Question

17.
Case study:
The cost sheet of a product is given below :
Direct wages
Rs.
Direct material
5.00
3.00
Factory overhead :
Fixed
Re. 0.50
Variable
Re. 0.50
1.00
Administrative expenses :
0.75
Selling and distribution overhead :
Fixed
Re. 0.25
Variable
Re. 0.50
0.75
ales 10.50
Selling price per unit is Rs. 12.00
The above figures are for an output of 50,000 units. The capacity for
the firm is 65,000 units. A foreign customer is desirous of buying
15,000 units at a price of Rs. 10 per unit.
(
Advise the manufacturer whether the order should be accepted.
What will be your advise if the order were from a local merchant?​

Answer 1

Explanation:

Selling Price - Material Cost 30 - 12 = x 60 minutes

Time of bottle neck resouce 6 minutes

=

18 x 60

6

= ` 180

(b)

x 100 20%

1,00,000

20,000

x 100

Change in SAles

Change inProfit P/VRatio

Fixed Cost = Sales x P/V Ratio – Profit = 2,00,000 x 0.2 – 20,000

= ` 20,000

Sales required to earn a desired Profit of ` 50,000

= (Fixed Cost + Desired Profit) / P/V Ratio

= (` 20,000 + 50,000) ÷ 0.2 = ` 3,50,000

(c) Total Material Cost Variance:

= Material Price Variance + Material Usage Variance

= 6,000 (FAV) + 3,000 (Adv) = ` 3,000 (FAV)

Actual Material Cost = 2,000 x 12= ` 24,000

Hence, the standard material cost of Actual production: = 24,000+3,000 (F) = ` 27,000

(d) Variable Cost per unit = ` 160 x 0.75 = ` 120

Fixed Cost per unit = (160 - 120) = ` 40

Total fixed Cost = 10,000 x 40 = ` 4,00,000

Total Cost per unit when production is 12,500 units (10,000 x 1.25)

= 120 +

4,00,000

12,500

= 120 + 32 = ` 152

(e) Limitations of Inter firm comparison are:

(i) Top management may not be convinced of the utility of inter-firm comparison.

(ii) Reluctance to disclose data which a concern considers to be confidential.

(iii) A sense of complacence on the part of the management who may be satisfied

with the present level of profit.

(iv) Absence of a proper system of cost accounting so that the costing figures supplied

may not be relied upon for comparison purposes.

(v) Non-availability of a suitable base for comparison.

(f) The exemption for mandatory cost audit is applicable to those 100% EOU, who are

registered under the policy document as per the foreign trade policy and the 100%

EOU is functioning within the permissible approved limits as per the foreign trade