PGDM 3.5 Strategic management Accounting

Unit – I Marginal costing

Course Instructors: Mrs. Annie Kavitha & Mr. N. Ramesh Babu

Name of the student: Roll No:

Coverage:

1. Introduction2. Cost classification (Behaviour wise – Fixed & Variable)3. Variable costing VS. Absorption costing4. Basic problems on Marginal costing5. Managerial application of Marginal costing (Advanced problems)6. Case Study

Formulae:

Marginal costing equation: Sales – variable cost = contribution = Fixed cost - profit

1. Profit/ volume ratio = Contribution x 100 Sales

2. Breakeven point (in units) = Fixed cost Contribution margin per unit

3. Breakeven sales = Fixed cost P/V ratio

4. Desired sales (in units) = Fixed cost + profit Contribution margin per unit

5. Desired sales (in Rupees) = Fixed cost + profit P/V ratio

6. Margin of safety = Profit P/V ratioOR

Margin of safety = Actual sales – Breakeven sales7. P/V ratio = % change in profit

% change in sales

BASIC PROBLEMS1. Calculate the P/V ratio and Breakeven point from the following particulars:

Rs.Sales 5,00,000

Fixed cost 1,00,000Profit 1,50,000Ans: P/V ratio = 50%; BEP = 2,00,000

2. Calculate Breakeven point from the following particulars: (HW)Rs.

Fixed expenses 1,50,000Variable cost per unit 10Selling price per unit 15Ans: BEP – 30,000 units & Rs. 4,50,000

3. From the following information find out the amount of profit earned during the year using the marginal costing technique: (HW)

Fixed cost Rs.5,00,000Variable cost Rs. 10 per unitSelling price Rs. 15 per unitOutput level 1,50,000 unitsAns: profit – Rs. 2,50,000

4. Calculate Breakeven point (HW)Selling price Rs.50/ unitVariable cost Rs. 30/ unitFixed cost Rs. 2,000Ans: BEP – 100 units & Rs. 5,000

5. The statement of cost of a cycle is as follows:Rs.

Material 200Labour 100Variable expenses 25Fixed expenses 75Profit 125Selling price 525

The number of cycles made and sold are 10,000 units. Find out: (i) Breakeven point (ii) how many cycles must be produced and sold if the selling price is reduced by Rs. 25 and the same profit is maintained?Ans: (i) 3,750 units (ii) 11,428 units

6. From the following particulars, calculate: (HW)(i) Breakeven point in terms of sales value and in units.(ii) Number of units that must be sold to earn a profit of Rs. 90,000.

Fixed Factory overhead cost Rs. 60,000Fixed selling overhead cost Rs. 12,000Variable Manufacturing cost per unit Rs. 12Variable Selling cost per unit Rs. 3Selling price per unit Rs. 24

Ans: BEP – 8,000 units & Rs.1,92,000; Desired sales – 18,000 units7. From the following data, you are required to calculate: (HW)

(a) P/V ratio (b) Breakeven sales (c) Sales required to earn a profit of Rs. 4,50,000Fixed expenses Rs. 90,000Variable cost per unit:Direct material Rs. 5Direct labour Rs. 2Direct expenses 100% of direct labourSelling price per unit Rs. 12

Ans: P/V ratio – 25%; BES – Rs. 3,60,000; D Sales – Rs.21,60,000 8. The competing companies, P Ltd. And Q Ltd., produce and sell the same type of product in the

same market. For the year ended March 2009 their forecasted profit and loss accounts are as follows:

P Ltd Q LtdRs. Rs. Rs. Rs.

SalesLess: Variable cost Fixed costEstimated profit

2,00,00050,000

3,00,000

2,50,00050,000

2,25,00025,000

3,00,000

2,50,00050,000

You are required to calculate:(a) Profit volume ratio, breakeven point and margin of safety of each business.(b) State volume at which each business will earn a profit of Rs. 30,000.(c) Explain giving reasons which business is likely to earn greater profits in the conditions of

(i) Heavy demand for the product(ii) Low demand for the product

Ans:(a) P Ltd Q LtdP/V ratio 33.33% 25%BEP Rs.1,50,000 Rs. 1,00,000M/S Rs. 1,50,000 Rs. 2,00,000(b) Desired sales Rs. 2,40,000 Rs. 2,20,000(c) (i) P Ltd., (ii) Q Ltd.

9. The competing companies, ABC Ltd. and XYZ Ltd., produce and sell the same type of product in the same market. For the year ended March 2009 their forecasted profit and loss accounts are as follows: (HW)

ABC Ltd XYZ LtdRs. Rs. Rs. Rs.

SalesLess: Variable cost Fixed costEstimated profit

2,00,00025,000

3,00,000

2,25,00075,000

1,50,00075,000

3,00,000

2,25,00075,000

You are required to calculate:(a) Profit volume ratio, breakeven point and margin of safety of each business.(b) State volume at which each business will earn a profit of Rs. 30,000.(c) Explain giving reasons which business is likely to earn greater profits in the conditions of

(iii) Heavy demand for the product(iv) Low demand for the product

Ans:(a) ABC Ltd XYZ LtdP/V ratio 33.33% 50%(b) BEP Rs.75,000 Rs. 1,50,000 (c) Low demand ABC Ltd., High demand XYZ Ltd.

10. A company proposes and markets industrial containers and packing cases. Due to competition the company proposes to reduce selling price. If the present level of profits is maintained, indicate the number of units to be sold if the proposed reduction in selling price is – (a) 5% (b) 10% and (c) 15%.

Rs. Rs.Present sales (30000 units) 3,00,000Variable cost 1,80,000

Fixed cost 70,0002,50,000

Net profit 50,000Ans: (a) 34,286 units; (b) 40,000 units; and (c) 48,000 units

11. Sales – 1,00,000; Profit – 10,000; Variable cost – 70% (HW)Find out (i) P/V ratio, (ii) Fixed csot (iii) Sales volume to earn a profit of Rs. 40,000Ans: (i)30% (ii)20,000 (iii) 2,00,000

12. Sale of a product amounts to 200 units per month at rs. 10 per unit. Fixed overhead cost is Rs.400 per month and variable cost is Rs. 6 per unit. There is a proposal to reduce prices by 10 percent. Calculate present and future P/V ratio. How many units must be sold to earn the present total profits?Ans: P/V ratio – 40%; 331/3%; 267 units

13. From the following particulars, find out the breakeven point: (HW)Variable cost per unit – Rs. 15; fixed expenses – Rs. 54,000; selling price per unit – Rs. 20What should be the selling price per unit, if the breakeven point should be brought down to 6,000 units? Ans: BEP – 10,800; SP/unit – Rs. 24

14. From the following information, ascertain by how much the value of sales must be increased by the company to breakeven: (HW)Sales – Rs. 3,00,000; Fixed cost – Rs. 1,50,000; Variable cost – Rs. 2,00,000Ans: 1,50,000

15. A company is making a loss of Rs. 40,000 and relevant information is as follows:Sales – Rs. 1,20,000; Variable cost – Rs. 60,000; Fixed cost – Rs. 1,00,000.

Loss can be made good either by increasing the sales price or by increasing sales volume. What are breakeven sales if(a) Present sales level is maintained and the selling price is increased.(b) If present selling price is maintained and the sales volume is increased. What would be sales

if a profit of Rs. 1,00,000 is required?Ans: (a) 1,20,000 (b) 4,00,000

16. An analysis of Modern manufacturing Co. Ltd. led to the following information:

Variable cost (% of sales) Shut-down costDirect Materials 32.8 -Direct labour 28.4 -Factory overhead 12.6 1,89,900Distribution expenses 4.1 58,400General and Administration expenses 1.1 66,700Budgeted sales for the next year are Rs. 18,50,000.You are required to determine:(i) The breakeven sales volume(ii) The profit at the budgeted sales volume(iii) The profit if actual sales (a) drop by 10%, (b) increase by 10%.(iv) The profit if actual sales increase by 5% from budgeted sales.

Ans: (i) 15,00,000; (ii) Rs. 73,500; (iii) (a) Rs. 34,650 (b) 1,12,350; (iv) Rs. 92,92517. An analysis of costs of a company led to the following information: (HW)

Variable cost (% of sales) Shut-down costDirect Materials 33.6 -Direct labour 28.4 -Factory overhead 11.6 1,66,700Distribution expenses 3.3 63,400

General and Administration expenses 1.1 99,900Budgeted sales for the next year are Rs. 20,00,000.You are required to determine:(v) The breakeven sales volume(vi) The profit at the budgeted sales volume(vii) The profit if actual sales (a) drop by 12.5%, (b) increase by 10%.(viii) Sales to generate a profit of Rs. 2,20,000.(ix) Ans: (i) 15,00,000; (ii) Rs. 1,10,000; (iii) (a) Rs. 55,000, (b) 1,54,000; (iv) Rs. 25,000

18. The following figures of sales and profits for two periods are available in respect of a concern:Sales (Rs.) Profit (Rs.)

Period I 1,00,000 15,000Period II 1,20,000 23,000

You are required to find out:(a) P/V ratio (b) Fixed cost (c) Breakeven point (d) profit at an estimated sale of Rs. 20,000 (e)

sales required to earn a profit of Rs. 20,000Ans: (a) 40% (b) 25,000 (c) Rs. 62,500 (d) Rs. 25,000 (e) Rs. 1,12,500

19. The following figures of sales and profits for two periods are available in respect of a concern: (HW)

Total Sales (Rs.) Total cost(Rs.)Period I 4,00,000 3,60,000Period II 3,50,000 3,25,000

You are required to find out:(b) P/V ratio (b) Fixed cost (c) Breakeven point (d) sales required to earn a profit of Rs. 65,000Ans: (a) 30% (b) 80,000 (c) Rs. 2,66,667 (d) Rs. 4,83,333

20. Rakshaa Ltd., a multi product company, furnishes you the following data relating to the year 2009

First Half of the year Second Half of the yearSales Rs. 50,000 Rs. 55,000Total Cost Rs. 45,000 Rs. 49,000

Assuming that there is no change in prices and variable costs and that the fixed expenses are incurred equally in the two half periods. Calculate for the year 2009.(i) The P/V ratio (ii) Fixed expenses (iii) breakeven sales (iv) Percentage of margin of safety

21. The following information relates to production and sale of an article for January and February 2009:

January (Rs.) February (Rs.)Sales 38,000 65,000Profit -- 3,000Loss 2,400 --Calculate:(i) Breakeven sales volume (ii) profit or loss at Rs.46,000 sales (iii) Sales to earn a profit of Rs.

46,000 salesAns: (i) Rs. 50,000 (ii) Loss Rs. 800 (iii) Rs. 75,000

22. The following information relates to production and sale of an article for November and December 2009: (HW)

November (Rs.) December (Rs.)Sales 55,000 80,000Profit -- 5,000Loss 2,000 --Calculate:(j) Breakeven sales volume (ii) profit or loss at Rs.60,000 sales (iii) Sales to earn a profit of Rs.

10,000 sales

Ans: (i) Rs. 62,143 (ii) Loss Rs. 600 (iii) Rs. 97,85723. A company has earned a profit of Rs. 25,000 during the year 2009. If the marginal cost and

selling price of a product are Rs. 7.50 and Rs. 10 per unit respectively, find out the margin of safety. (HW)

24. From the following information calculate: (HW)(i) P/V ratio(ii) Breakeven point(iii) Margin of safety

Rs.Total Sales 3,60,000Selling price, per unit 100Variable cost, per unit 50Fixed cost 1,00,000---------------------------------------------------------------------------------------------------------------------(iv) If the selling price is reduced to Rs.90, by how much is the margin of safety reduced?Ans: (i) 50% (ii) Rs. 2,00,000 (iii) Rs. 1,60,000 (iv) Rs. 25,000

25. You are given: (HW)Margin of safety Rs. 15,000, which represents 30% of sales. P/V ratio 40%. Calculate (a) Sales (b) Breakeven sales (c) Fixed cost and (d) profit

26. You are required to calculate (a) P/V ratio (b) Margin of safety (c) Sales and (d) variable cost from the following figures.Fixed cost Rs. 15,000; Profit Rs. 2,000; breakeven sales Rs. 75,000

27. The P/V ratio of Devi Ltd. Is 50% and the margin of safety is 30%. You are required to work out the Breakeven sales and the net profit if sales volume is Rs. 60,00,000 (HW)

28. The P/V ratio of a firm dealing in precision instrument is 50% and margin of safety is 40%. You are required to work out the BEP and net profit if sales volume is Rs. 5,00,000.

29. Manjula Ltd. Has prepared the following budget estimates for the year 2008-2009.Sales (Units) 21,000Fixed expenses Rs. 30,000Sales Rs. 2,10,000Variable costs Rs. 7 per unit

You are required to (i) Find the P/V ratio, breakeven point and margin of safety (ii) Calculate the revised P/V ratio, breakeven point and margin of safety in each of the

following cases(a) Increase of 10% in selling price;(b) Decrease of 10% in variable costs;(c) Increase of sales volume by 2,500 units; and (d) Increase of Rs.9,000 in fixed costs.

Problems on Decision Making (Advanced Problems)

I. Make or Buy Decision:1. A radio manufacturing company finds that while it costs Rs.8 to make each component

No. 011, the same is available in the market at Rs.6.50eash, with an assurance of continued supply. The breakdown of cost is,Item per unit (Rs.)Materials 3

Labour 2Other variable expenses 1Depreciation and other fixed costs 2Total cost 8Should the company make or buy? Give also your views in case the supplier reduces the price from Rs. 6.50 to Rs. 5.50(Ans. 1. Make 2. Buy)

2. A TV manufacturing company finds that while it costs Rs. 6.25 to make a component x27Q, the same is available in the market at Rs. 5.75 each. The breakdown of cost is,Material Rs. 2.75Wages Rs. 1.75Other variable overheads Rs. 0.50Fixed overheads Rs. 1.25 --------------Total cost Rs. 6.25 ---------------

a) Should the company make or buy?b) What would be your decision if the supplier offers the same component at Rs.

4.85 each? (HW) (Ans. 1. Make 2. Buy)

3. Auto part Ltd. Has an annual production of 90,000 units for a motor component. The cost structure of the component is as below. Per unit (Rs)Material 270Labour (25% fixed) 180Variable expenses 90Fixed expenses 135

a) The purchase manager has an offer from a supplier who is willing to supply the component at Rs. 540. Should the component be purchased or produced?

b) Assume the resources now used for this component are to be used to produce another mew product for which the selling price is Rs. 485 and materials required will be Rs. 200 per unit. 90,000 units of the product can be produced at the same cost of labour and expenses. Discuss whether it would be advisable to divert the resources to manufacture that new product on the footing that the component presently being produced would, instead of being produced, be purchased from the market.(Ans. 1. Make 2. Buy)

II. Product Mix (or) Sales Mix:1. A company produces two produces namely X and Y. The following facts are given.

Particulars X (Rs.) Y (Rs.)Contribution per unit 2 3

Required production hours per unit 1 2Sales (units) 1500 800Available production hours =2000 hours.Determine optimum product mix.(Ans. 1500 units of X and 250 units of Y)

2. Rashika Ltd. produces three products A, B and C. the cost and other details of three products are as below.

Particulars A B CSelling price per unit 100 80 50Variable cost per unit 60 60 20Maximum production Per month (units) 5,000 8,000 6,000Maximum demand Per month (units) 2,000 4,000 2,400

The total hours available are 200 hours per month. Advise the management on the profitable product mix. (HW)

3. From the following information you are required to,a. Calculate and present the marginal product cost and contribution per uit.b. State which of the alternative sales mix you would recommend to the

management and why?

Particulars X (Rs.) Y (Rs)Selling price per unit 25 20Direct material per unit 8 6Direct wages 24 hours @0.25 per hour 16 hours @0.25 Fixed over heads Rs. 750Variable over heads are 150% of direct wages.

Alternative sales mixes:

A. 250 units of X & 250 units of YB. Nil units of X & 400 units of YC. 400 units of X & 100 units of Y

Problems on special order:

1. M/S Mini Toy Ltd received an offer from a customer for 10,000 toy trains at Rs. 15 each. There has to a slight modification in the design so as to differentiate it from the same product sold to regular customer, but it will not affect the direct product costs.The company expects to incur its regular unit variable costs and in addition it must absorb Rs. 10,000 as the cost of freight to the customer’s godown.The company’s previous year cost data are as below.Production and sales - 35,000 trains.

Particulars per train (Rs)Selling price 20Material Rs 4Labour Rs 4Over heads Rs 10(60% Fixed) ------ 18Profit 2The management has almost decided to turn the offer saying that the price offered is less than the cost per unit, but before writing to the customer the management requests your advice. Advise the management in this matter.

2. Indo – British company has a capacity to produce 5000 units but actually producing only 2000 units for the home market at the following costs.

Materials Rs. 40,000Wages Rs. 36,000Factory overheads: Rs.Fixed 12,000Variable 20,000Administrative overheads (fixed) 18,000Selling and distribution overheads:Fixed 10,000Variable 16,000Total cost 1, 52,000The home market can consume only 2,000 units at a selling price of Rs. 80 per unit. An additional order for the supply of 3,000 units is received from a foreign country at Rs. 65 per unit. Should this order be accepted or not? (HW)

Problems on Key factor:

1. The following particulars are extracted from the records of a company.Particulars (per unit) product A product BSelling price 100 120Material consumed 2 kgs 3 kgsMaterial cost 10 15Direct labour cost 15 10Direct expenses 5 6Machine hours used 1.5 h 2 hFixed overheads 5 10Variable overheads 15 20Direct wages per hour is Rs. 5. Comment on the profitability of each products when,

a. Total sales potential in units is limited.b. Total sales potential in value is limited.c. Raw material is in short supply.d. Production capacity (in terms of machine hours) is the limiting factor.

Assuming raw material as the key factor, availability of which is 10,000 kgs. And maximum sales potential of each product being 3,500 units find out the product mix which will yield maximum profit.

Problems on shut down or suspending activities:1. A producer is selling a product at Rs. 80 per unit in a market suffering from acute

depression. Monthly fixed cost is Rs.5,00,000 but if suspends production he will continue to incur fixed costs to the extent of Rs. 4,10,000 per month. Variable cost per unit is Rs. 50. What is the minimum level of sales in units upto which he should continue producing assuming that the price does not fall below Rs. 80 per unit.

2. Per unit variable cost of a product is Rs. 45. If the plant has to remain operational the producer must produce atleast 20,000 units per month. Monthly fixed cost is Rs. 6,00,000 of which Rs. 4,65,000 is unavoidable fixed cost. Upto what minimum price the producer should continue producing and selling?

3. A single product producer is incurring fixed cost of Rs. 6,00,000 per annum of which fixed cost of Rs. 4,80,000 will continue to be incurred even if the factory is shutdown for a year. There will be additional shut down cost of Rs.2,000 per month. Variable cost per unit is Rs.28. The coming twelve months period is declining economic activity and the producer is not expecting to recover full cost. He believes he will be able to sell at Rs. 30 per unit. What is the minimum level of annual output and sale below which the factory should suspend production activity? (HW)

4. During the previous year a firm sold 50,000 units per month at a price of Rs. 60 whereas the variable cost was Rs. 40 per unit. Monthly fixed cost amounted to Rs. 3,00,000. The current year is of extreme depression and the selling price is coming down. With best effort the firm can keep variable cost down to Rs. 1,10,000 per month, if the firm decides to temporarily close down. In that case there will be an additional shut down cost of Rs. 20,000. The minimum level of monthly output to keep the plant running cannot be below 25,000 units. What is the minimum price at which the plant can be kept operational. (HW)

CASE STUDY: AMRITA TEA

By Prof. K Balakrishnan (C) 1977 by the Indian Institute of Management, Ahmadabad.Amrita tea of Darjeeling had always sold its products through a sole selling agency. The government started devising schemes to eliminate middlemen and Amrita wanted to respond to the new public policy towards private distribution.

This year, Amrita had made a net profit before tax (NPBT) of 10 percent on sale of Rs 20 lakhs. It is feared that elimination of the sole selling agency and selling directly to retailers would result in a 40 percent drop in sales next year. Fixed expenses would increase from the present figure of Rs 2.0 lakhs to 3.0 lakhs owing to the additional warehousing, distribution, and other marketing efforts.Elimination of middlemen would, of course, save Amrita a substantial chunk of variable costs. They were not willing to give the details of the sole selling agency agreement and how much variable cost they would eliminate by the switch-over. Instead, they wanted advice on the following:

1. How much the variable costs need to be reduced next year in order to make the same NPBT (not in terms of percentage, but in absolute amount), under the new scheme as they made this year.

2. If they are likely to make a NPBT of Rs 1.8 lakhs next year under the new arrangement, what do you think is happening to their break-even? Would they have a larger or smaller “margin of safety,” and by how much?

Assignment Submission Date:

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Case Study Submission Date: -----------------------

Additional notes:

PGDM 3.5 Strategic management Accounting

Unit – II Budgetary Control Course Instructors: Mr. N. Ramesh Babu& Mrs. Annie Kavitha

Name of the student: Roll No:

Coverage:

1. Budgeting & Budgetary Control2. Various functional Budgets3. Flexible Budget4. Cash Budget5. Zero based Budgeting6. Master Budget7. Case study

Sales Budget:

1. P. Ltd. Manufactures two brands of Pen Hero & Zero. The sales division of the company has three departments in different areas of the country.The sales budgets for the year ending 31st December 2009 were:Hero – Department I – 3,00,000; Department II – 5,62,500; Department III – 1,80,000 and Zero – Department I – 4,00,000; Department II – 6,00,000; and Department III – 20,000. Sales prices are Rs. 3 and Rs. 1.20 in all departments.It is estimated that by forced sales promotion, the sale of ‘Zero’ in department I will increase by 1,75,000. It is also expected that by increasing production and arranging extensive advertisement, Department III will be enabled to increase the sale of ‘Zero’ by 50,000.It is recognized that the estimated sales by Department II represent an unsatisfactory target. It is agreed to increase both estimates by 20%.Prepare a sales budget for the year 2009.

Production Budget & Production Cost Budget:

1. Prepare a production budget for each month and a summarized production cost budget for the six months period ending 31st December 2009 from the following data of product ‘X’.

(i) The units to be sold for different months are as follows:July, 2009 1,100August 1,100September 1,700October 1,900November 2,500

December 2,300January, 2010 2,000

(ii) There will be no work in progress at the end of any month.(iii) Finished units equal to half the sales for the next month will be in stock at the end of

each month (including June, 2009)(iv) Budgeted production and production cost for the year ending 31st December, 2009 are

as follows:Production (units) 22,000Direct materials (per unit) Rs. 10Direct wages (per unit) Rs. 4Total factory overheads apportioned to products Rs. 88,000.It is required to prepare:(a) Production Budget for the last six months of 2009; and(b) Production Cost Budget for the same period.Ans: 11,050 units; (b) Rs. 1,98,900.

(i) Prepare a production budget for each month and a summarized production cost budget for the six months period ending 31st December 2009 from the following data of product ‘Fish plate X’. The units to be sold for different months are as follows:

July, 2009 2,200August 2,200September 3,400October 3,800November 5,000December 4,600January, 2010 4,000

(ii) There will be no work in progress at the end of any month.(iii) Finished units equal to half the sales for the next month will be in stock at the end of

each month (including June, 2009)(iv) Budgeted production and production cost for the year ending 31st December, 2009 are

as follows:Production (units) 44,000Direct materials (per unit) Rs. 10Direct wages (per unit) Rs. 4Total factory overheads apportioned to products Rs. 88,000.It is required to prepare:(c) Production Budget for the last six months of 2009; and(d) Production Cost Budget for the same period.Ans: 22,100 units; (b) Rs. 3,53,600.

Material cost Budget:

1. The sales director of a manufacturing company reports that next year he expects to sell 40,000 units of a particular product. The production department gives the following figures:

Two kinds of raw materials A and B are required for manufacturing the product. Each product requires 3 units of material A and 2 units of material B. The estimated opening balances next year will be:Finished product - 10,000 units, material A – 12,000 units, material B – 15,000 units.The desirable closing balances at the end of the year are:Finished product – 16,000 units, material A – 14,000 units, material B – 15,000 units.Draw up a material purchase budget.Ans: A – 1,40,000; B – 92,000

2. From the following figures prepare Raw materials purchase Budget for Jan. 2009: Materials (units)

A B C D E FEstimated stock on January 1 16,000 6,000 24,000 2,000 14,000 28,000Estimated stock on January 31 20,000 8,000 28,000 4,000 16,000 32,000Estimated consumption 1,20,000 44,000 1,32,000 36,000 88,000 1,72,000Standard price per unit 25 P. 5 P. 15 P. 10 P. 20 P. 30 P.

1. Ans: A – 31,000; B – 2,300; C – 20,400; D – 3,800; E – 18,000; F – 52,000

Direct Labour Budget:

1. A factory works 8 hours a day, 6 days in a week and budget period is one year and during each quarter, lost hours due to live, holidays etc. estimated to be 124 hours.Particulars Product A Product BDirect Labour per unit:In Department P 2 hours @ Re. 1 per hour 1 hour @ Rs. 2 per hourIn Department Q 1 hour @ Rs. 3 per hour 1 hour @ Rs. 3 per hourUnits to be produced asPer production budget 10,000 units 4,000 unitsRequired:a. Prepare manpower Budget showing Direct labour hours and no. of works.b. Prepare Manpower budget showing labour cost.

Manufacturing overhead cost Budget:

1. From the information given below, prepare a manufacturing overhead budget for the quarter ending December 31, 2009:Budgeted output during the quarter 5,000 unitsFixed overheads Rs. 30,000Variable overheads (@ Rs. 5 per unit) Rs. 15,000Semi-variable overheads (40% fixed and 60% varying @ Rs. 3 per unit)Ans: Rs. 76,000

Selling and Administration Budget:

1. You are required to prepare a sales overhead budget from the estimates given below:

Rs.Advertisement 2,500Salaries of the sales department 5,000Expenses of sales department 1,500Counter salesmen’s salaries and dearness allowance 6,000Travelling salesmen’s commission at 10% on their sales and expenses at 5% on their

sales.Sales during the period were estimated as follows:

Counter sales (Rs.) Travelling Salesmen’s (Rs.)80,000 10,0001,20,000 15,0001,40,000 20,000

Ans: 17,300; 18,450; 19,400

Flexible Budget:

1. The expenses for the production of 5,000 units in a factory are given as follows:Per unit Rs.

Materials 2,50,000Labour 1,00,000Variable overhead 75,000Fixed overhead 50,000Administrative expenses (5% variable) 50,000Selling expenses (20% fixed) 50,000

You are required to prepare a budget for the production of 7,000 units.2. The following information relates to a flexible budget at 60% capacity. Find out the

overhead costs at 50% and 70% capacity and also determine the overhead rates:Expenses at 60% capacity

Variable overheads: Rs.Indirect labour 10,500Indirect materials 8,400Semi-variable overheads:Repairs and Maintenance (70% fixed, 30% variable) 7,000Electricity (50% fixed, 50% variable) 25,200Fixed overheads:Office expenses including salaries 70,000Insurance 4,000Depreciation 20,000Estimated direct labour hours 1,20,000

3. With the following data for a 60% activity, prepare a budget for production at 80% and 100% capacity:Production at 60% activity 600 unitsMaterials Rs. 100 per unitLabour Rs. 40 per unitDirect expenses Rs. 10 per unitFactory overheads Rs. 40,000 (40% fixed)

Administrative expenses Rs. 30,000 (60% fixed)4. Draw a flexible Budget for a overhead expenses on bases of the following data and

determined overhead rates at 70%, 80% and 90% plant capacityElement Cost 70%Capacity 80% Capacity 90% CapacityVariable overheads:Indirect labour ---- 12,000 ----Stores and spares ---- 4,000 ----Semi-variable overheads:Power (30% fixed) ---- 20,000 ----Repairs and Maintenance (40% variable) ---- 2,000 ----Fixed overheads:Depreciation ---- 11,000 ----Insurance ---- 3,000 ----Salaries ---- 10,000 ----Total overheads ---- 62,000 ----Direct labour hours ---- 1,24,000 hours ----

5. The following information at 50% capacity is given. Prepare a flexible budget and forecast the profit or loss at 60%, 70% and 90%.

Expenses at 50% capacityFixed expenses: Rs.Salaries 50,000Rent and taxes 40,000Depreciation 60,000Administrative expenses 70,000Variable expenses:Materials 2,00,000Labour 2,50,000Others 40,000Semi-variable expenses :Repairs 1,00,000Indirect labour 1,50,000Others 90,000

It is estimated that fixed expenses will remain constant at all capacities. Semi-variable expenses will not change between 45% and 60% capacity, will rise by 10% between 60% and 75% capacity, a further increase of 5% when capacity crosses 75%.

Estimated sales at various levels of capacity are:Capacity Sales (Rs.)60% 11,00,00070% 13,00,00090% 15,00,000

Cash budget:

1. The income and expenditure forecasts for months of March to August, 2009 are given as follows:Months Sales

(Credit) Rs.

Purchases (Credit) Rs.

Wages

Rs.

Manufacturing Expenses Rs.

Office expenses Rs.

Selling expenses Rs.

MarchAprilMayJuneJulyAugust

60,00062,00064,00058,00056,00060,000

36,00038,00033,00035,00039,00034,000

9,0008,00010,0008,5009,5008,000

3,5003,7504,0003,7505,0005,200

2,0001,5002,5002,0001,0001,500

4,0005,0004,5003,5003,5004,500

You are given the following further information:(a) Plant costing Rs. 16,000 is due for delivery in July payable 10% on delivery and the

balance after 3 months.(b) Advance tax of Rs. 8,000 is payable in March and June each.(c) Creditors allow 2 months credit and debtors are paying one month late. (d) Opening Balance of Cash Rs. 8,000.(e) Lag of one month in expenses.

Prepare a cash budget for the months May to July.Ans: May – Rs. 15,750; June – Rs. 12,750; July – Rs. 18,400

2. Infotech commenced its business on 1st April 2009 and deposits Rs 1, 00,000 in SBI. The sum deposited would not be sufficient to finance its operations over a period of 4 months. Relevant data is as under:1. Sales are made on 30 days term, 2% discount.2. Furniture purchases for Rs. 10,000 preferred to be made in April, 2009.3. Budgeted figures April May June July

Purchases 50,000 40,000 30,000 40,000Wages 40,000 50,000 40,000 40,000Expenses 4,000 5,000 4,000 4,000Sales 60,000 70,000 80,000 80,000

4. All purchases made on 30 days term.As a finance manager, you are asked to prepare a cash budget for the company and also ascertain the OD limits to seek from the banker.

3. Prepare a cash budget for the three months ending 30th June from the following information:(a) Month Sales Materials Wages Overheads

February 14,000 9,600 3,000 1,700March 15,000 9,000 3,000 1,900April 16,000 9,200 3,200 2,000May 17,000 10,000 3,600 2,200June 18,000 10,400 4,000 2,300

(b) Credit terms are:Sales/ Debtors – 10% sales are on cash, 50% of the credit sales are collected next month and the balance in the following month.

(c) Creditors: Materials, 2 monthsWages, ¼ monthOverheads, ½ month.

(d) Cash and Bank balance on 1st April expected to be Rs. 6,000.(e) Other relevant information are:

1. Plant and machinery will be installed in February at a cost of Rs. 96,000, the monthly installment of Rs. 2,000 are payable from April onwards.

2. Dividend @5% on

Case Study (Master Budget)

Victoria Kite Company, a small Melbourne firm that sells kites on the web wants a master budget for the next three months, beginning January 1, 2005. It desires an ending minimum cash balance of $5,000 each month. Sales are forecasted at an average wholesale selling price of $8 per kite. In January 1, Victoria Kite is beginning Just–In-Time (JIT) deliveries from suppliers, which means that purchases equal expected sales.

On January 1, purchases will cease until inventory reaches $6,000, after which time purchases will equal sales. Merchandise costs average $4 per kite. Purchases during any given month are paid in full during the following month. All sales are on credit, payable within 30 days, but experience has shown that 60% of current sales are collected in the current month, 30% in the next month, and 10% in the month thereafter. Bad debts are negligible.

Monthly operating expenses are as follows:

WAGES AND SALARIES $15,000INSURANCE EXPIRED 125DEPRECIATION 250MISCELLANEOUS 2,500RENT 250/MONTH + 10% OF QUARTERLY

SALES OVER $10,000Cash dividends of $1,500 are to be paid quarterly, beginning January 15, and are declared on the fifteenth of the previous month. All operating expenses are paid as incurred, except insurance, depreciation, and rent. Rent of $250 is paid at the beginning of each month, and the additional 10% of sales is paid quarterly on the tenth of the month following the end of the quarter. The next settlement is due January 10. The company plans to buy some new fixtures for $3,000 cash in March.

Money can be borrowed and repaid in multiples of $500 at an interest rate of 10% per annum. Management wants to minimize borrowing and repay rapidly. Interest is computed and paid when the principal is repaid. Assume that borrowing occurs at the beginning, and repayments at the end of he months in question. Money is never borrowed at the beginning and repaid at the end of the same month. Compute the interest to the nearest dollar.

Assets as of Dec 31, 2004

Liabilities as of Dec 31, 2004

Cash $5,000 Accounts Payable (Merchandise) $35,550Accounts Receivable 12,500 Dividends Payable 1,500Inventory* 39,050 Rent Payable 7,800Unexpired Insurance 1,500 = $44,850Fixed assets, net 12,500= $70,550* November 30 inventory balance = $16,000

Recent and Forecasted sales:

October = $38,000 December = $25,000 February= $75,000 April= $45,000November = 25,000 January = 62,000 March = 38,000

Questions:

1. Prepare a master budget including a budgeting income statement, balance sheet, statement of cash receipts and disbursements, and supporting schedules for the months January through March 2005.

2. Explain why there is a need for a bank loan and what operating sources provides the cash for the repayment of the bank loan

Assignment Submission Date: ----------------------

Case Study Submission Date: -----------------------

Unit 3

Standard Costing & Variance Analysis

Student Name = Roll no. =

Coverage:-

o Introductiono Standard Costo Analysis of Varianceso Material Variances + Problemso Labour Variances + Problemso Overhead Variances + Problemso Sales (or) Profit variances + problems

Formulae in Standard Costing

S.No Summery – Standard Costing – FormulaeI. Material variances

a) MCV = (ASQ × SP) – (AQ × AP) b) MPV = AQ (SP – AP)c) MUV = SP (ASQ – AQ)d) MMV = SP (RSQ – AQ)e) MYV = SYR (AY - RSY)

Verification :- a = ( b+c ) ; c = ( d+e ) ; a = [ b +( d+e ) ]

II. Labour variancesa) LCV = (AST × SR) – (AT × AR)b) LPV = AT (SR – AR)c) LITV = (SR × AIT) = adverse analysisd) LEV = SR (AST – AT*) Note- ( AT* =AT – AIT ) e) LMV = SR (RST – AT*)f) LYV = SYR ( AY – RSY )

Verification :- a = ( b+c+d ) ; d = (e+f) ; a = [ b+c+(e+f) ]

III. Over head variances1) Variable / OH / Variances

a) V/OH/COST/V = ( AO × SR Per U ) – (AO × AR Per U) ( AST × SR Per Hr.) – (AT × AR Per Hr)

b) V/OH/EXPN/V = AT ( SR Per Hr – AR Per Hr )c) V/OH/EFFICIENCY/V = SR Per Hr. ( AST – AT )

Verification :- a = ( b+c )2) Fixed / OH / Variances

a) F/OH/COST/V = ( AO × SR Per U ) – ( AO × AR Per U )b) F/OH/EXPN/V = ( B/F/OH’s – A/F/OH’s )c) F/OH/VOLUME/V = SR Per U ( AO – BO )d) F/OH/CAPASITY/V = SR Per U ( RBO – ABO )e) F/OH/CALENDER/V = SR Per U ( ABO – BO )f) F/OH/EFFICIENCY/V = SR Per U ( AO – RBO )

Verification :- a = ( b+c ) ; c= (d+e+f) ; a = b+(d+e+f )IV. Sales Variances

Method – 1 :- “PROFIT” or Sales Margin method” (m/I )Method – 2 :- : “TURNOVER” or “Sales Value Method” ( M/II )

a) M/I :- TSMV = ( AQ × APt per U ) – ( SQ × SPt per U ) M/II :- TSVV = ( AQ × ASP per U ) – ( SQ × SSP per U )

b) M/I :- SPV = AQ ( Apt – SPt ) per UM/II :- SPV = AQ ( ASP – SSP ) per U

c) M/I :- SVV = SPt per U ( AQ – SQ )M/II :- SVV = SSP per U ( AQ – SQ )

d) M/I :- SMV = SPt per U ( AQ – RSQ )M/II :- SMV = SSP per U ( RSQ – SQ )

e) M/I :- SQV = SPt per U ( RSQ – SQ )M/II :- SSeV = SSP per U ( RSQ – SQ )

Verification :- a = ( b+c ) ; c = ( d+e ) ; a = [ b +( d+e ) ]

Problems on Material Variances

1) In a manufacturing process, the following standards apply:-

Standard price: Raw material ‘A’ Rs. 1 per kg. . Raw material ‘B’ Rs. 5 per kg

Standard Mix – 75 % ‘A’; 25 % ‘B’ (by weight) Standard Yield – 90 %

In a period, the actual costs, usage and output were as follows;

Used :- 4,400 Kgs. of ‘A’ costing Rs 4,650 . 1,600 Kgs. of ‘B’ costing Rs 7,850

Output:- 5,670 Kgs. of products. The budgeted output for the period was 7,200 Kgs.

Calculate all the Variances.

Ans: MCV = Rs 100 (F), MPV = (100) (A), MUV = 200 (F), MMV = 400 (F), MYV = 600 (F).

2) The standard mix of product MS is as follows:

Kgs Material Price per Kg50 A Rs. 5.0020 B Rs. 4.0030 C Rs. 10.00

The standard loss in production is 10 % of input, there is no scrap value. Actual production for a month was 7,240 of MS from 80 mixes. Actual purchases and consumption of material during the month were:

Kgs material Price per Kg.

4,160 A Rs. 5.501,680 B Rs. 3.752,560 C Rs. 9.50

You are required to calculate & present the following variances: . 1) MCV, 2) MPV, 3) MMV, 4) MYV, 5) MUV

Ans: 1) Rs. 2,820 (A), 2) 360 (A) 3) 2440 (A) 4) 200 (A) 5) 2240 (A)

3. The standard mix of a product is:

X 60 Units @15 p. per UnitY 80 Units @20 p. per UnitZ 100 Units @25 p. per Unit

240

10 units of the finished product should be obtained from this mix. During the month of the march, ten mixes were completed and the consumption was:

X 640 Units @20 p. per Unit 128Y 960 Units @15 p. per Unit 144Z 840 Units @30 p. per Unit 252

2,440 524

Actual output was 90 units

Calculate the appropriate material Variances

Ans. MCV = 74 (A), MPV = 26 (A), MUV = 48 (A), MMV = 10.35(F), MYV = 58.35(A).

4). S.V.Ltd. manufactures BXE by mixing three raw materials, for every batch of 100 kgs of ‘BXE’ 125 kgs of raw materials are used. In September, 2009, 60 batches were prepared to produce an output of 5,600 kgs of ‘BXE’ the standard and actual particulars for September 2009 are as fallows:-

Raw material

Mix (%) Standard Price per Kg. (Rs)

Mix (%) Actual price Per Kg (Rs)

Quantity of raw material purchased (Kg)

A 50 20 60 21 5,000B 30 10 20 8 2,000C 20 5 20 6 1,200

Calculate: I. Material Cost Variances; II. Material Price Variances; III. Material Mix Variances; . IV. Material Yield Variances

Ans; I. MCV=30,200(A), ii. MPV=2,200(A) iii. MUV=28,000(A) IV. MMV=11,200(A) V. MYV=16,800(A)

5. The standard material cost for 100 kg. of chemical ‘D’ is made up of:

Chemical A – 30 kgs @ Rs. 4.00 per kg. Chemical B – 40 kgs @ Rs. 5.00 per kg. Chemical C – 80 kgs @ Rs. 6.00 per kg.

In a batch, 500 kga of chemical ‘D’ were produced from a mix of:

Chemical A – 140 kgs at a cost of Rs. 588 Chemical B – 220 kgs at a cost of Rs. 1,056 Chemical C – 440 kgs at a cost of Rs. 2,860

How do they yield, mix & the price factors contribute, to the variance in the actual cost per 100 kgs, of chemical ‘D’ over the standard cost ?

Ans: MCV=100.8(A); MPV=40.8(A); MMV=7(A); MYV=53(A)

6. Vardhaman Ltd is producing floor mats in rolls of standard size measuring 3 meters wide and 30 meters long by feeding raw materials to a continuous processing machine.

Standard mixture fixed for a batch of 900 Sq.Mts. of floor cover is as follows

20,000 kgs. of material X at Rs. 1.00 per kg. 800 kgs. of material Y at Rs. 1.50 per kg. 20 kgs. of material Z at Rs. 30.00 per kg.

During June 2009; 1,505 standard size rolls were produced from materials issued for 150 batches. The actual usage and the cost of material as follows;

3, 00,500 kgs. of material X at Rs. 1.10 per kg 1, 19,600 kgs. of material Y at Rs. 1.65 per kg 3,100 kgs. of material Z at Rs. 29.50 per kg

You are required to show the break-up of material cost variances arising during June 2009.

Ans; MCV=47,400(A); MPV=46,440(A); MUV=1,000(A); MMV=2,630.7(A); MYV=1,630.7(F)

7. Compute the missing data indicated by Question Marks from the following:

Particulars A BStandard Price/ Unit Rs. 12 Rs. 15Actual Price / Unit Rs. 15 Rs.20

Standard Input (kgs) 50 ?Actual Input (kgs) ? 70Material Price Variances ? ?Material Usage Variances ? Rs 300 AdverseMaterial Cost Variances ? ?

Material mix variances for both products together were Rs. 45 adverse.

Ans :- For R/M ‘A’ = Actual Input = 40 kgs ; MPV = Rs. 120(A); MUV= 120(F); MCV = Nil

For R/M ‘B’ = Standard Input = 50 kgs; MPV = Rs. 350(A); MCV = 650(A).

Labour Variances

1) Standard labour hours & rate for production of article ‘A’ are given below

Hrs Rate (Rs) Total (Rs)Skilled worker 5 1.50 per hour 7.50Unskilled worker 8 0.50 per hour 4.00Semi skilled worker 4 0.75 per hour 3.00

14.50Actual Data:- Articles produced 1,000 units -

Hrs Rate per Hr Total (Hr)Skilled worker 4500 2.00 9,000Unskilled worker 10000 0.45 4,500Semi skilled worker 4200 0.75 3,150

16,650Calculate – a) LCV, b) LRV, c) LEV, d) LMV, e) LYVAns – a) 2,150(A), b) 1,750(A), c) 400(A), d) 1,050(F) e) 1,450(A)

2) The details regarding composition & the weekly wage rate of labour force engaged on a job scheduled to be completed in 30 weeks are as follows –

Category of workers No.of. labour Weekly wage rate No.of.labour Weekly wage rateSkilled worker 75 Rs 60 70 Rs. 70Unskilled worker 45 Rs 40 30 Rs. 50Semi skilled worker 60 Rs 30 80 Rs. 20

The work is actually completed in 32 weeks.Calculate the various labour variances.Ans. a) LCV=Rs 13,000(A) b) LRV=6,400(A) c) LEV=6,600(A) d) LMV=9,600(F) e) LYV=16,200(A)

3) A contract job is scheduled to be completed in 30 weeks with a labour compliment of 100 skilled operatives, 40 semi skilled operatives, and 60 unskilled operatives. The standard weekly wages of each type of operatives are – skilled Rs.60, semi skilled Rs-36, & Unskilled Rs-24.The work is actually completed within 32 weeks with a labour force of 80 skilled, 50 semi skilled, & 70 unskilled operatives and the actual weekly wage rates average Rs. 65 for skilled, Rs.40 for semi skilled & Rs. 20 for unskilled labour. Analyze the variances in the labour cost due to various reasons.

Ans. a) LCV=Rs.8,800(A) b) LRV=10,240(A) c) LEV=1,440(F) d) LMV=19,200(F) e) LYN=17,760(A).

4) The standard labour component & the actual labour component engaged in a week for a job are as under:

Skilled workers

Semi skilled works

Unskilled workers

A Standard No.of workers in the gang 32 12 6B Standard wage rate per Hour (Rs) 3 2 1C Actual no.of workers employed in the

gang during the week28 18 4

D Actual wage rate per Hour 4 3 2During the 40 – hour working week, the gang produced 1,800 standard labour hours of work. Calculate the different labour variances.

Ans. a) LCV=2,424(A), b) LRV=2,000(A), c) LEV=188.8(A) d) LMV=19.2(F) e) LYV=208(A).

5) The data obtained from a manufacturing concern are:-

Men WomenNumber in standard gang 20 10Standard rate per hour Rs 0.90 Rs 0.80Number in actual gang 16 14Actual rate per hour Rs 1.00 Rs 0.70

In a 48 hour week, the gang as actually compared, produced 1,200 standard hours.Compute wages variances?

Ans; a) LCV=Rs. 198.4(A) b) LRV=9.6(A) c) LEV=188.8(A) d) LMV=19.2(F) e) LYV=208(A).

Problems on Material & Labour Variances

1) Trishul industries turns out only one article, the Prime Cost Standard for which have been established as follows: Per Completed Price

Material – 5 lbs. @ Rs. 4.20 Rs. 21Labour – 3 Hours @ Rs. 3 Rs. 9

The production schedule for the month of July 2009, required completion of 5,000 pieces. However, 5,120 pieces were actually completed.

Purchases for the month of July 2009 amounted to 30,000 lbs. of material at the total invoice price of Rs. 1,35,000

Production records for the month of July 2009 showed the following actual result:-

Materials requisitioned & used 25,700 lbs. Direct labour – 15,500 Hours Rs. 48,480.

Calculate appropriate material and labour variances.

Ans. a) MCV=RS. 8,130(A) b) MPV=7,710(A) c) MUV=420(A) d)MMV=Nil e) MYV=420(A)

a. LCV=Rs. 2,400(A) b) LRV=3,030(A) c) LEV=630(F) d)LMV=Nil e) LYV=630(F)

2 ) The following information is available from the cost records of Novell & Co. for the month of march, 2009.

Materials purchased 20,000 units Rs. 88,000Materials consumed 19,000 units

Actual wages paid for 4,950 hours Rs. 24,750Units produced 1,800 units

Standard rates & pieces are:-

Direct material rate is Rs 4.00 per unit. Standard input is 10 numbers for one unit. Direct labour rate is 4.00 per hour. Standard requirement is 2.5 hours per unit.

You are required to compute, all material & labour variances for the month of march 2009.

Ans. a) MCV=RS. 11,600(A) b) MPV=7,600(A) c) MUV=4,000(A) d) MMV=Nil e) MYV=4,000(A)

a) LCV=Rs. 6,750(A) b) LRV=4,950(A) c) LEV=1,800(F) d)LMV=Nil e) LYV=1,800(A)

3) In a certain period, results were as follows:

Output 6,500 unitsWages paid Rs 48,750 for 16,250 HoursMaterial Rs 34,000 for 4,000 Kgs

Variances:

Labour Rs. 1,875 ( adverse )Labour efficiency Rs. 1,275 ( favourable )Labour idle time Rs. 700 (adverse )Material price Rs. 1,850 ( favourable )Material usage Rs. 1,200 ( favourable )

Calculate the Standard Prime Cost per Unit.

Ans: S/M/C per Unit = Rs. 5.70 ; S/L/C per unit=Rs. 7.30; S/P/C per unit = Rs. 13.00 per unit.

Problems on Over head Variances

1) The following data is obtained from the books of a manufacturing company regarding VARIABLE overheads; Calculate ‘V/OH’ variances.

Budget production for January 300 unitsBudgeted variable overhead Rs. 7,800Standard time for one unit 20 HrsActual production for January 2009 250 UnitsActual hours worked 4,500 HrsActual work overhead Rs.7,000

Ans: a) V/OH cost Var. = Rs 500(A) b) V/OH exp. Var. = Rs 1,150(A) c) V/OH Eff. Var. = Rs 650(F)

2) From the following data, calculate ‘V/OH’ variances.

budgeted ActualStandard overheads Rs 2,50,000 Rs 2,60,000Output in units 25,000 20,000Working hours 1,25,000 1,10,000

Ans: V/OH Cost var. = Rs 60,000(A), b) V/OH exp. Var. = Rs. 40,000(A), c) V/OH eff. Var.= Rs 20,000 (A)

3) From the following data, calculate the F/OH Variances:

Item budgeted actualOver heads Rs. 3,75,000 Rs. 3,77,500Output per man hours in units 2 1.9Number of working days 25 27Man hours per day 5,000 5,500

Ans: a) F/OH Cost Var. = Rs 45,725(F); b) F/OH Exp. Var. = Rs 2,500(A); c) F/OH Vol. Var. = Rs 48,225(F) d) F/OH Cap. Var. = Rs 40,500(F) e) F/OH Cal. Var. = Rs 30,000(F) f) F/OH Eff. Var. = Rs 22,275(A)

4) From the following data, calculate F/OH Variances :- a) Effective Variance b) Capacity variance c) Calendar variance

d) Volume Variance e) Expenditure Variances f) Cost Variances

Item Budgeted ActualNo.of working days 20 22Man hours per day 8,000 8,400Output per man hours in units 1.0 0.9Overhead (Rs) 1,60,000 1,68,000

Ans; a) Rs 18,480(A), b) Rs 8,800(F), c) Rs 16,000(F), d) Rs 6,320(F), e) Rs 8,000(A), f) Rs 1,680(A)

5) The following information has been obtained from the records of a manufacturing organization using the Standard Costing System :-

Standard ActualProduction (units) 4,000 3,800Working days 20 21Fixed overhead (Rs) 40,000 39,000Variable overhead (Rs) 12,000 12,000

You are required to calculate the following overhead variances, assuming that there was a 5 % increase in capacity:- I. Variable Overhead Variances

II. Fixed Overhead Variances

a) Expenditure Variances b) Volume variances c) Efficiency variances

d) Calendar Variances e) capacity Variances f) Cost Variances

also prepare a statement reconciling the standard fixed overhead worked out by using the standard overhead rate & the actual fixed overhead

Ans ; I. 600(A) II. a) 1,000(F), b) 2,000(A), c) 6,100(A), d) 2,000(F), e) 2,100(F), f) 1,000(A)

6) From the following data, calculate the V/OH Cost Variance & all F/OH Variances :-

budgeted ActualOutput 15,000 units 16,000 unitsNo.of working days 25 27Fixed overheads Rs. 30,000 Rs. 30,500Variable overheads Rs. 45,000 Rs. 47, 500

There was an increase of 5% in capacity.

Ans ; I. Rs 1,000(F), II. a) Rs. 1,500(F), b) 500(A), c) 2,000(F), d) 1,620(F), e) 2,400(F), f) 2,020(A).

Problems on Sales or Profit Variances :-

1) Modern toys Ltd. Had budgeted the following sales for December 2009:- Toy A 900 units @ Rs.50 per unit Toy B 650 units @ Rs. 100 per unit Toy C 1,200 units @ Rs. 75 per unit

As against this, the actual sales were:-

Toy A 1,000 units @ Rs. 55 per unit Toy B 700 units @ Rs. 95 per unit Toy C 1,100 units @ Rs. 78 per unit

The cost per unit of A,B & C was Rs. 45, Rs. 85, & Rs. 65 respectively. Compute the different variances to explain the difference between the budgeted and actual profit.

Ans:- Sales Variances under M/I = a) Rs. 5,050(F), b) 4,800(F), c) 250(F), d) 230(A), e) 480(F).

2) The sales manager of a company engaged in the manufacture and sales of 3 products P, Q, & R.And gives you following information for the month of June 2009:- Budgeted sales

Product Units sold Selling price per unit Std margin per unitP 2,000 Rs. 12 Rs. 6Q 2,000 Rs. 8 Rs. 4R 2,000 Rs. 5 Rs. 1

Actual Sales

P 1,500 units for Rs. 15,000Q 2,500 units for Rs. 17,500R 3,500 units for Rs. 21,000

You are required to calculate the following variances on the basis of profit & turnover:-i. SPV b) SVV c) SMV d) SQV e) TSMV/TSVV

Ans : Sales Variances under M/I = a) Rs.2,000(A), b) 500(F), c) 5,000(A), d) 5,500(F), e) 1,500(A)

Sales Variances under M/II = a) Rs.2,000(A), b) 5,500(F), c) 7,000(A), d) 12,500(F), e) 3,500(F)

3). Compute the missing data indicated by the question marks from the following:

Sales quantity Product R Product SStandard (units) ? 400Actual (units) 500 ?

Price/Units Rs RsStandard 12 15Actual 15 20Sales Price variances ? ? Sales Volume Variances 1,200 F ?Sales value variances ? ?

Sales mix variances for both the products together was Rs. 450 F. ‘F’ denotes Favorable

Ans : For Product ‘R’ Standard input = 400 units, SPV = Rs. 1,500(F), S/value/V = 2,700(F)

For Product ‘S’ Actual input = 800 units, SPV = Rs. 4,000(F), SVV = 6,000(F), S/value/V = 6,000(F).