| 3. |
Two joint products X and Y emerge at the end of Process I. Both the products can be sold at the split-off stage at Rs.12 per kg respectively,subject to selling expenses. |
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10% of the input into process I turns out into a By-product ‘A’. which can be sold at split-off stage at a price of Rs.2 per kg less Re.0.50 per kg for packing, forwarding and freight. |
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Product X can be processed further in Process if whereupon it becomes Product Super X and can be sold at Rs.20 per kg. During this process 5% of the input emerges as another By-product ‘B’ and it can be sold at Rs.3 per kg less re. 1 for packing, forwarding and freight.
Estimates of production and costs for a year are as under:
| Production — | Product Super X
Product Y | 2,18,500 kg
3,55,000 kg |
| Process I | Process II |
| Cost |
| Raw material | @Rs.4 per kg | |
| Rs. | Rs. |
Direct other material
Direct wages
Variable overheads
Fixed overheads |
4,00,000
8,00,000
10,00,000
15,00,000 |
1,50,000
2,00,000
3,00,000
4,00,000 |
| Selling Expenses —— | Product Super X
Product Y |
Rs.3,00,000
Rs. 6,00,000 |
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To meet the stiff competition, the price of Super X needs to be reduced to Rs. 16 per kg. however, Product x can be still be sold at Rs.12 per kg. if the concern decides to sell product X as such the Process II will be closed down which will result in salving o f505 of direct wages. |
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100% of direct material costs are variable overheads. There will be a 75% saving of fixed overhead for that process. The selling expenses will be Rs.1,50,000 for product X instead of Rs.3,00,000 for Super X.
You are required to |
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| (i) | Prepare schedule showing apportionment of joint cost to Product X and Y. |
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| (ii) | Prepare a statement showing company’s profitability if Product x is sold at split-off stage and Process II closed down. | |
6 |
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| (iii) | Advance management about economies of processing Product X to Super X. |
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| 4. |
A multi product company has been producing an electronic components in its department P. the budget of department P for the next year is as under:
Budgeted Production and Sales 72,000 units. |
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| Rs. Per unit |
Selling price
Direct materials | 200 |
X 1kg per unit
Y I kg per unit | 40
30 |
Direct wages
Variable overheads
Fixed overheads
Total
Profit | 40
20
60
190
10 |
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Subsequent to the preparation of the budget, the company offered that the setting up of an electronic park in the region where the company is situated, has resulted in migration of the majority of the departments workforce and consequently the company is forced to take a decision on the closer of the department and abandonment of the budget. The company was however, advised to produce either 24000 or 48,000 components in the next year by employing contract labour. A few remaining workers will be absorbed by the company with in the organization against vacancies. The relevant data are as under:
| (a) | The cost of contract labour si Rs.6 per hour and the standard contract labour time per unit s 10 hours. The contract labour, however, will have to be trained at a fixed cost of Rs.40,000. |
| (b) | The stock of material X is 72000kg. There is no other use for this material. The quantity not used in department P will have to be disposed of. The cost of disposal is Rs.4000 plus Re.1 per kg disposed off. |
| (c) | The stock of material Y is 36000kg. if this material is not used in department P, a quantity up to 24000kg can be used in another department a substitute for an equivalent weight of a material which currently costs Rs.36 per kg. Material Y originally cost Rs.30 per kg and its current market price is Rs.40 per kg. if any surplus material Y is sold, it will fetch a realization of Rs.20 pre kg sold. |
| (d) | The variance overheads will be 30% higher per unit produced than originally budgeted. |
| (e) | If department P is to closed down immediately, the foreman who will otherwise retire at the end of next year, will be asked to retire earlier and he will be paid Rs.80,000 as compensation. His salary is Rs.6,000 per month. |
| (f) | The only machine used in department P originally cost Rs. 1,40,000 and it can be currently sold for Rs.86,000. This sales values will go down to RS.80,000 at the end of the next year and if the machine is used during the next year for any production activity in the year, the sale value will further decrease by Rs.1000 per every 1000 units produced. |
| (g) | The fixed overheads are apportionment of general overheads and will not be altered by any decision concerning department P. |
| (h) | The sales manager states that a sales volume of 24000 units can be achieved if the selling price is set at Rs.180 per unit. He further stated that a sales volume of 48000 units will be achieved if the selling price per unit is reduced to Rs.150 and an advertisement expenditure of RS.30,000 is spent.
Required:
| (i) | Prepare a statement indicating the financial implications of the choice to be made between the following alternatives:
(A) Close down department P immediately.
(B) Operate department P for a further year to produce 24000 units of he component.
(C) Operate department P for a further year to produce 48000 units of the component. |
| (ii) | Advise the management on the course of action to be taken. |
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14+2 |
| 5. |
(a) |
Cauvery Silk Emporium sells a range of ties for school children. The budgeted and actual sales data for a period are as follows: |
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| Budget | | Actual |
Product Quantity
Type | | Unit selling
price
Rs. | Standard
Cost
Rs. | Quantity | Unit selling
Price
Rs. |
Premium silk
Pure silk
Regular silk |
4,000
10,000
6,000 |
100
70
15 |
50
35
8 |
3,000
10,000
9,000 |
102
75
12 |
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Market size for the period was estimated to be 2,00,000 ties. The actual marker size was 2,50,000 ties.
Required:
| (i) | Total sales margin variance, |
| (ii) | Sales margin quantity variance, |
| (iii) | Market size variance, |
| (iv) | Market share variance. |
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