Alpha Tech Industries Pvt. Ltd. is a mid-sized company that manufactures electronic components for solar inverters. In the financial year 2024, the…

CA Intermediate · Cost and Management Accounting · MTP · May 2026
Alpha Tech Industries Pvt. Ltd. is a mid-sized company that manufactures electronic components for solar inverters. In the financial year 2024, the company produced 10,000 units of its flagship controller unit. Due to rising demand for renewable energy products, the company is planning to scale operations in 2025. Below are the actual production costs for the year 2024: Particulars Amount (₹) Direct Material Consumed 15,00,000 Direct Labour (Wages) 9,00,000 Factory Overheads: Fixed Overheads (Depreciation, Salaries, etc.) 4,50,000 Variable Overheads (Utilities, Consumables) 3,00,000 Total Production Cost (2024) 31,50,000 Due to a long-term supply contract and growing market demand, the company is planning the following changes in 2025: Target production will rise due to the addition of a second shift and hiring of 50% more factory workers.Due to the higher number of new hires and training time, the overall efficiency is expected to drop by 15%.Cost Adjustments:The company signed a new bulk procurement deal, reducing direct material costs by 8%.Due to inflation and increased scale, variable overheads are expected to increase by 70%.Fixed overheads (including salaries, rent, etc.) will rise by 10% due to new administrative hires and expansion.Alpha Tech wants to maintain a 12.5% profit margin on selling price in 2025 to remain competitive and cover expansion-related risks. ASCERTAIN the cost of production and selling price.

Suggested Answer and Working Notes:

Budgeted Cost Sheet for the Year 2025 – Alpha Tech Industries Pvt. Ltd. Particulars Amount (₹) Amount (₹) Direct material consumed 15,00,000 Add: 27.5% due to increased output 4,12,500 19,12,500 Less: 8% for decline in material price 1,53,000 Total Material Cost 17,59,500 Direct wages (manufacturing) 9,00,000 Add: 50% increase 4,50,000 Total Wages 13,50,000 Prime cost 31,09,500 Manufacturing Overhead: Fixed Overhead 4,50,000 Add: 10% increase 45,000 Total Fixed Overhead 4,95,000 Variable Overhead 3,00,000 Add: 27.5% due to increased output 82,500 3,82,500 Add: 70% increase as per inflation & scale 2,67,750 Total Variable Overhead 6,50,250 Total Overhead 11,45,250 Cost of Production 42,54,750 Add: 1/7 of Cost or 12.5% on selling price 6,07,821 Selling Price 48,62,571 Working Note: Production will increase by 50%, but efficiency will decline by 15%. So, 150 - 15% of 150 = 127.5% of previous output Increase = 27.5%Material cost is increased by 27.5% for volume, then reduced by 8% for lower prices.Labour cost increases by 50% directly due to hiring.Variable overhead first increases by 27.5% due to higher production, then furtherincreases by 70% due to inflation and scale, so: 3,00,000 x 127.5% = 3,82,500, then - 3,82,500 x 170% = 6,50,250Profit is 12.5% of selling price → i.e. 1/7 of cost

Topics: Cost Sheet

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