Case Solution of MMS

7/30/2019 Case Solution of MMS

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Working notes:

(I) Variable cost per unit of products A, B, C

Products A B C

Cost of parts Rs. Rs. Rs.

Frame 45 45 45

E 150 30 90

F 30 210 150

G 40 50 10

Wages of skilled labour 36 24 18

Wages of unskilled labour 40 30 30

Variable overheads 9 11 7Total 350 400 350

(II) Sales quantity of products A, B, C:

Products A B C

Rs. Rs. Rs.

Sale price per unit 450 550 650

Less: Variable cost 350 400 350

Total 100 150 300

The current ratio of sales in quantity of A, B and C is 1: 2: 4.

Suppose number of units sold of A=x, B=2x, C=4x.

Fixed overhead per month = Rs. 15, 75,000 + Rs. 5, 80,000 + Rs. 8, 45,000 = Rs. 30, 00,000

Total profit per month = Rs. 1, 20, 00,000 / 12 = Rs. 10, 00,000Therefore100x + 150 (2x) + 300 (4x) = Rs. 30, 00, 000 + Rs. 10, 00,000

Or x =Rs. 40, 00,000 / 1,600 = 2500 units

Therefore sales quantity of products are A = 2500 units; B = 5000 units and C =10,000 units

1) Sales budget in quantity as well as in value for A, B and C

Products A B C

Sales (in units) 2,500 5,000 10,000

Sale price per unit (Rs.) 450 550 650

Sales value 1,125,000 2,750,000 6,500,000

2) Production budget

Products A B C

Sales (in units) 2,500 5,000 10,000

Add: Closing stock (units) - 90% of opening stock 450 900 2,700

2,950 5,900 12,700

Less: Opening stock 500 1,000 3,000

Total 2,450 4,900 9,700

3 Parts usage budget

Products Units to be

produ Frame E F G

A 2,450 2,450 24,500 4,900 19,600

B 4,900 4,900 9,800 68,600 49,000C 9,700 9,700 58,200 97,000 19,400

Total ######### 92,500 ########## 88,000

4 Purchase budget in quantity as well as in value.

Name of parts Frame E F G

Part usage (in units) Refer to © 17,050 92,500 170,500 88,000

Add: Closing stock 1,350 900 18,000 9,000

Less: Opening stock 1,500 1,000 20,000 10,000

Quantity (in units) 16,900 92,400 168,500 87,000

Price per part (Rs.) 45 15 15 5

Purchase value (Rs.) 760,500 1,386,000 2,527,500 435,000

5 Manpower budget showing labour hours and wages payable for both types of workers.Products Units to be

d d

Parts of material required

Labour hours

P t T t l



1 Campbell company

Income Stattment

For the year ended 31st December 2011

Revenues 13600000

Cost of Goods Sold

Finished Goods inventory Inventory 1st Jan 2011 1000000

Cost of Manufactured 9600000

Cost of Goods Available for Sale 10600000Less:

Finished Goods inventory Inventory 31st Dec 2011 1500000 9100000

Gross Margin/ Gross Profit 4500000

Operating Costs

Marketing promotions 600000

Marketing Salaries 1000000

Distribution Cost 700000

Customer-service Costs 1000000 3300000

Operating Income 1200000

Campbell company

Schedule of cost of goods Manufactured

For the year ended 31st December 2011

Direct Materila

Direct material Inventory 1st Jan 2011 400000

Direct Material purchases 4600000

Cost of direct materilas available for use 5000000

Direct material Inventory 31st Dec 2011 500000

Direct Mateial Used 4500000 V 4500000

Direct Mfg labor 3000000 V 3000000

Indrect Manufacturing CostSandpaper 20000 V

Material handling Cost 700000 V

Lubricant & coolants 50000 V

Mis. Indirect manufacturing labor 400000 V

Plant leasing Cost 540000 F

Depreciation - Plant equipment 360000 F

Property tax on plant equipment 40000 F

Fire insurance on Plant Equipment 30000 F

Total 2140000

Manufacturing Cost incurred during 2011 9640000

WIP inventory Inventory 1st Jan 2011 100000Total manufacturing cost to account For 9740000

WIP inventory Inventory 31st Dec 2011 140000

Cost of goods manufactured 9600000

2 Direct Material unit cost = Direct materila used / unit produced

Direct Material Used 4500000

Unit produced 900000

Direct material unit cost Rs/unit 5

Plant Leasing Cost 540000

Unit produced 900000

Leasing Cost Rs/Unit 0.6

Value in Rs.

Value in Rs.



ABC Ltd

Cost Sheet Stattement of P& L for Year ended 31st March 2011

Materila Consumed Rs. Rs.

Material Purchased 320000 Sales 768000

Less: Purchases returns 4800 Less: Sales return & Reb 14000

Materila Purchased Net 315200 NetSales 754000

Add: Freight on material 16000 Less: Cost of Sales 764020Cost of Materila at works 331200 Loss as per Cost Accounts -10020

Add: Opening Inventory 140000

Less: Closing Inventory 180000 Add: Dividend Income 20000

Material Consumed 291200 Less Bad Debts 2000

Interest on borrowed funds 5000

Direct Labour 160000 Profit as per Accounts 2980

Add: Accrued Direct Labour 8000 168000

Direct Expenses 50000

PRIME COST 509200

Factory Overhead

Indirect Labour 18000

Add: Accrued Indirec Labour 1200 19200

Factory supervision 10000

Factory repairs and upkeep 14000

Heat, light & Power 65000

=65000/10*8 52000

Rates & Taxes 6300

=6300/3*2 4200

Mis Exp ( Factory) 18700

Depreciation

Plant( 0.01 x 4,46,500) 46050

Building ( 0.04 x 2,00,000 x 8/10) 6400 52450

Works Cost before Adj for Inventory 679750 Add: Opening WIP 200000

Less: Closing WIP 192000 8000

Works Cost ( Net) 687750

Admin Overheads

Heat , Light & Power (65000 x 1/10) 6500

Rates & Taxes ( 6300 x 1/3) 2100

Office Salary Exp 8600

Depreciation

Building ( 8000 x 1/10) 800

Office Appliance ( 17400 x 0.05) 870 18870

Cost of Production 706620

Add: Opening Stock FG 80000

Less: Closing Stock FG 115000 -35000

Cost of production Available for Sale 671620

Selling & distribution overhead

Heat , Light & Power (65000 x 1/10) 6500

Sales Commission 33600

Sales Traveling 11000

Sales Promotion 22500

Distribution Dept. Salaries & Expenses 18000

Depreciation

Building ( 8000 x 1/10) 800 92400

Cost of Sales 764020



ol Case II: National receives a 10% commission on each ticket : Rs 9000 x 10% = Rs 900. Thus

Selling Price Rs /per ticket 900

Variable cost Rs /per ticket 200

Contribution ( S-V) Rs /per ticket 700

Fixed Cost Rs / PM 140000

1a) BEP Fixed cost/Cont per unit 200 Ticket

b) When target operating income = Rs 70,000 per month

Quantity of Tickets requried to be sold = Fixed Cost +Req Profit / Cont. Per unit

Fixed Csot 140000

Target Profit 70000

Req Contribution 210000

=210000/700

=300 ticket

2 Under the new system, National would receive only Rs 500 on the Rs 9000 ticket. Thus,

Selling Price Rs /per ticket 500

Variable cost Rs /per ticket 200

Contribution ( S-V) Rs /per ticket 300

Fixed Cost Rs / PM 140000

1

a) BEP Fixed cost/Cont per unit 467 Ticket

b) When target operating income = Rs 70,000 per month

Quantity of Tickets requried to be sold = Fixed Cost +Req Profit / Cont. Per unit

Fixed Csot 140000

Target Profit 70000

Req Contribution 210000

=210000/300

=700 ticket



Sol Case I Statement Showing Profit /Loss under Marginal Costing

Particulars UOM Q1 Q2 Q3 Q4 Total

A. Sales @ Rs 8 Rs 208000 192000 224000 256000 880000

B. Marginal Cost

Opening Stock @ Rs 4 Rs 0 0 24000 8000 0

Production @ Rs 4 Rs 104000 120000 96000 120000 440000

Opening Stock +Production Rs 104000 120000 120000 128000 440000

Less: Closing Stock Rs 0 24000 8000 0 0

Cost of Goods Sold Rs 104000 96000 112000 128000 440000

C. Contribution ( A-B) Rs 104000 96000 112000 128000 440000

D. Fixed Cost 52000 52000 52000 52000 208000

E.Profit 52000 44000 60000 76000 232000

ii Statement Showing Profit /Loss under Absorption Costing


A. Sales @ Rs 8 Rs 208000 192000 224000 256000 880000

B. Opening Stock @ Rs 6 Rs 0 0 36000 12000 0

C. Production @ Rs 6 Rs 156000 180000 144000 180000 660000

D.Opening Stock +Production Rs 156000 180000 180000 192000 660000

E. Less: Closing Stock Rs 0 36000 12000 0 0

F. Cost of Goods Sold Rs 156000 144000 168000 192000 660000

G. Profit before Adj of under Rs

or Over absorbed fixed cost Rs 52000 48000 56000 64000 220000

Add: Over Absorbed fixed cost 8000 8000 16000

Less:Under absorbed fixed cost 4000 4000

E.Profit 52000 56000 52000 72000 232000

iii Reconciliation of Profit


Profit as per absorption costing Rs 52000 56000 52000 72000 232000

Less: higher FC in closing stock Rs 0 12000 4000 0 16000

Add: Higher FC in Opening Stock Rs 0 0 12000 4000 16000

Profit as per marginal costing Rs 52000 44000 60000 76000 232000



ase III Sol Statement showing the contribution per unit and per kg of raw materila

Patriculars Product -A Product -B Product -C

Selling price Rs/ per unit 100 140 90

Variable cost Rs/ per unit 75 110 65

Contribution Rs/ per unit 25 30 25RM requirement Kg/ per 5 8 6

Contribution Rs/ Kg RM 5.00 3.75 4.17

Priority I III II

Product - In order

of priority

Number of

Units to be

produced

Raw

Materila

requirement

per unit

Total Raw

Material

consumption

Contribution

per unit

Total

contribution

A 5000 5 25000 25 125000

C 4000 6 24000 25 100000

B 1500 8 12000 30 45000

61000 270000



Sol Differential Cost Analysis

Output in

Unit SP in Rs.

Sales

Value Inc. Revenue

Variable

Cost Fixed Cost

Total Cost

( F + V) Differential Cost

10000 5 50000 25000 20000 45000

10000 5 50000 25000 20000 50500 5500

2000 3 6000 6000 5500 ( 50500-45000)

(56000-50000)

From the above statement it is clear that incremental revenue of Rs 6,000 is more then differential

cost of Rs 5500, so order of 2000 units at price of rs 3 per unit from a large mail order house should

be accepted . The acceptance of the order will increase profit by Rs 500.



Sol Statement showing the minimum price , which the company can afford the quote for the new customer

Cost to be incurred ( to complete the job) 29700

Direct material ( Opportunity cost) 2250

Direct WagesDept A: 15 mandays x 120 1800

Dept B: 25 mandays x 100 2500

Opportunity cost of cont. Lost by Dept B

( 2500 x 3.2) 8000

Variable overhead 25% of ( 1800+2500) 1075

Delivery Cost 1350

Supervisory cost for modification 1050

Income form disposal of Control Device - Note i -10350

Opportunity costs of material - Note ii 11700Opportunity costs of remaining material 11400

Opportunity costs of drawings 1500

Total minimum Price to be quoted 61975

Working Note:

I Alternative disposal of control device 10500

Less: One Man days of Dept A 120

Less: Variable @ 25% 30

10350

ii Opportunity costs of Material in original Equipment 12000

Less: Two Man Days of Dept A ( 120 x 2) 240

Less: Variable cost @ 25% 60

11700



Sol For new system Fixed cost will go up by 900000 PA & Variable will come down by Rs 800 per job

Jobs forAdditionalFixed Cost

Saving In

Variable

cost @ Rs800

Annual Saving

(Loss) due toleasing

900 900000 720000 -180000

1200 900000 960000 60000

1500 900000 1200000 300000

Probabilistic saving (Loss) and expected values

No of Jobs

Annual

Saving

(Loss) Probability Expected Value

900 -180000 0.25 -45000

1200 60000 0.45 270001500 300000 0.3 90000

72000

If the company does not opt for the leased equipment. The expected saving ( Loss) would be zero

in all three cases, there will neither be profit nor loss by using the existing equipment.

As the expected value of leasing equipment is positive , the company should opt for getting leased equipmen



t.



Sol Present Operation of PP Ltd

Contribution per piston Rs =200-180 20

Total contribution Rs = 60000 x 20 1200000

Less: Fixed Cost 1500000

Loss -300000

The increase in capacity utilisation and export should enable recover of this loss.

a) Determination of bare minimum price to break-even when import licence is sold in the market.

Variable cost per Piston 180

Add:Amount req. for recovery of present Loss 10

( Rs 300000 /30000 unit)

Cost Per Piston 190

Less: Relisation from export benefit

Cash assistance 10% of FOB

Duty Drawback 5% of FOB

Premium on licence 10% of FOB

So total benefit is 25% of FOB

or 20% benefit on Cost 38

Bare minimum proce to be quoted 152

b) Determination of bare minimum price to break-even when import licence is sused to import

auto components and Sell them for profit

Variable cost per Piston 180

Add:Amount req. for recovery of present Loss 10

( Rs 300000 /30000 unit)

Cost Per Piston 190

Less: Relisation from export benefit

Cash assistance 10% of FOB

Duty Drawback 5% of FOB

Profit on sale of import 3% of FOB

So total benefit is 18% of FOBor 15.25% benefit on Cost 38

Bare minimum proce to be quoted 152

Note: 1

Suppose Cost Rs 100 & FOB price which can be arrived at , in this case after reducing export benefit = X

There fore export benefit = 25% on FOB = 100 -0. 25 X X

100= X +0.25 X

100 = 1.25 X

X = 100/1.25

X= 80

There for export benefit = 100-80= 20 Rs

Note: 2

Suppose Cost Rs 100 & FOB price which can be arrived at , in this case after reducing export benefit = X

There fore export benefit = 25% on FOB = 100 -0. 18 X X

100= X +0.18 X

100 = 1.18 X

X = 100/1.18

X= 84.75

There for export benefit = 100-84.75= 15.25 Rs



Sol Case I Mumbai Kolkata Chennai Total

Sales Rs. Rs. Rs.

450000 400000 700000 1550000

Gross Profit 112500 100000 175000 387500

( 25% of Sales)Branch Expenses:

Salaries , Commission

& traveling expenses 41000 40000 60000 141000

Advertisement 9000 10000 11000 30000

Other Expenses 10000 11000 12000 33000

60000 61000 83000 204000

Contribution 52500 39000 92000 183500

Central Office Exp. 45000 40000 70000 155000

Branch P & L 7500 -1000 22000 28500

a)

Contribution form Mumbai & Chenni 144500

Less: Central office Exp. 155000

Net Loss -10500

Thus , Kolkata branch should not be closed down.

b)

Contribution form Mumbai & Chenni 144500

Less: Central office Exp.

( 155000-46500) 108500

Net Profit 36000

Thus, Closing Down the kolkata branch would be more profitable.

Since Kolkata Branch is showing a loss of Rs 1000. It is proposed to close down this branch. Thisproposal should be evaluated in the context of two alternative situation, viz., (a) No reduction in central

office expenses and (b) reduction in central office expenses by Rs 46,500 ( i.e. 30% of Rs. 155000)

Case Solution of MMS

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