ECONOMICS CA -II

ASSIGNMENT

Submitted by:- Solanki Sarkar

Roll no:- 11900122155
Dept./ Sec :- CSE / C
3rd Semester Assessment
1. Consider the following data of a company for a particular financial year:
Sales = Rs. 2,40,000
Fixed cost = Rs. 50,000
Variable cost = Rs. 75,000
Find the following:
(i) Contribution
(ii) Profit
(iii) BEP
(iv) Margin of safety

Answer:-
(i) Contribution:
Contribution is calculated as the difference between Sales and Variable Costs. It represents
the amount that contributes towards covering Fixed Costs and generating profit.
Contribution = Sales - Variable Cost
Contribution = Rs. 2,40,000 - Rs. 75,000
Contribution = Rs. 1,65,000

(ii) Profit:
Profit is calculated as the difference between Contribution and Fixed Costs.
Profit = Contribution - Fixed Cost
Profit = Rs. 1,65,000 - Rs. 50,000
Profit = Rs. 1,15,000

(iii) BEP (Break-Even Point):

The Break-Even Point is the level of sales at which a company neither makes a profit nor incurs
a loss. It can be calculated using the following formula:
BEP (in units) = Fixed Costs / (Selling Price per unit - Variable Cost per unit)
BEP (in units) = Rs. 50,000 / (Rs. 2,40,000 / X - Rs. 75,000 / X)
Solving for X:
X = Rs. 2,40,000 - Rs. 75,000
X = Rs. 1,65,000

So, the Break-Even Point in units is 1,65,000 units.

(iv) Margin of Safety:

The Margin of Safety represents the excess of actual sales over the Break-Even Sales. It
indicates how much sales can drop before the company reaches the Break-Even Point.
Margin of Safety (in units) = Actual Sales - BEP (in units)
Margin of Safety (in units) = Rs. 2,40,000 - Rs. 1,65,000
Margin of Safety (in units) = Rs. 75,000

2.Calculate Working Capital, Current ratio and Quick ratio from the following information:
Stock= Rs. 50,000; Debtors= Rs 41,000; Bills receivable= Rs. 9000; Advance tax= Rs. 4,000; Cash
=Rs33,000;
Bills payable = Rs 37,000; creditors =Rs 60,000 and bank overdraft = Rs 3000.

Answer
To calculate Working Capital, Current Ratio, and Quick Ratio, you can use the following
formulas:

(i) Working Capital:

Working Capital = Current Assets - Current Liabilities
Current Assets = Stock + Debtors + Bills Receivable + Advance Tax + Cash
Current Liabilities = Bills Payable + Creditors + Bank Overdraft
Working Capital = (Rs. 50,000 + Rs. 41,000 + Rs. 9,000 + Rs. 4,000 + Rs. 33,000) - (Rs. 37,000 +
Rs. 60,000 + Rs. 3,000)
Working Capital = Rs. 1,34,000 - Rs. 1,00,000
Working Capital = Rs. 34,000

(ii) Current Ratio:

Current Ratio = Current Assets / Current Liabilities
Current Ratio = (Rs. 50,000 + Rs. 41,000 + Rs. 9,000 + Rs. 4,000 + Rs. 33,000) / (Rs. 37,000 +
Rs. 60,000 + Rs. 3,000)
Current Ratio = Rs. 1,37,000 / Rs. 1,00,000
Current Ratio = 1.37

(iii) Quick Ratio (Acid-Test Ratio):

Quick Ratio = (Current Assets - Stock) / Current Liabilities
Quick Ratio = (Rs. 1,37,000 - Rs. 50,000) / (Rs. 37,000 + Rs. 60,000 + Rs. 3,000)
Quick Ratio = Rs. 87,000 / Rs. 1,00,000
Quick Ratio = 0.87

3.a) What is incremental cost? What do you understand by life cycle cost?
(b) Distinguish between per unit model and segmenting model. Discuss the advantages and
disadvantages in
both methods of cost estimation.
(c) Distinguish between cash cost vs book cost.

Answer:-
(a) Incremental cost refers to the additional cost incurred when producing one more unit of
a product or service. It helps in making decisions about whether to produce more or less of a
particular item.
 Life cycle cost is the total cost incurred throughout the entire life cycle of a product or project,
including its design, production, operation, maintenance, and disposal. It considers both initial
and ongoing costs.

(b) Per Unit Model:

In this model, the cost estimation is based on a per unit (per item) basis. It assumes that the
cost per unit remains constant regardless of the production volume.

Advantages:
- Simple to use and understand.
- Suitable for products with stable costs.

Disadvantages:
- May not be accurate for products with variable costs.
- Doesn't account for economies of scale.

Segmenting Model:
This model breaks down costs into segments or categories, allowing for a more detailed and
accurate cost estimation. It considers that costs may change at different production levels.

Advantages:
- Provides a more accurate cost estimate, especially for complex products.
- Accounts for variations in costs at different production levels.

Disadvantages:
- Can be more complex and time-consuming to implement.
- Requires detailed data and analysis.

(c) Cash cost refers to the actual cash outflow incurred in producing a product or service. It
includes expenses paid in cash, such as materials, labour, and direct operating costs. Cash cost
focuses on real, tangible expenditures.
 Book cost, also known as accounting cost, is the cost recorded in the company's financial
statements. It includes both cash expenses and non-cash expenses like depreciation and
amortization. Book cost reflects the company's financial reporting and may differ from actual
cash expenses.

4.(a)What is Inflation?
(b)What are the types of inflation?
(c)What are the causes of Inflation?
(d) Explain the effects of Inflation.s

Answer:-
(a) Inflation is the sustained increase in the general price level of goods and services in an
economy over a period of time. It results in the devaluation of a currency, causing each unit
of currency to buy fewer goods and services.

(b) Types of Inflation:-

1. Demand-Pull Inflation: This occurs when the demand for goods and services exceeds
their supply, leading to rising prices.
2. Cost-Push Inflation: It arises when the costs of production increase, forcing producers
to raise prices to maintain profitability.
3. Built-In Inflation: Also known as wage-price inflation, it occurs when businesses raise
prices to cover increased labour costs, and workers demand higher wages to keep up
with rising prices.
4. Hyperinflation: This is an extremely high and typically uncontrollable inflation rate,
often exceeding 50% per month. It can lead to the breakdown of a country's currency
system.

(c) Causes of Inflation:

• Demand Factors: Increased consumer and business spending.

• Supply Factors: Reduced supply due to factors like natural disasters or production
disruptions.
• Cost Factors: Rising production costs, such as labour and materials.
• Monetary Policy: Excessive money supply growth by central banks.
• Fiscal Policy: Government deficits and increased government spending.
• Expectations: Inflation expectations of consumers and businesses
(d) Effects of Inflation:

• Reduced Purchasing Power: The value of money decreases, leading to a decline in

purchasing power.
• Uncertainty: High inflation rates can create economic uncertainty and reduce
investment
• Interest Rates: Central banks may raise interest rates to combat inflation, affecting
borrowing costs.
• Income Redistribution: Inflation can affect income distribution, benefiting debtors
and harming savers.
• International Trade: High inflation can erode a country's competitiveness in
international markets.
• Social and Economic Disruptions: Hyperinflation can lead to economic and social
instability.