PQR Ltd. manufactures a product in batches of 2,000 units. The following costs are incurred for each batch Particulars Amount (in ₹) Direct Material…

CA Intermediate · Cost and Management Accounting · PYQS · January 2025
PQR Ltd. manufactures a product in batches of 2,000 units. The following costs are incurred for each batch Particulars Amount (in ₹) Direct Material Cost per Batch 2,40,000 Direct Labour Cost per Batch 1,65,000 Overhead Absorption Rate (variable) 120 per machine hour Expected Rejection Rate 3% Scrap Value per Rejected Unit 75 Other Information: Particulars Details Selling Price per Good Unit 250 Total Available Machine Hours per month 3,000 hours Fixed Overheads per Month 1,25,000 Batches Manufactured per Month 10 batches Required: (i) Calculate contribution per unit of good units after adjusting rejected units. (3 Marks) (ii) Calculate the company's total monthly profit. (2 Marks)

Suggested Answer and Working Notes:

(i) Calculation of Contribution per unit of good units Total Amount (₹) Per Unit (₹) Selling Price 48,50,000 250.00 Direct Material Cost 24,00,000 Direct Labour Cost 16,50,000 Variable Overhead (120 x 3,000 hours) 3,60,000 Total Variable Cost 44,10,000 220.50 Less: Scrap Value of Rejected Units (75x 20,000 x 3%) 45,000 Net Variable Cost 43,65,000 225.00 Contribution per good units 4,85,000 25.00 Working Note: Number of units manufactured in a month = Number of batches X number of units in a batch = 10 x 2,000 = 20,000 units Number of good units sold = 20,000 units x 97% = 19,400 units (ii) Calculation of Company's total monthly profit Total Amount (₹) Contribution 4,85,000 Less: Fixed Cost 1,25,000 Total Monthly Profit 3,60,000

Topics: Cost Sheet

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