1. ABC Ltd manufactures staplers.

All parts are manufactured by the Company except its metal

base plate which is bought from Metal Kings & Co. at a price of ₹300 per thousand plates.
Annual stapler sales are 1,00,000units and these are expected to remain at the same level.
Metal kings & Co. have informed that they would be increasing the price of the plates to
₹400 per thousand plates. ABC Ltd has unutilized plant space and capacity and is thinking to
use the same for manufacture of these plates as an alternative to buying from Metal kings &
Co. ABC has also now received an offer for use of the same unutilized plant space at an
annual rent of ₹5,000. The Cost department of ABC Ltd has gathered the following
information for self-manufacture of 1,00,000 plates

₹
Raw materials 8,500
Direct Labour 8,000
Variable overheads 10,500
Fixed Overheads 14,000
You are required to advise ABC Ltd giving detailed workings and reasonings as to whether it
should buy the plates or manufacture them.

2. A radio manufacturing Co. finds that while it costs ₹6.25 each to make component X, the
same is available in the market at ₹5.75 each with an assurance of continued supply. The
break-down of costs is:

₹ per unit
Material 2.75
Labour 1.75
Other Variable Cost 0.50
Depreciation & Other Fixed 1.25
Cost
6.25
i. Should you make or buy?
ii. What would be your decision if the supplier offered the component at ₹4.85 each?

3. XY Co. Ltd is producing 30,000 units of Component X at an average cost of ₹70 per unit
including semi-variable cost of ₹20 per unit. 40% of semi-variable costs are variable and the
rest are fixed. Component X can be purchased from an outside supplier at a price of ₹65 per
unit. If so done, the vacated capacity can be used for producing 10,000 units of Product Y at
a variable cost of ₹25 per unit and an additional fixed cost of ₹1,00,000. Product Y can be
sold at ₹55 per unit.
Should the company continue producing X or buy from outside and produce Y instead?

4. Following information is available:

Particulars Product A Product B

₹ per unit ₹ per unit

Direct Materials 100 120

Direct Wages 120 80

 Variable Overheads 180 120

Selling Price 500 400

Fixed Overheads : ₹15,000.

From the following alternatives, which sales mixes will bring higher profits.
a) 250 units of A and 250 units of B
b) 400 units of A and 100 units of B
c) 150 units of A and 350 units of B
d) 400 units of B

Support the answer with workings.

5. Ambika Condiments bring out 2 products “SUCHI” and “RUCHI” which are popular in market.
The management has the option to alter the sales-mix of the 2 products from out of the
following combinations:

Particulars Suchi (units) Ruchi (units)

Option I 800 600

Option II 1,600 -

Option III - 1,300

Option IV 1,100 500

The per unit production cost/ sale data are:

Particulars Suchi Ruchi

Direct Material (₹) 25 30

Direct Labour (hours) 10 12

Variable Factory overheads

is 100% of direct labour cost
for both products

Selling Price 75 90

Labour rate is ₹2 per hour

Common fixed overheads for both products ₹10,000
You are required to:
a. Prepare a marginal Cost statement for the two products and
b. Evaluate the options and identify the most profitable sales mix.

6. Ram Ltd produces 3 products A, B and C from the same manufacturing facilities. The cost and
other details of the three products are as follows:

Particulars A B C

Selling price per unit ₹ 200 160 100

 Variable Cost per unit ₹ 120 120 40

Fixed Expenses per month

₹2,76,000

Maximum Production per month 5,000 8,000 6,000

(units)

Total hours available for the

month 200 hours

Maximum Demand per month 2,000 4,000 2,400

(units)

The processing hours cannot be increased beyond 200 hours per month
You are required to-
a) Compute the most profitable product-mix
b) Compute the overall break-even sales of the company for the month based on the mix
calculated in (a) above

7. From the following particulars, find the most profitable product mix and prepare a statement
of profitability of that product mix:

Particulars A B C

Units budgeted to be produced 1,800 3,000 1,200

and sold

Selling Price pu 60 55 50

Requirement pu:

- Direct Materials 5 kg 3 kg 4 kg

- Direct Labour 4 hrs 3 hrs 2 hrs

- Variable overheads ₹7 ₹13 ₹8

- Fixed Overheads ₹10 ₹10 ₹10

- Cost of Direct Materials ₹4 ₹4 ₹4

per kg

- Direct Labour Hour Rate ₹2 ₹2 ₹2

- Maximum Possible units 4,000 5,000 1,500

of Sales

All the three products are produced from the same direct materials using the same type of
machines and labour, which is the key factor, is limited to 18,600 hours.

8. ABC Ltd produces three products, furnishes the following data for the year 2016:
 Particulars Alpha Beta Gamma

Selling Price per unit 100 75 50

P/v ratio 10% 20% 40%

Maximum Sales Potential (units) 40,000 25,000 10,000

Raw material as % of Variable 50% 50% 50%

Cost

The company uses the same raw material for all the three products. Raw material is in short supply
and the company has a quota for supply of raw material of the value of ₹18,00,000 for the year
2016for manufacture of its products to meet its sales. Total Fixed cost is ₹6,80,000.

You are required to:

i. Determine a sales mix which will give the maximum overall profit-keeping in view the
short supply of raw materials
ii. Compute that maximum profit
9. The following particulars are extracted from the records of a company:

Particulars Product A Product B

Sales ₹ 100 120
Consumption of Material in kg 2 3
Material Cost 10 15
Direct Wages Cost ₹ 15 10
Direct Expenses ₹ 5 6
Machine hours used 3 2
Overheads expenses:
- Fixed ₹ 5 10

- Variable ₹ 15 20

Direct Wages per hour is ₹5. Comment on profitability of each product (both use the same raw
material) when

i. Total sales potential in units is limited

ii. Total sales potential in value is limited
iii. Raw material is in short supply
iv. Production capacity (in terms of machine hours) is the limiting factor

Assume 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 the
maximum profit.

10. A pen manufacturer makes an average net profit of ₹25 per pen on a selling price of ₹143 by
producing and selling 60,000 pens or 60% of the potential capacity. His cost of sales is :
Direct Material: ₹35
Direct Wages: ₹12.5
Works Overheads (50% Fixed): ₹62.5
Sales Overheads (25% Variable): ₹8
During the current year, he intends to produce the same number of pens but anticipates that
his fixed charges will go up by 10% while rates of direct material and direct labour will
increase by 8% and 6% respectively. But he has no option of increasing the selling price.
Under this situation, he obtains an offer for a further 20% of his capacity. What minimum
price will you recommend for acceptance to ensure the manufacturer an overall profit of
16,73,000.

11. A firm already in production gives you its following details

Annual Unit Cost Unit Price

Capacity (units)

6,000 80 100

7,000 75 97

8,000 74 95
 9,000 72

10,000 71

The firm is operating at 8,000 units capacity at present and cannot exceed in any case, totally 15,000
units capacity level by any means. Under the circumstances, the firm receives two alternative
additional orders, only one of which it can accept:

a. For 2,000 units from an export market at a price of ₹70 per unit.
b. For 7,000 units from another export market at a price of ₹75 per unit and it is given that the
firm has to increase its establishment for going from 10,000 units to 15,000 unitswhich
would result into additional fixed cost of ₹30,000 per annum, in addition to the per unit cost
of ₹71 at 10,000 units level which would remain the same even subsequently ie at the level
of 15,000 units.

Advise the firm as to whether any of the alternative additional export orders should be accepted
or not and if yes, which one?

12. Sameeksha Ltd produces and sells three products : B, N and D

The income statement of the company , prepared in the absorption costing format is shown
below:

Particulars B₹ N₹ D₹ Total
Sales 30,00,000 15,00,000 9,00,000 54,00,000
Cost of Goods sold:
Variable 18,00,000 10,00,000 6,50,000 34,50,000
Fixed 5,00,000 2,50,000 1,50,000 9,00,000
Total 23,00,000 12,50,000 8,00,000 43,50,000
Gross Margin 7,00,000 2,50,000 1,00,000 10,50,000
Selling expenses:
Variable 2,00,000 1,20,000 80,000 4,00,000
Fixed 1,50,000 75,000 45,000 2,70,000
Total 3,50,000 1,95,000 1,25,000 6,70,000
Gross Margin 3,50,000 55,000 -25,000 3,80,000
The management of the company is considering dropping D since it shows a loss on the income
statement.

Evaluate the suggestion and suggest management a suitable course of action showing the impact
of alternatives on the profit of the company.

13. Universe ltd manufactures 20,000 units of X in a year at its normal production capacity. The
unit cost as to variable costs and fixed costs at this level are ₹13 and ₹4 respectively, SP
being ₹20.
Due to trade depression, it is expected that only 2,000 units of X can be sold during the next
year. The management plans to shut down the plant. The fixed costs for the next year then is
expected to be reduced to ₹33,000. Additional costs of plant shut-down are expected at ₹
12,000. Should the plant be shut-down? What is the shut-down point?
14. Paints Ltd manufactures 2,00,000 tins of paint at normal capacity. It incurs the following
manufacturing costs per unit:

Particulars ₹

Direct Material 7.8

Direct Labour 2.1

Variable overheads 2.5

Fixed Overheads 4.0

Production Cost per unit 16.4

Each unit is sold for ₹21, with an additional variable selling overheads incurred at ₹0.60 per
unit. During the next quarter, only 10,000 units can be produced and sold. Management
plans to shut down the plant estimating that the fixed manufacturing cost can be reduced to
₹74,000 for the quarter.
When the plant is operating, the fixed overheads are incurred at a uniform rate throughout
the year. Additional costs of plant shut-down for the quarter are estimated at ₹14,000.
A. Advise whether it is more economical to shut down the plant during the quarter rather
than operate the plant
B. Calculate the shut down point for the quarter in terms of number of units.

15. Vijaya Chemicals Ltd has 2 factories with similar plants and machineries for the manufacture
of chemical liquid. The board of directors of the company had expressed the desire to merge
them and run them as one integrated unit. Following data are available in respect of these
two factories.

Particulars Factory A Factory B

Capacity in operation 60% 100%

Sales 12,00,000 30,00,000

Variable Cost 9,00,000 22,00,000

Fixed Cost 2,50,000 4,00,000

Find out:
a. What should be the capacity of the merged factory to be operated for break even?
b. What is the profitability of working 80% of the integrated capacity?
c. What sales will give overall Profit of ₹6,00,000?