A company manufactures and sells a product, the price of which is controlled by the Government. Raw material required for this product is also made…

CA Intermediate · Cost and Management Accounting · MTP · September 2024
A company manufactures and sells a product, the price of which is controlled by the Government. Raw material required for this product is also made available at a fixed controlled price. The following figures have been called for the previous two accounting years of the company: Year-I Year- II Quantity Sold (tones) 1,26,000 1,44,000 Price per tone 185 185 (₹ In thousands) Sales Value 23,310 26,640 Raw Materials 11,340 12,960 Direct Labour 1,512 1,872 Factory, Administration and Selling Expenses 9,702 11,232 Profit 756 576 During the year II direct labour rates increased by 8 1/3%. Increases in factory, administration and selling expenses during the year were - 8,10,000 on account of factors other than the increased quantities produced and sold. The managing director desires to know, what quantity if they had produced and sold would have given the company the same net profit per tonne in Year II as it earned during the Year I Advise him.

Suggested Answer and Working Notes:

Contribution per tonne (₹) Sales Price 185.00 Variable Cost: Material (W.N.-1) 90.00 Labour (W.N.-2) 13.00 Variable Overhead (W.N.-3) 40.00 Contribution 42.00 Profit Required (₹ 7,56,000 /1,26,000 tonnes) 6.00 Balance Contribution per tonne for meeting Fixed Costs 36.00 Fixed Costs (W.N.-4) 54,72,000 Quantity Required (₹ 54,72,000 ÷ ₹ 36) 1,52,000 tonnes Working Notes 1. Materials Cost per tonne in Year II = (₹ 1,29,60,000 / 1,44,000 tonnes) = 90 2. Labour Cost per tonne in Year II = (₹ 18,72,000 / 1,44,000 tonnes) = 13 3. Variable portion of Factory, Administration and Sell. Expenditure, etc Particulars ₹ Total in Year II 1,12,32,000 Less: Increase otherwise than on account of increased turnover 8,10,000 1,04,22,000 Less: Amount Spent in Year I 97,02,000 Increase 7,20,000 Increase in Quantity Sold 18,000 tonnes Variable Expenses per tonne 40 4. Fixed portion of Factory, Administration and Selling Expenses (Yr. 2) Particulars ₹ Total 1,12,32,000 Variable Expenses @40 per tonne 57,60,000 Fixed Portion 54,72,000

Topics: Marginal Costing

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