed in the company
the manufacture of product P. The following information relates to product P:
Rs. per unit Rs. per unit
Selling price 100
Less:
Skilled labor (38)
Other variable costs (22)
Contribution per unit 40
Required:
What would be the maximum price that company agrees to pay to other company for the same
product?

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Question # 97

Advise management of Jay Limited as to which of the following products should be processed
further.
Products Units at SP at S.O.P Further Cost Loss** Scrap value
S.O.P (Rs) (Rs) of losses (Rs)
A 3,750 11.2 / unit 1.6 / unit 15% 8 / unit
B 6,200 10.8 / unit 2 / unit 20% 0 / unit
C 4,950 12 / unit 1 / unit 0% N/A
** Losses expected in further processing

Question # 98

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Question # 99

Required:
Should the company accept the offer under the following situations.
(a) Extra units of A are saleable at Rs. 2.9 / unit
(b) Extra units of A are saleable at Rs. 13 / unit after further processing.
(c) Calculate the breakeven price in both cases (a) and (b)

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Question # 100

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Question # 101

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Question # 102

Required:
a) Calculate the apportionment of Joint process costs to products A, B and C above.

b) Explain whether the initial process should be undertaken and which, if any, of the
enhanced products should be produced.

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Question # 103

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Question # 104

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Question # 105

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Question # 106

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Question #107

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Question # 108

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Question # 109

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Question # 110

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Question # 111

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Question # 112

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Process Costing
Question # 1

You Have been given information for two process as follows:

Process 1 Process 2
Material introduced Rs 1000 Output of process 1 Rs 500
Conversion cost Rs 500 Rs 1100
Required:

Prepare process accounts.

Descriptions Process 1 Process 2

Materials Added (KGs) 10,000 2,000
Materials (Rs.) 30,000 3,000
Direct Wages (Rs.) 16,000 40,000
Production OH as % of Direct Wages 25% 30%
Normal Loss% 5% 5%
Materials Output (KGs) 9,500 10,925

Question # 2

The following information relates to a production process:

Input quantities 2,000 liters
Normal loss 10%
Actual output 1,800 liters
Direct materials cost Rs. 3,600
Direct labor cost Rs. 300
Production overhead absorbed Rs. 600
Required:

Calculate Cost per unit and prepare Process Account

Question # 3

The following information relates to a production process:

Input quantities 2,000 liters
Normal loss 10%
Actual output 1,800 liters
Direct materials cost Rs. 3,600

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Direct labor cost Rs. 300

Production overhead absorbed Rs. 600
Required:
Calculate Cost per unit and prepare Process Account

NORMAL LOSS WITH RECOVERY VALUE

Question # 4
The following information relates to a production process X.
Input Quantities 2,000 liters
Normal loss 10%
Actual output 1,800 liters
Scrap value of normal loss Rs 0.9 per liter
Direct material cost Rs 3,600
Direct labor cost Rs. 300
Production overhead absorbed Rs. 600
Required:

Prepare Process Accounts

NORMAL LOSS WITH COST OF DISPOSAL

Question # 5

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Required:

Prepare Process Accounts

Input quantities 2,000 liters

Normal loss 10%
Actual output 1,800 liters
Disposal Costs of normal Loss Rs. 1 per liter
Direct materials cost Direct Rs. 3,600
labor cost Rs. 300
Production overhead absorbed Rs. 600

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ABNORMAL LOSS
Question # 6
The following information relates to a production process:
Input quantities 2,000 liters
Normal loss 10%
Actual output 1,700 liters
Direct materials cost Rs. 3,600
Direct labor cost Rs. 300
Production overhead absorbed Rs. 600

Required:
Calculate Cost per unit and prepare Process Account

Question # 7
Input quantities 2,000 liters
Normal loss 10%
Actual output 1,700 liters
Scrap value of normal loss Rs. 0.9 per liter
Direct materials cost Rs. 3,600
Direct labor cost Rs. 300
Production overhead absorbed Rs. 600

Required:

Prepare Process Accounts

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Question # 8

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Question # 9

Question # 10

Question # 11
A department with no opening work in progress introduced 1000 units into the process; 600 are completed, 250 are 20
per cent complete, and 150 units are lost consisting of 100 units’ normal loss and 50 units of abnormal loss. Losses are
detected when upon completion.

Material costs are £8000 (all introduced at the start of the process) and conversion cost are £4000.

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ABNORMAL GAIN
Question # 12
The following information relates to a production process:
Input quantities 2,000 liters
Normal loss 10%
Actual output 1,850 liters
Direct materials cost Rs. 3,600
Direct labor cost Rs. 300
Production overhead absorbed Rs. 600

Required:

Calculate Cost per unit and prepare Process Account

Question # 13
The following data relates to a production process X

Required:

Prepare Process Accounts

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Question # 14

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Question # 15

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CLOSING WIP
Question # 16
The following information relates to a production process X.

Input quantities 4,000 units

Completed output 3,500 units
Closing WIP 500 units

All the direct materials are added to production at the beginning of the process.
Closing inventory of 500 units is therefore 100% complete for materials but is only 40% complete for conversion

The costs incurred in the period were: Rs.

Direct material 24,000
Conversion costs 7,400

Required:

Prepare Process Accounts

Question # 17

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Question # 18
A manufacturing company operates two processes. Output from Process 1 is transferred as input to
Process 2. Output from Process 2 is the finished product.
Data for the two processes in January are as follows:
Process 1
Opening work in process Nil
Units introduced into the process 14,000
Units completed and transferred to the next process (Process 2) 10,000
Closing work-in-progress 4,000
Material cost added during the period Rs. 70,000
Conversion cost added during the period Rs.48,000
Materials are input into Process 1 at the start of the process and conversion costs are incurred at a
constant rate throughout processing. The closing work-in-progress in Process 1 at the end of January is
estimated to be 50% complete for the conversion work.
Process 2
Opening work-in-process Nil
Units transferred into the process from Process 1 10,000
Closing work-in-progress 1,000
Units completed and transferred to finished goods inventory 9,000
Costs for the period:
Cost of production transferred from Process 1 Rs. 90,000
Conversion cost added during the period Rs. 57,000
Added materials during Process 2 Rs. 36,000
The materials from Process 1 are introduced at the start of processing in Process 2, but the added
materials are introduced at the end of the process. Conversion costs are incurred at a constant rate
throughout processing. The closing work-in-progress in Process 2 at the end of January is estimated to
be 50% complete.

Required:

Prepare Process Accounts

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Question # 19

OPENING WIP
Question # 20

The following information relates to a production process X.

Opening inventory 3,000 units

Material cost in opening WIP (100% complete) Rs. 12,600

Conversion costs in opening WIP (30% complete) Rs.970
During the month
Input quantities 7,000 units
Completed output 8,000 units
Closing WIP (100% complete for direct materials and 60% complete for conversion costs).
2000 units

All the direct materials are added to production at the beginning of the process.
Closing inventory of 2,000 units is therefore 100% complete for materials but is only 60% complete for
conversion.

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The costs incurred in the period Rs.

were:
Direct materials 28,000
Conversion costs: 17,430
Required:
Prepare Process Account
Question # 21

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Question # 22

Required:
Prepare Process account (assuming that good output to calculate loss allowance does include reworked
units)

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Question # 23
The following data has been extracted from the book of FOGG Limited.

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Question # 24

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FIFO & AVCO METHOD

Question # 25
The following information relates to a production process X
Opening inventory 3,000 units
Material cost in opening WIP (100% complete) Rs. 12,600
Conversion costs in opening WIP (30% complete) Rs.970
During the month
Input quantities 7,000 units
Completed output 8,000 units
Closing WIP (100% complete for direct materials and 60% complete for conversion costs) 2,000 units
All the direct materials are added to production at the beginning of the process.
The costs incurred in the period were: Rs.
Direct materials 28,000
Conversion costs: 17,430

Required:

Prepare Process Account if company uses AVCO method

Question # 26

The following information relates to a production process X

Opening inventory 3,000 units
Material cost in opening WIP (100% complete) Rs. 12,600
Conversion costs in opening WIP (30% complete)
Rs.97
0 During the month
Input quantities 7,000 units
Completed output 8,000 units
Closing WIP (100% complete for direct materials and 60% complete for conversion costs) 2,000 units
All the direct materials are added to production at the beginning of the process.
Closing inventory of 2,000 units is therefore 100% complete for materials but is 60% complete for
conversion.
The costs incurred in the period were: Rs.
Direct materials 28,000
Conversion costs: 17,430

Required:

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Prepare Process Account if company uses FIFO method

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Question # 27

Question # 28

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Question # 29

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Question # 30

Question # 31

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Question # 32

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Question # 33

Question # 34

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Question # 35

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Question # 36

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Losses and gains at different stages in the process

Question # 37
The following information relates to a production process X.

Input quantities 10,000 units

Normal loss 10%
Actual output 8,500 units
Direct materials are added in full at the beginning of the process, and loss occurs 60% of the way through the
process.

The costs incurred in the period were: Rs.

Direct materials 27,000
Conversion costs: 13,200

Required:

Prepare Process Account

Question # 38
The following information relates to a production process X.
Input quantities 6,000 units
Normal loss 10%
Actual output 5,600 units
Direct materials are added in full at the beginning of the process, and loss occurs 40% of the way through
the process.

The costs incurred in the period were: Rs.

Direct materials 27,000
conversion costs: 11,040

Required: Prepare Process Account

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Question # 39

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Question # 40

Question # 41

Question # 42
Same data as above but assume that loss is detected when the process has reached 50%
stage of completion.
Question # 43

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Question # 44

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BY-PRODUCTS

Question # 45
During a process having joint cost of Rs 1,010,000 Two main products (A and B) and one(C) by product
was produced details of which are as follows:

Kgs Selling Price per kg

A 50,000 Rs 20

B 50,000 Rs 40

C 10,000 Rs 1.2

Joint costs are allocated on the basis of weight.

Required

 Allocate Joint costs

Question # 46
Two joint products JP1 and JP2, are produced from a common process.
During March, 9,000 units of materials were input to the process. Total costs of processing (direct
materials and conversion costs) were Rs. 135,880.
Output was 5,000 units of JP1 and 3,000 units of JP2 and 1,000 units of by-product BP3.
JP1 has a sales value of Rs. 40 per unit when it is output from the process and can be sold for

AT A GLANCE
Rs.120 per unit after further processing costs of Rs.25 per unit.
JP2 has a sales value of Rs. 55 per unit when it is output from the process and can be sold for
Rs.80 per unit after further processing costs of Rs.15 per unit.
BP3 has a sales value of Rs.1.58 per unit.
The company’s policy is to treat the proceeds of sale of a by-product as a reduction of joint
process costs
Required:
Apportion the process costs between the joint products on the basis of net realizable sales value at the
split off point and also prepare process account.

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Question # 47

Required: Prepare the Process 2 account for November 2003.

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JOINT PRODUCTS
Question # 48
In a joint process, two joint products are made, Product A and Product B. There is no inventory of
work-in-process. Information relating to last month’s production is set out in the table below.

Joint ProductO Opening inventory units Closing inventory units Sales units

A 800 1,200 8,000

B 700 300 10,000
The costs of the joint process in the month were Rs. 144,000. These are apportioned between
the joint products on the basis of units produced.
Required:
Allocate Joint costs on the basis of No. of units
Question # 49
A company produces three products with a basic raw material. There were no opening and closing WIP
inventories of raw material and products.

Details of Joint Cost and outputs with selling prices of the products are as under:

Qty (Units) Rs.

X 40,000 75 / unit
Y 20,000 25 / unit
Z 60,000 3.33 / unit
Joint Cost is Rs. 600,000

Required:

1) Allocate Joint cost on the basis of

a. Physical output
b. Sales value at S. O. Point
2) Allocate Joint cost on the basis of
a. NRV of products
b. Final Sales Value of Products
c. Constant G.P ratio

Considering the fact that products are not saleable at S. O. Point and they require further processing
cost for completion and sales.

Further cost after S.O. Point

X Rs. 80,000

Y Rs. 100,000

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Z Rs. 20,000

Question # 50

A company incurred a Joint cost of Rs. 1 million on the production of 2 Joint products A and B. Details of
output and sales prices are as under:

Qty Sales Price

A 150,000 10 / unit
B 250,000 2 / unit

Required:

1) Allocate Joint cost on the basis of sales value at S.O Point

2) Consider now that A has to be further processed to make it saleable. It requires a further cost of
Rs. 500,000 before it can be sold.
a. Allocate Joint Cost on the basis of
i. NRV basis
ii. Sales value at S.O. Point
iii. Final Sales Value
iv. Relative Sales Value

Question # 51

ABD Limited produces for joint products Q, R, S and T, all of which results from processing a single raw
material Z. The following information is provided to you:

Joint Product Number of Units Selling price per unit (Rupees)

Q 5000 18
R 9000 8
S 4000 4
T 2000 11

The company budgets for a profit of 14% of sales value. Other costs are as follows:

Carriage inward 6%

Direct wages 18%

Manufacturing Overhead 12%

Administrative Overhead 10%

Required:

(a) Calculate the maximum price that may be paid for the raw material
(b) Prepare comprehensive cost statement for each of the products allocating the material cost and
other cost based on:
i. The number of units, and The Sales Value

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Question # 52

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Question # 53

Question # 54

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Inventory Valuation
Short Questions
Question 1

A business has three items of inventory currently carried at their cost. The market prices of the
inventories have fallen down due to sudden decrease in demand. Their estimated selling prices,
cost of completion and selling costs are as under:

Cost Sales price Cost of completion Selling costs

Rs. Rs. Rs. Rs.
Finished Product A1 8,000 7,800 - 500
Finished Product A2 14,000 12,000 - 200

SPOTLIGHT
Work-in-process B1 16,000 14,000 1,500 200

Calculate the NRV of the inventories.

Question 2

A business has following items of inventories with their costs and NRV. You are required to calculate the
value at which the inventories should be carried.

Inventory Cost Costs of Costs Selling

completion to Sell Price

Raw Materials 150,00 500,000 50,000 850,000

0
Work-in-process 450,00 250,000 50,000 850,000
Finished Goods – in good 0
700,00 - 50,000 850,000
condition
Finished Goods – damaged during 0
700,00 300,000 50,000 850,000
transport 0

Required

Calculate the value of inventory

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Question 3

On 1 January a company had an opening inventory of 100 units which cost Rs.50 each. During the year it
made the following purchases:

5 April: 300 units at Rs. 60 each

14 July: 500 units at Rs. 70 each
22 October: 200 units at Rs. 80 each.
During the period it sold 800 units as follows:

9 May: 200 units

25 July: 200 units
23 November: 200 units
12 December: 200 units
Requirement

Prepare the cost ledger as per FIFO method

Question 4

On 1 January a company had an opening inventory of 100 units which cost Rs.50 each. During the year it
made the following purchases:

5 April: 300 units at Rs. 60 each

14 July: 500 units at Rs. 70 each
22 October: 200 units at Rs. 80 each.
During the period it sold 800 units as follows:

9 May: 200 units

25 July: 200 units
23 November: 200 units
12 December: 200 units
Requirement

Prepare the cost ledger as per AVCO method

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Advance Questions
Question 5

Mehanti Limited(ML) produces and markets a single product Wee. Two chemicals Bee and Gee
are used in the ratio of 60:40 for producing 1 liter of Wee. ML follows perpetual inventory system
and uses weighted average method for inventory valuation. The purchase and issue of Bee and
Gee for May 20X3, are as follows:

Date Bee Gee

Receipt Issue Receipt Issue
Litre Rate Litre Litre Rate Litre
02-05-20X3 - - 450 110 -
05-05-20X3 - - 560 - - 650
09-05-20X3 - - 300 - - 300
12-05-20X3 420 52 - 700 115 -
18-05-20X3 - - 250 - - 150
24-05-20X3 500 55 - 250 124 -
31-05-20X3 - - 500 - - 450
Following further information is also available:
i. Opening inventory of Bee and Gee was 1,000 liters at the rate of Rs.50 per liter and 500
liters at the rate of Rs. 115 per liter respectively.
ii. The physical inventories of Bee and Gee were 535 liters and 140 liters respectively. The
stock check was conducted on 01 June and 31 May 20X3 for Bee and Gee respectively.
iii. Due to contamination, 95 liters of Bee and 105 liters of Gee were excluded from the stock
check. Their net realizable values were Rs20 and Rs.50 per liter respectively.
iv. 250 liters of Bee which was received on 01 June 20X3 and 95 liters of Gee which was issued
on 31 May 20X3 after the physical count were included in the physical inventory.
v. 150 liters of chemical Bee was held by ML on behalf of a customer, whereas 100 liters of
chemical Gee was held by one of the suppliers on ML’s behalf.
vi. 100 liters of Bee and 200 liters of Gee were returned from the production process on
31May and 01 June 20X3 respectively.
vii. 240 liters of chemical Bee purchased on 12th May and 150 liters of chemical Gee purchased
on 24th May 20X3 were in advertently recorded as 420 liters and 250 liters respectively.

Required:
a. Reconcile the physical inventory balances with the balances as per book
b. Determine the cost of closing inventory of chemical Bee and Gee. Also compute the cost of
contaminated materials as on 31 May 20X3.

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Question 6
Quality Limited (QL) is a manufacturer of washing machines. The company uses perpetual
method for recording and weighted average method for valuation of inventory.
The following information pertains to a raw material (SRM), for the month of June 20X3.
i. Opening inventory of SRM was 100,000 units having a value of Rs. 80 per unit.
ii. 150,000 units were purchased on June 5, at Rs. 85 per unit
iii. 150,000 units were issued from stores on June 6.
iv. 5,000 defective units were returned from the production to the store on June 12.
v. 150,000 units were purchased on June 15 at Rs. 88.10 per unit.
vi. On June 17, 50% of the defective units were disposed of as scrap, for Rs. 20 per
unit, because these had been damaged on account of improper handling at QL.
vii. On June 18, the remaining defective units were returned to the supplier for
replacement under warranty.
viii. On June 19, 5,000 units were issued to production in replacement of the
defective units which were returned to store.
ix. On June 20, the supplier delivered 2,500 units in replacement of the defective
units which had been returned by QL.
x. 150,000 units were issued from stores on June 21.
xi. During physical stock count carried out on June 30, 2010 it was noted that closing
inventory of SRM included 500 obsolete units having net realizable value of Rs. 30
per unit. 4,000 units were found short.

Required

Necessary journal entries to record the above transactions would be prepared as follows

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Target Costing
Simple Concepts:

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Advance questions
Question 22

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Question 23

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Question 24

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Question 25

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Question 26

Question 27

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Question 28

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Question 29

Question 30

Required:

Calculate the cost gap

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“Inventory/ Cost of Goods Sold/ Factory Ledger”

Question #1

Question # 2

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Question # 3

Question #4

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Question #5

Question # 6

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Question # 7

Required:

Show how different balances and transactions will be recorded in the cost and financial ledgers.
Question 8

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Question # 9

Question # 10

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Question # 11

Question # 12

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Question # 13

Question # 14

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Question # 15

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LABOUR COSTING
Question # 1 (Production and Productivity)

Mr. A is expected to produce 4 units per hour. The standard rate of productivity is 4 units per
hour and one unit valued at 1/4 of a standard hour of output. If during a one month time period
Mr. A produces 45 units in 11 hours. State the number of units produced and measure
productivity with the help of productivity ratio

Question # 2 (How productivity helps reducing per unit cost)

Alpha Co has a production department in its factory consisting of work team of just two men,
Mr. A and Mr. B. Mr. A and Mr. B each work a 30-hour week and refuse to do any overtime.
They are each paid $50 per week and production overheads of $150 per week are charged to
their work.
• In week one, they produce 120 units of output between them. Productivity is measured in
units of output per man hour.
• In week two, management pressure is exerted on Mr. A and Mr. B to increase output and
they produce 162 units in normal time.
• In week three, Mr. A and Mr. B agree to work a total of 21 hours' overtime for an additional
$35 wages. Output is again 162 units and overhead charges are increased by $52.5

Compute production, productivity, total cost, cost per man hour, cost per unit and draw
appropriate conclusion.

Question # 3 (Automation)
Tata company previously had six employees working 240 hours in a week. Their weekly output
was 1,200 units. Recently company restructured its operations and replaced six employees with
one machine which is operating 40 hour hours per week and four employees working 160 hours
in total. The new output level is 1,600 units. Compute productivity per labour hour.
Efficiency ratio = expected hours to make output/actual hours. Capacity ratio = actual hours
worked/hours budgeted. Production volume ratio = efficiency ratio x capacity ratio.

Question # 4 (Efficiency, Capacity and Productivity ratios)

Stigma company budgets to produce 25,000 units of output in total of 100,000 standard hours.
The actual results came out to be 27,000 units and each unit took 40/9 hours to produce. You
are required to compute efficiency, capacity and Production volume ratios.

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Question # 5 (Remuneration method: time work) Wages = Hours worked x Rate of pay per
hour
if the basic day rate is Rupees 10 per hour and overtime is paid at time and a quarter. What will
be total pay received by a person who works for 12 hours in a day. Provided normal / basic
hours is 8.
Do state the amount of overtime premium separately.

Question # 6 (Remuneration method: piecework scheme) Wages = Units produced x Per unit
pay rate

James is paid Rupee 0.50 for each unit produced with a guaranteed wage of Rupees 50 for a 40-
hour. For a series of 4 weeks of the month he produced 100, 120, 140 and 90 units. Calculate
total amount for the month.

Question # 7 (Piecework scheme with overheads and conversion cost per unit)
Shafiq is paid Rupee 0.50 for each unit produced with a guaranteed wage of Rupees 60 for a 40-
hour week. Overheads are added to the production at the rate of Rupees 2.50 per direct labour
hour. Compute conversion cost per unit for week 1 and week 2 if units produced in these two
weeks are 100 and 200 respectively.

Question # 8 (Piecework scheme with guaranteed wage regardless of the number of units
produced)
James is paid Rupee 1 for each unit produced with a guaranteed wage of Rupees 50
(guaranteed wage is paid regardless of the number of output produced) for a 40-hour week. For
a series of 4 weeks of the month he produced 100, 120, 140 and 160 units. Calculate total
amount for the month.

Question # 9 (Differential piecework scheme)

it gives incentive to employees to increase their output by paying higher rates for increased
levels of production. Mr. A produced 150 units in a week. He is 6ompensated at Rupees 2 per
unit for first 100 units, Rupees 3 for the next 20 units and Rupees 3.5 for further 30 units.
Compute total cost for company for the week.

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Question # 10 (Bonus/Incentive Scheme: High day rate system)

Employees are paid a high hourly rate in the expectation that they will work more efficiently
than similar employees on a lower hourly rate in a different company.
An employee would make 100 units in a 40-hour week if they were paid Rupees 5 per hour, but
110 units if they were paid Rupees 5.70 per hour, and if production overhead is added to cost at
the rate of Rupees 3 per direct labour hour. What would be the cost per unit of output under
each of these modes of pay.

Question # 11 (idle time ratio) — idle time/total time x 100%

Total available labour hours = 200. Idle time 50 hours. Compute idle time ratio.

Question # 12 (Labour turnover rate) — replacements/Average number of employees in

period x 100%
Number of employees at the start of the year: 2,000 and Number of employees at the end of
the year: 1,000. Voluntary redundancy was taken by 1,500 employees during the year, this was
500 more than what company expected therefore company replaced 500 workers. Compute
labour turnover ratio.

Question # 13

The following data relate to work in the finishing department of a certain factory. Normal
working day 6 hours Basic rate of pay per hour $4 Standard time allowed to produce 1 unit 5
minutes Premium bonus payable at the basic rate 40% of time saved On particular day one
employee finishes 120 units. What is his gross pay for the day?

Question # 14
An employee is paid on a piecework basis. The basis of the piecework scheme is as follows: 1 to
100 units — $0.50 per unit 101 to 200 units — $0.60 per unit 201 and above units — $0.70 per
unit with only the additional units qualifying for the higher rates. Rejected units do not qualify
for payment. During a particular day the employee produced 230 units of which 40 were
rejected as faulty. What did the employee earn or their day's work?

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Question # 15
Which of the following statements is/are true about group bonus schemes? (i) Group bonus
schemes are appropriate when increased output depends on a number of people all making
extra effort

(ii) Non-production employees can be rewarded as part of aigioup incentive scheme A (ii) only B
both C neither (i) nor (ii) D (i) only

Question # 16—overtime premium is usually regarded as an overhead expense unless overtime

is done for a specific job or work

Alpha Co has recorded the following wages costs for direct production workers for November.
Basic pay 40,000
Overtime premium 1,400
Holiday pay 300
Gross wages incurred 41,700
The overtime was not worked for any specific job. What are the accounting entries for these
wages costs?

Question 17

In a typical cost ledger, what is the double entry for indirect labour cost incurred?

Question # 18
Bifurcate the following direct labour wages of an employee into direct labour and indirect
labour cost. 1. Basic pay for normal hours worked, 36 hours at 4 per hour = 144. 2. Pay at the
basic rate for overtime, 6 hours at 4 per hour = 24. 3. Overtime premium = 6.4. Bonus under
group bonus scheme = 20.

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Question 22

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Question 23

Question 24

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Question 25

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Question 26

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Question 27

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Question 28

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Question 29

Question 30

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Question 31

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Question 32

Question 33

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Question 34

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 Cost & Management Accounting Practice Manual
Complied by : Sir ARM & Sir KSM

“Cost Flow of Production”

Question #1

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Question #2

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Complied by : Sir ARM & Sir KSM

“Reconciliation of Cost & Accounting Profits”

Question # 1

ARTT BUSINESS SCHOOL | FROM THE DESK OF SIR AHMED RAZA & SIR KASHIF SALEEM 408
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Question # 2

Required:

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 SPECIAL GIFT
FOR STUDENTS
 What’s Inside?

Past Papers Summary Other Short

Video Solutions Lectures Videos
Process Costing

Process Costing “Ababeel Ltd” (Autumn 2014 Q1)

Process Costing “RS Ltd”

PROCESS AND JOINT-BY (Concept Video)

PROCESS COSTING “KS LIMITED” (SPRING 2015)

PROCESS WITH FURTHER MATERIAL (ABRNORMAL LOSS)

PROCESS COSTING “QUALITY CHEMICALS” (SPRING 2016)

Process Costing - Spring 2020 Q1 – “Scents Limited”
(SIR KSM) (SIR ARM)

Process Costing - Autumn 2018 Q1 – “Cricket Chemicals Limited”

Process Costing - Autumn 2017 Q1 - Platinum Chemicals

(SIR KSM) (SIR ARM)
Standard Costing/Variance Analysis

STANDARD COSTING (JOURNAL ENTRIES)

STANDARD COSTING “ANCIENT PHARMA” (BFD PAST PAPER)

MATERIAL PRICE AND QUANTITY VARIANCES

MATERIAL PRICE VARIANCE POLICIES

STANDARD COSTING - ZAMIL INDUSTRIES (AUTUMN 2016)

STANDARD COSTING – JACK & JILL (AUTUMN 2015)

STANDARD COSTING – HEXA LIMITED (AUTUMN 2014)

STANDARD COSTING (RECONCILIATION OF BUDGETED & ACTUAL

PROFIT)

STANDARD COSTING (SIMPLE MIX YEILD)

STANDARD COSTING “HEXA LIMITED” (SPRING 2017)

STANDARD COSTING “WAHID LIMITED” (MIX YEILD VERY COMPLEX

QUESTION)

IDLE TIME VARIANCE (SHORT VIDEO)

STANDARD COSTING WITH INVENTORY “SEEMA ENTERPRISES”
(SPRING 2016 Q3)

Part 1/2 Part 2/2

STANDARD COSTING (MUBIN LIMITED)

Part 1/3 Part 2/3 Part 3/3

Standard Costing - Spring 2019 Q5 - Daisy Limited

Breakeven/CVP Analysis
Breakeven “Macchiato Ltd” (Autumn 2019 Q1)

Breakeven “Burger, Fries, Cold-drink (Manual Question)

Breakeven “Washington Ltd:” (Spring 2018 Q3)

Break Even - Autumn 2015 Q # 3 Hope Limited

Break Even - Spring 2017 Q#9 Sword Leather

Break Even Autumn 2018 Q#2 Basketball Private Limited

Break Even Spring 2018 Q#3 Washington Limited

Break Even Autumn 2017 Q#8 Digital Industries Limited

Break Even Autumn 2016 Q#5 Ideal Chemicals

Break Even Spring 2016 Q#8 Himalayan Rivers
Other Topics
SUMMARY LECTURE ON EOQ (30 MINUTES)

SHORTCLIP ON (FURTHER PROCESSING DECISION)

SHORTCLIP ON (LIMITING FACTOR FOR EXTERNALLY AVAILABLE

GOODS)
DECISION MAKING IN 3 HOURS

JOB ORDER COSTING (IN ONE HOUR)

EOQ (COMPLETE LECTURES IN 5 HOURS)

LEARNING CURVE - IBRAHIM LIMITED (CA FINAL QUESTION)

MARGINAL AND ABSORPTION COTING – “MAZAHIR LIMITED” (YEAR

2010)