Han Ltd. sells three products namely 'A', 'B' and 'C'. The following information is available regarding sales, costs and activity for the year ended…

CA Intermediate · Cost and Management Accounting · RTP · January 2025
Han Ltd. sells three products namely 'A', 'B' and 'C'. The following information is available regarding sales, costs and activity for the year ended 31 st March: Particulars A B C Sales (₹) 60,00,000 90,00,000 54,00,000 Cost of Sales (₹) 30,00,000 78,00,000 27,00,000 Area of storage (sq.ft.) 72,000 1,08,000 36,000 Number of parcels sent 2,40,000 3,00,000 2,10,000 Number of invoices sent 60,000 90,000 1,44,000 Selling and Distribution overheads and the basis of allocation are as follows: Fixed Cost Amount (₹) Basis of allocation to Products Rent and Insurance 6,00,000 Square feet Depreciation 2,70,000 Parcel Salesman's salaries & expenses 11,40,000 Sales Volume Administrative wages and salaries 9,00,000 No. of Invoices Variable Costs: Packing wages & materials:4.80 per parcel Commission: 2.40% of sales Stationery:1.80 per invoice Finance Manager of the Company has recommended to discontinue the Product 'C' since it's sales is less compared to other products. You are required to PREPARE the profitability statement of each product, showing the percentage of profit/ (loss) on sales for each product, and also EXAMINE the recommendation of Finance Manager.

Suggested Answer and Working Notes:

Profitability statement of each product for the year ended 31 st March Particulars Total (₹) Products A (₹) B (₹) C (₹) Sales 2,04,00,000 60,00,000 90,00,000 54,00,000 Variable Costs: Cost of sales 1,35,00,000 30,00,000 78,00,000 27,00,000 Commission @ 2.40% of sales 4,89,600 1,44,000 2,16,000 1,29,600 Packing wages and materials @4.80 per parcel 36,00,000 11,52,000 14,40,000 10,08,000 Stationery @1.80 per invoice 5,29,200 1,08,000 1,62,000 2,59,200 Total Variable Costs 1,81,18,800 44,04,000 96,18,000 40,96,800 Contribution (sales - variable cost) 22,81,200 15,96,000 (6,18,000) 13,03,200 Fixed costs: Rent and insurance 6,00,000 2,00,000 3,00,000 1,00,000 Depreciation 2,70,000 86,400 1,08,000 75,600 Salesman's salary and expenses 11,40,000 3,35,294 5,02,941 3,01,765 Administrative wages and salaries 9,00,000 1,83,674 2,75,510 4,40,816 Total Fixed Costs 29,10,000 8,05,368 11,86,451 9,18,181 Profit or loss (Contribution - Fixed costs) (6,28,800) 7,90,632 (18,04,451) 3,85,019 Percentage of profit or loss on sales (%) (3.08)% 13.18% (20.05)% 7.13% Recommendation of finance manager is not correct. Product 'C' should not be discontinued as it is profitable.

Topics: Overheads - Absorption Costing Method

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