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Session 2 Solution

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Session 2 Solution

SW

Uploaded by

bhaihello015
Copyright
© © All Rights Reserved
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
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Given Data:

 Production in the current year: 1,00,000 units


 Revenues: ₹4,36,800
 Ending finished goods inventory: ₹20,970
 Direct material purchase cost: ₹1,41,400 (Variable)
 Direct manufacturing labor cost: ₹30,000 (Variable)
 Indirect manufacturing labor costs: ₹10,000 (Variable), ₹16,000 (Fixed)
 Plant energy costs: ₹5,000 (Variable)
 Other indirect manufacturing costs: ₹8,000 (Variable), ₹24,000 (Fixed)
 Marketing, distribution, and customer service costs: ₹1,22,850 (Variable),
₹40,000 (Fixed)
 Administrative costs: ₹50,000 (Fixed)
 Finished-goods inventory at December 31: ₹20,970
 Direct material required for 1 unit: 2 kg

1. Direct Materials Inventory, Total Cost (December 31):

To calculate the total cost of direct materials inventory on December 31, we need to calculate
how much direct material was purchased, how much was used, and how much remains at
year-end.

 Direct material used during the year:

Material used=2 kg/unit×1,00,000 units=2,00,000 kg\text{Material used} = 2 \, \


text{kg/unit} \times 1,00,000 \, \text{units} = 2,00,000 \, \
text{kg}Material used=2kg/unit×1,00,000units=2,00,000kg

 Ending inventory of direct materials: 2,000 kg

Thus, the total direct materials purchased during the year = Material used + Ending
inventory:

Direct material purchased=2,00,000 kg+2,000 kg=2,02,000 kg\text{Direct material


purchased} = 2,00,000 \, \text{kg} + 2,000 \, \text{kg} = 2,02,000 \, \
text{kg}Direct material purchased=2,00,000kg+2,000kg=2,02,000kg

The cost per kg of direct material:

Cost per kg=Direct material purchased costTotal kg purchased=₹1,41,4002,02,000 kg=₹0.70


per kg\text{Cost per kg} = \frac{\text{Direct material purchased cost}}{\text{Total kg
purchased}} = \frac{₹1,41,400}{2,02,000 \, \text{kg}} = ₹0.70 \, \text{per
kg}Cost per kg=Total kg purchasedDirect material purchased cost=2,02,000kg₹1,41,400
=₹0.70per kg

 Total cost of ending direct materials inventory:


Ending direct materials inventory cost=2,000 kg×₹0.70 per kg=₹1,400\text{Ending direct
materials inventory cost} = 2,000 \, \text{kg} \times ₹0.70 \, \text{per kg} =
₹1,400Ending direct materials inventory cost=2,000kg×₹0.70per kg=₹1,400

2. Finished Goods Inventory, Total Quantity (December 31):

The finished goods inventory at year-end is valued at ₹20,970 and is carried at the average
unit manufacturing cost.

 Total manufacturing costs for the year:


o Direct material: ₹1,41,400
o Direct labor: ₹30,000
o Indirect manufacturing labor (variable): ₹10,000
o Indirect manufacturing labor (fixed): ₹16,000
o Plant energy costs: ₹5,000
o Other indirect manufacturing costs (variable): ₹8,000
o Other indirect manufacturing costs (fixed): ₹24,000

Total manufacturing costs=₹1,41,400+₹30,000+₹10,000+₹16,000+₹5,000+₹8,000+


₹24,000=₹2,34,400\text{Total manufacturing costs} = ₹1,41,400 + ₹30,000 + ₹10,000 +
₹16,000 + ₹5,000 + ₹8,000 + ₹24,000 = ₹2,34,400Total manufacturing costs=₹1,41,400+
₹30,000+₹10,000+₹16,000+₹5,000+₹8,000+₹24,000=₹2,34,400

 Average unit manufacturing cost:

Average unit manufacturing cost=₹2,34,4001,00,000 units=₹2.344 per unit\text{Average


unit manufacturing cost} = \frac{₹2,34,400}{1,00,000 \, \text{units}} = ₹2.344 \, \text{per
unit}Average unit manufacturing cost=1,00,000units₹2,34,400=₹2.344per unit

 Quantity of finished goods inventory:

Finished goods inventory quantity=₹20,970₹2.344 per unit≈8,945 units\text{Finished goods


inventory quantity} = \frac{₹20,970}{₹2.344 \, \text{per unit}} \approx 8,945 \, \
text{units}Finished goods inventory quantity=₹2.344per unit₹20,970≈8,945units

3. Cost Sheet:

Particulars Amount (₹)


Direct Material 1,41,400
Direct Manufacturing Labor 30,000
Plant Energy Costs (Variable) 5,000
Indirect Manufacturing Labor (Variable) 10,000
Indirect Manufacturing Labor (Fixed) 16,000
Other Indirect Manufacturing Costs (Variable) 8,000
Other Indirect Manufacturing Costs (Fixed) 24,000
Total Manufacturing Cost 2,34,400
Particulars Amount (₹)
Units Produced 1,00,000 units
Average Unit Manufacturing Cost ₹2.344 per unit

4. Selling Price Per Unit:

 Revenues = ₹4,36,800
 Units sold = Total production - Ending inventory = 1,00,000 units - 8,945 units =
91,055 units

Selling price per unit=₹4,36,80091,055 units≈₹4.80 per unit\text{Selling price per unit} = \
frac{₹4,36,800}{91,055 \, \text{units}} \approx ₹4.80 \, \text{per
unit}Selling price per unit=91,055units₹4,36,800≈₹4.80per unit

5. Operating Income:

 Revenues: ₹4,36,800
 Cost of goods sold (COGS) = Total manufacturing cost for units sold:

COGS=₹2.344 per unit×91,055 units=₹2,13,494\text{COGS} = ₹2.344 \, \text{per unit} \


times 91,055 \, \text{units} = ₹2,13,494COGS=₹2.344per unit×91,055units=₹2,13,494

 Gross Profit:

Gross Profit=₹4,36,800−₹2,13,494=₹2,23,306\text{Gross Profit} = ₹4,36,800 - ₹2,13,494 =


₹2,23,306Gross Profit=₹4,36,800−₹2,13,494=₹2,23,306

 Marketing, distribution, and customer service costs:


o Variable: ₹1,22,850
o Fixed: ₹40,000
 Administrative costs: ₹50,000
 Total non-manufacturing costs = ₹1,22,850 + ₹40,000 + ₹50,000 = ₹2,12,850
 Operating Income:

Operating Income=₹2,23,306−₹2,12,850=₹10,456\text{Operating Income} = ₹2,23,306 -


₹2,12,850 = ₹10,456Operating Income=₹2,23,306−₹2,12,850=₹10,456

Summary:

1. Direct materials inventory cost (December 31): ₹1,400


2. Finished goods inventory quantity (December 31): 8,945 units
3. Selling price per unit: ₹4.80
4. Operating income: ₹10,456

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Cost Sheet Format


Cost Sheet
Product Name
Product Code Units Produced: 100000

Total Per Unit Quantity


Rs. Rs.
Opening Stock of Raw 0
Material
Purchase of Raw Material 141400
Carriage Inward
Less: Closing Stock of Raw 1400
Material
Material Consumed 140000 1.4
Direct Wages 30000
Direct Expenses
PRIME COST 170000

Add: Factory/Works Overheads


Indirect Wages 63000 0.63
Power
Rent Rates (Factory)
Insurance (Factory)
Lighting (Factory)
Repairs to machinery
Indirect Material
Supervision (Factory)
Depreciation of Plant
Drawing Office Salaries
Add: Opening Work in
Progress
Less: Closing Work in
Progress
Less: Sale of Scrap
WORKS/FACTORY COST 233000 2.33 0
Add: Office/Administration Overheads 50000 0.5
Rent Rates (office)
Insurance (office)
Lighting (office)
Supervision (office)
Office Salaries
Sundry Expenses
Repairs of Office Building
Depreciation of Building
Counting House Salary 0
COST OF PRODUCTION 283000 2.83
Add: Opening Stock of 0
finished goods
Less: Closing Stock of 20970 7410
finished goods
COST OF GOODS SOLD 262030 92590

Add: Selling & Distribution Overheads 162850


Carriage Outward
Travelling Expenses
Advertising
Agent’s Commission
Bad Debts
Delivery Van Expenses
Salesman’s Salary 0
COST OF SALES 424880 4.588*
PROFIT 11920 0.128*
SALES 436800 4.71*

*= Divided by new number of units i.e 92590

Session 3:

Breakeven = Contribution in Total = Fixed Cost


B/E Point = Contribution/unit = Fixed Cost
No of units = Fixed Costs/(Contr / Unit)
Targeted Unit sales = (FC + Profit )/ (Contr / Unit)

Skyview Manor

Question1.
Breakeven=Fixed expense/ contribution margin per unit
Variable costs= Cleaning supplies+ half of the miscellaneous expenses are variable costs+ Linen
Service=1,920+3,657+13,920=$19,497
Contribution Margin= Revenues- Variable costs=160,800-19,497=$141,303
Room occupied= 120 days X 80 rooms X 80%=7,680
Contribution Margin per unit =$141,303/7,680=$18.40
Fixed Costs= Total Costs- Variable costs= $138,410- $19,497=$118,913
Breakeven=$118,913/$18.40=6,462.67
Per night Breakeven=6,462.67/120days=53.85=54
% occupancy : 68%

2.Since Fixed Costs won’t change we should look at the Contribution Margin 8 rooms x 34 weekend
nights (2/7x120) x 18.4 = 5005
added CM: 72 rooms x 34 week nights x 5 = 12240
Net change = 12240-5005=7235 more profit before taxes
However, the hotel would also need to increase the number of rooms they rent out for this to work.

3.With the proposed change to 10$ for a single and 15$ for a double at a 2:8 ratio The weighted
revenue would be (10x.2) + (15x.8) = 14$ Variable from question 1 = 3.01 Revenue-Variable 14-3.01 =
10.99 Contribution Margin 4.1. Do nothing
2. Stay open- No adv- no pool 3. St

Seasion 5:
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