of rings.

Steel rings and Plastic

Precision Rings Global Inc. (PRG) produces two types
1. information i s
are highly useful in
machine industry. Their financial
rings. These rings
given as below: Plastic Rings
Steel Rings
80000 60000
Total Production (in units) 40 30
Selling price (Rs. per unit) 8
18
Raw material used (Rs. Per unit) 4.5
Direct Labour Cost (Rs. per unit) 10 10
Overhead (Rs. Per unit) 2
Selling and Administrative cost perunit
revisit the existing cost
market. Therefore, it decided to
PRG faced stiff competition in the to provide an
identifies that Activity Based Costing (ABC) system will be able
system. It identifies the two activities
exact cost for its products.
Under new ABC system, PRG
for each
activities. The total cost incurred
and Inspection) necessary for its
(Supervision, for Inspection
for Supervision and Rs. 12,90,000
activity is identified as Rs. 1,10,000 labor hours (DLH) could be a
suitable cost driver for
activities. It was also found that Direct
suitable for the assignment of
Similarly, the total number of inspections is
Supervision.
Inspection activity cost.
of rings is given below.
The level of activities required for both types Plastic Rings
Steel Rings 1.2 DLH/unit
0.75DLH/unit
72000 DLLH
60000DLH 60000inspections
40000inspection
considering the existing costing system.
1.1. Calculate profit for each product category
category) considering the proposed ABC
1.2. Calculate the profit (for each product
system. 80% of its installed capacity for
each
1.3. Given a situation where PRG utilising only
is
and the
of their earlier planning
The current output level is only 80 percent
product. and
14,00,000 (Rs. 1,10,000 for Supervision
total of installed overhead cost is Rs. (for each
remain unchanged. What will be its
new profit
Rs. 12,90,000). Other things Marks (5+ 10+5-20)
product category) from both products categories?
selling a single unit of its product
at

the of producing and

2. For the Reverpool Pvt. Ltd.
cost

company's normal activity level of 8,000 units

per year is
the Per unit Cost in Rs.
Particulars 20.50
Direct materials 30.0
Direct labor 10.00
Variable manufacturing overhead 40.50
Fixed manufacturing overhead 10.5
Variable selling and administrative expense
20.00
Fixed selling and administrative expense

is 10,000
units per
Rs. 150.00 per unit. The company's capacity
The normnal selling price is
o v e r s e a s s o u r c e for
2,000 units at the special
irom an
Inonth. An order has been received sales. If the order s
This order would not regular
affect
price of 120.00 per
Rs. unit.
Page 2 of6
 accepted, how much will monthly profits increase or decrease? Assume that the order will
not change the company's total fixed costs. (8 marks)

3. Answer the following questions (3.1) and (3.2) using the following information:
TLC Pvt. Ltd. estimates it will produce 30,000 units of thermostat that it sells at a price of
Rs. 200. Current intemal capacity permits for a maximum of 50,000 units. It currently
produces all its requirements internally but is considering outsourcing this activity. The
production manager has prepared the following information concerning the internal
manufacture of 30,000 units of the product:
Per Unit
Direct material Rs33
Rs 45
Direct labour
Variable Overheads (Manufacturing Rs. 25+Marketing Rs. 20) Rs 45
Rs60
Fixed Overheads
TOTAL COST Rs 183
The fixed overhead of Rs 60 per unit includes a Rs 15 per unit allocation for salary paid
12 unit for the marketing
to a supervisor to oversee production of the part and Rs. per of each
and distribution cost. (consider each of the following options independent
other). of Rs. 210. Even TLC
3.1. TLC has received an export order of80,000 units at asales price meet
fall short by 30,000 units
will continue use its full capacity level it will be still
to

the export order requirement. TLCis considering

manufacturing by full capacity and
TLC can
outsource the remaining from an external supplier
to meet the export order.
of Rs. 160 perunit. Apart from the existing
outsource the excess requirement at price
a
of Rs.
unit logo printing and brand tagging cost
variable cost, TLC has to incur a per additional warehouse
order. TLChas to incur an
12 per unit as desired by the export warehouse facility
20000 charged by Port Trust of India for using their
expense of Rs. order be accepted? If TLC do not accept
the export
near the port. Should the export and selling
internal production capacity for manufacturing
order and only uses the full under the two
market will there be any difference
in profit
the product in the domestic calculation.
answer with detail
strategy? Support your
material cost
slowdown in general economy
and higher inflation the input
3.2. Due to the to go up by l0%. Due
cost is also expected
20% in near future. Labour
will go up by Due to
variable marketing cost is expected to go up by 10%.
demand the is also substantial
to decline in electronics industry there
decline in demand in
the of household the market
thermostat product of TLC.
To continue to exist in
decline in demand for the troubled times there is
its sells price by 5%. During such
cut down Under such
TLC has also to down the business.
from the financers to shut
also increasing pressure business completely" Support
TLC to shut down its
environment would you suggest
calculation and reason?
a n s w e r with detail
your
(8+8 l6marks)
the level ot
its capacity. ln the past two years
al 75% of 150000 uaits. The
4. 1PL Iid. is currently operating Presently the production is
were 55%
and 65% respectively.
in the next year
85% capacity level
operalions
planning to achieve
Company is

Page 3 of 6
 Particulars 55% 65% 75%

Direct material 2200000 2600000 3000000

Direct labour 1100000 1300000 I500000
Factory overheads 620000 660000 700000
Sellingoverheads 640000 720000 800000
Administrativeoverheads 320000 320000 320000
4880000 5600000 6320000
Withthe change in level of productionin the next year at 85% capacity level there will be an
increase in the various cost categories as follows:
Cost Category %Increase
Direct material
Direct labour
Factory overheads variable
Selling overheads variable
Selling overheads Fixed 15
Administrative overheads_ 10
Prepare a flexible budget for the next year at 85% capacity level and ascertain profit assuming
atarget profit margin of 20% on sales. (10 marks)
5. ABC Ltd. Manufactures a product "DIOMAND"
by using material A and B. Proposed
production of DIOMAND is 5000 units in the month of March and budgeted costs will be
as under:
Rs.
10000 kg of Material ARs. 2per kg. 20000
5000 kg of Material BRs. 6 per kg 30000
Labour (15000 hrs. Rs.6 per hour) 90000
Variable overheads (15000 hrs @ Rs. 4 per labour hour.) 60000
The actual results for 4500 units produced during the year is as follows:
Rs.
Material
9500kg of Material ARs. 2.20 per kg. 20900
5000kg of Material BRs. 5.60 per kg
Labour (14250 hrs. Rs.6.40 per labour hour) 28000
Variable overheads 91200
52000
Calculate the following variances:
5.1. Material Total Cost, Price, and Usage
52. 1abour Toal Cost, Wages rate, and Labour efficiency
53 Variable
overheads Total Cost, Volume, and
spending
(616018 marks)

Page 4 of 6
6. The WashMaster orporation manufactures two types of washing machines, the BigWash
commercial use and the HomeWash for residences. Budgeted and actual operating
data for the year 2019 were as follows:
Static Budget BigWash HomeWash Total
Number sold 10000 40000 50000
Contribution margin 3000000 6000000 9000000
Variable cost 500000 2000000 2500000

Actual Results BigWash HomeWash Total

Number sold 8000 56000 64000
Contribution margin 2560000 7840000 10400000
Variable cost 640000 2240000 2880000
You are required to calculate the Total sales variance, The Sales price variance, The Sales mix
variance, and the Sales volume variances. (8 marks)

7. Sanchi Dairy processes raw milk up to the split off point where two products, Full Cream
and Toned Milk, are obtained. alsuryaThe following information was collected for the
month of July:
Direct materials processed: 2.500 liters (with 20% shrinkage)
Production Full Cream 1.500liters
Toned Milk 500 liters
Sales Full Cream Rs. 15.00 per liter
Toned Milk Rs. 10.00 perliter
Cost of purchasing 2,500 liters of raw milk and processing it up to the split off point to
yield a total of 2,000 liters of good products was Rs. 4,500. There were no inventory
balances of full cream and toned milk.

Full cream may be processed further to yield 1,375 liters of Cake Cream for an additional
processng cost of Rs. 150. Product Cake Cream is sold for Rs.25.00 per liter. There was
Do beginning inventory and ending inventory was 125 liters

Toned mlk may be processed further o yield 375 liters of Kesar Milk tor an addiuonal
processng cust of Rs 275 Product Kesar Milk is sold for Rs. 30.00 per liter. There was
Do
begnnng mventury and endng inventory was 25 liters

Whal s ( ahe
uicau s estunaled realizable value at the splitoll pount
uet
Wlial u e Kesat Milk
estumaled net realizable value al Spitoil poi
(5510arks)

Page 5 of 6
Pithampur Woods processes tinber into four products. During January, the joint costs of
processing were Rs.280,000. There was no inventory at the beginning of the month.
Production and sales value information for the month were as follows:
Sales Value at
Product Board feet Split-off Point Ending Inventoryy
2x 6,000.0000 Rs.0.30 per board foot 500,000bdft.
2 x 6's 3,000,000 Rs.0.40 per board foot 250,000 bdft.
4 x 4's 2,000.000 Rs.0.45 per board foot 100,000 bdft.
Siabs 1,000,000 Rs.0.10 per board foot 50.000 bdft.
Determine the value of ending inventory if the sales value at split off method is used for
product costing. Round to 3 decimal places when necessary. (10 marks)

All the best