a)A company has a plan to produce 2,00,000 units. The variable cost per units is INR 15 and the fixed cost is INR 2 per unit. The company fixes its selling price to fetch a profit of 10% on cost.

(i) What is the break-even point? (both in units and values.)

(ii) What is the profit volume ratio?

(iii) If it reduces its selling price by 5%, how does the revised selling price affect the break-even point and profit volume ratio?

(iv) If a profit increase of 10% is desired more than the budget, whatshould be the sales at the reduced price?4 Marks

b). T- Morden manufacturing company submits the following information on 31^st March 2006.

Sales for the yearRs.275000

Inventories in the beginning of the year:

Work in progressRs. 4000

Finished goodsRs. 7000

Purchase of materials for the yearRs. 110000

Raw material at the beginning of the year Rs. 3000

Raw material at the end of the year Rs. 4000

Direct labour Rs. 65000

Factory overheads was 60% of the direct labour cost

Inventories at the end of the year:

Work in progressRs. 6000

Finished goodsRs. 8000

Other expenses of the year;

Selling expenses 10% of sales

Administrative expenses5% of sales

Prepare the statement of cost.

Section - C (Case Study)

Q 6. Read the following case carefully and answer the following questions:

a) What precautions should be taken by the business in using budgeting as a tool for cost control program?

b) The caselet argues that a successful cost control program needs active involvement of the Staff. Why do you think active involvement of employees is necessary? Discuss.

c) Frame a broad strategy, explaining the various steps, for the implementation of the cost reduction campaign in an organization.

If the recent corporate actions are anything to go by, it appears, as if the importance of a cost cutting program is often ignored when the business is going on smoothly. It is only in economic recession that companies consider the implementation of cost control programs. Cost-cutting program benefits an organization by reducing the pressure on the profit margins. A successful cost control program needs active involvement of the staff, and effective utilization of the budgeting resources in the program. The main areas of concern in a cost-cutting program include the personnel costs and the purchasing function.

In a tight economy, there is general recognition that business as usual wont cut it, and managers need to find ways to get by with less of everything. Often overlooked, however, is the similarity that should exist between management in a cutback and managing a going business in the best of times.

The best cost-cutting program is a program of cost control and work prioritizing which functions equally well in good times and bad. The most difficult of times can give managers the opportunity to install cost-cutting programs with credibility and with the support of those affected.

Deciding which costs to cut is just as important as determining how much to cut. Cutting across the board is never the right approach its only a question of how much unnecessary damage this does. A better approach is to attack the problem by grouping functions, departments, and projects into one of the following four categories:

Select areas where cost-cutting will not stop recovery or affect critical current programs. Cut these sharply or eliminate them entirely.

Select activities that must be retained but can be delayed or cut back into an inactive state for four to six months.

Determine where money can be spent more effectively in areas that cant be cut back.

Finally, consider investing in new or existing projects that can benefit the cost-control program and be of continuing value in a recovery.

The cost control program is not an overnight program to save money. It takes time, hard work, and persistence in good times and bad. The payoff is the potential for strong and immediate improvement in profits or reduced losses, a way of managing all resources more professionally and more productively and a permanent improvement in how an organization deals with hard times.