1. Birat Manufacturing Company currently utilized only 75% of its capacity.
The cost
structure relating to produce one unit of regular product is presented below:
Direct material Rs. 15
Direct labour Rs. 10
Manufacturing overhead Rs. 9
Variable selling overhead Rs. 5
The company has defined its capacity in direct machine hour. The total capacity of the
company is 20,000 machine hours which is also its normal capacity. One unit of
product required 0.5 machine hours. The fixed manufacturing cost at normal capacity
volume is Rs. 200,000. A local customer offer, 15,000 units at a price of Rs. 35 each.
Regular selling price of product is Rs. 50 each. Because of bulk purchasing, a discount
of 10% will be received on all material purchase. Additional equipment worth Rs.
30,000 is required to maintain the quality of special offer.
Required:
a. Prepare differential income statement and suggest whether the order should be
accepted or not.
b. Opportunity cost of offer if any.
c. What other qualitative factor should be consider to give the decision?
2. Rara Manufacturing Company provide the following information.
Particular June July
Production units 10,000 12,000
Sales units 9,000 10,000
Other related information are:
Direct material Rs. 5 per unit
Direct labour Rs. 4 per unit
Variable manufacturing overhead Rs. 3 per unit
Variable selling overhead Rs. 2 per unit
Fixed selling overhead Rs. 40,000
Selling price Rs. 30 per unit
Fixed manufacturing overhead Rs. 44,000
Normal capacity 11,000 units
Required:
a. Income statement under Absorption costing for the month of July. [5]
b. Reconcile the profit under variable costing [3]
c. Required sales to earn a profit of Rs. 200,000. [2]
3. Duku Trading Concern provide following income statement for the year 31 December,
2023
Products A B Total
Sales units 5,000 3,000 8,000
Sales revenue (Rs.) 200,000 109,000 309,000
Less: Variable cost of goods sold:
Direct material @ Rs. 4 per kg 40,000 36,000 76,000
Direct labour @ Rs 5 per DLH 75,000 30,000 105,000
Total variable cost of goods sold 115,000 66,000 181,000
Contribution 85,000 43,000 128,000
Margin Less:
Fixed cost: 30,000 25,000 55,000
Departmental fixed cost - - 25,000
Joint fixed cost
Net income before tax 48,000
Both raw material and labour are in short supply and for the next year direct material
will be available 9,000 kg and Direct labour hour of 12,000 DLH.
Required:
a. Overall break-even point in units [4]
b. Required sales to earn profit after tax Rs. 200,000 (tax rate 20%) [3]
c. Use Linear programming model to maximize the profit. [8]
4. Maximizing the profit through increasing selling price is not possible in this competitive
market. It is only possible through controlling the cost. Efficient manager can control
the cost by applying different management accounting tools. Do you agree with this
statement? Explain.
