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CVP Analysis and decision-Making Part 3 2000x750 1,20,000 hour for hours 1) To Contribution (1) 4 1 Particulars Part A 1.166 hours 760 76.960 1,89,063 1.53,298 onclusion: Part B may be proceed to maize income in the revised situation file Key Factor - Product Mix Decision N 96, M 06 So many manufactures two products and Y. The Company's Fixed Cost per annum is s Lakhs. These products are sold for 288 per unit of Xande 62 per unit of T. Standard cost data are - Product Y Product X Particulars Direct Raw Material 40 30 Direct Wages per hour in Departments: 1 48 72 24 48 2 3 72 96 Variable Overheads 32 28 The Company operates 8 hours shit for 300 days in a year, Number of workers engaged by each department is - Department 2 3 umber of Workers 245 24 27 35 How many units of each product would be manufactured and what is the resultant maximum profit, if numbers of employees cannot be increased or transferred? only one product is to be manufactured by the Company, which of the products would give the maximum profit and what is the amount of such profit? S.no.com What will be the production decision if Raw Material is restricted to and only one product is to be manufactured? Solution: 1. Computation of time required per unit and maximum possible production Product Y Product X ept Total Available DLH Hrs reqd pu Possible Prodn Hrs reqd pu Possible Prodn 348 : 78 728 1,08,000 hrs : 6 hrs pu 1 1,08,000 hrs : 9 hrs pu 8 x 300 x 45 = 1,08,000 = 6 hours = 18,000 units = 9 hours = 12,000 units 24:38 3 48 : 78 57,600 hrs = 3 hrs pu 57,600 hrs : 6 hrs pu 2 8 x 300 x 24 = 57,600 = 3 hours = 19,200 units = 6 hours = 9,600 units 728 8 x 300 x 27 = 64,800 64,800 hrs = 9 hrs pu = 9 hours = 7,200 units 96 =38 86,400 hrs = 12 hrs pu 8 x 300 x 36 = 86,400 = 12 hours = 7,200 units Total Hours required 18 hours p.u. 27 hours p.u. from the above, it is observed that the maximum possible output of Product X is 7,200 units (due to constraints in Department 3) and for Product Y, the maximum possible output is 7,200 units (due to constraints in Department 4). 3 4 2. Evaluation of Alternatives and Determination of Possible Production Quantity Since output is restricted to 7,200 units (from above), the following alternatives are available - Alternative 1: Produce 7,200 units of Product X and use the balance capacity for production of Product Y. Alternative 2: Produce 7,200 units of Product Y and use the balance capacity for production of Product X. Production Plan under Alternative 1 Particulars Dept 1 Dept 2 Dept 3 Dept 4 Total Available DLH 1,08,000 57,600 64,800 86,400 7,200 x 6 7,200 x 3 DLH required for 7,200 units of X 7,200 x 9 = 43,200 = 21,600 = 64,800 Nil 5) Balance DLH available (a - b) 64,800 36,000 Nil 86,400 79,200 9 36,000 = 6 ) Balance possible production of Product Y 86,400 - 12 = 7,200 units = 6,000 units = 7,200 units Hence, effective production under Alternative 1 will be = 7,200 units of X and 6,000 units of Q [least of (d)]. Not reqd 9.111 Dept 1 64,100 Nil Jont ale 14,000 Vor Photo Studenes det en stark ist management actormance valuation Protection Plan under Alternative Dept 4 Particulars Dept 1 Dept 116,100 AVON 1,08,000 57,600 7,200 (200 ney 7.2009 7,200 KG 116,100 - 64,800 43,200 ORDIN (1) NII 43,200 14,100 Notre (Balance be protection of PractX 43,2006 64,000+ 14,100 - 7,200 units 4,800 units - 7,200 units Merete prxtxt Alternate will be 4,800 units of x [least of (a) and 2,200 units of o 3. Product wise Contribution Analysis Particulars Product Y Product x a) Saling Price pe 132.00 288.00 (1) Vrable Casts pu: P 10.00 180.00 Labour Casts pu (48 +24+72) - 144.00 (72 +48 +96) - 7 216.00 32.00 Sub-Total 216.00 72.00 108.00 18 hours * 4.00 4.00 I Material Cost pu 28.00 324.00 VOH Castel 27 hours Contribution pa (d) Total DLH required (WN 1) (e) Contribution per DLH (Cd) Rank based on (e) above Less: 4. Profitability of the above alternatives Alternative 7, 200 units of X and 6,000 units of Y 4,800 units of X and 7,200 units of Y Contribution (7,200 **72) + (6,000 x 108) * 11,66,400 (4,800 x 72) + (7,200 x 108) +11,23,200 Fixed Costs 5,00,000 5,00,000 Profit 6,66,400 6,23,200 Decision: Alternative 1, i.e. 7,200 units of X and 6,000 units of Y, is preferable due to higher profits. 5. Single Product Decision Maximum Possible Output 7,200 units of Product X Contribution (7,200 x 72) 5,18,400 Less: Fixed Costs 85,00,000 Profit 18,400 Decision: Product Y is preferable, if only one product is to be produced. 7,200 units of Product Y (7,200 x 108) - 7,77,600 85,00,000 2,77,600 6. Effect of Restriction in availability of Raw Material upto 5,40,000 Particulars Product X Product Y (a) Material Cost per unit (given) 40 80 (b) Possible Output if RM Value is restricted 5,40,000 = 40 = 13,500 units 5,40,000 = 80 - 6,750 units (C) Possible Output based on DLH 7,200 units 7,200 units (d) Effective Possible Output (least of b&c) 7,200 units 6,750 units (e) Contribution per unit 872 108 (6) Possible Total Contribution (d = e) 5,18,400 Decision: If RM is restricted to 5,40,000 and only one product is to be produced, Product Y should be preferred, due to * 7,29,000 higher contribution and profits. 10.14 Multiple Key Factor - Product Mix Decision M 12 Ezee Ltd makes two products, E and Z. All units produced are sold. There is no inventory buildup. Production facilities may be used inter-changeably for both the products. Sales Units are the Limiting Factor. The following information is given: 9.112 E 25 20 47,500 4,000 Sontribution / unit Fixed Cost Sales Units (nos) 46,000 5,000 3,000 2,000 Sacreased portion only), thereby reducing the Contribution per unit to the following figures: super increase in quantities above 4,00 units for each product , there will be an increase in Variable Salling Costs, (for the Contribution per unit() Units E 20 15 Z 15 10 4001-5000 5001-6000 Above 6000 No sales possible. For the present level, find the Break-Even Point with the present product mix. What is the minimum number of incremental units to be sold to recover the Additional Fixed Cost of 3 47,500 to be incurred? (Present Product Mix need not be maintained). Sini ) If you are allowed to choose the best product mix for the incremental level, (while taking the present mix given in the First Table above for the present level), what would be the individual product quantities and the corresponding Total Contributions, the Total Average Contribution per unit and the Total Profits for the complete production? 1. Computation of BEQ with Present Mix of 3 : 2 E Z Total Particulars a) Contribution per unit 25 20 2 5) Sales Mix Ratio (c) Overall Contribution Ratio (a x b) 75 40 115 (d) To achieve BEQ, Required Contribution = Fixed Cost of * 46,000 to 330,000 16,000 46,000 De eamed in the ratio of 75 : 40 1,200 units (e) Hence, Required BEQ = (d = a) 800 units 2,000 units Solution: 3 2. Statement of Product Ranking at different sale quantity levels Product E Product z Upto 4000 4001 - 5000 5001 - 6000 Upto 4000 4001 - 5000 25 20 15 20 15 I II III II III Particulars ale Quantity (units) Contribution pu (3) Ranking 5001 - 6000 10 IV 3. Minimum Addnl Quantity to recover Additional Fixed Costs (as per ranking preference in Working Note 2) a) Additional Fixed Cost to be recovered 47,500 Lb) I Rank: Additional 1,000 units of E with Contribution of 25 per unit. (25 x 1000) (25,000) (C) Balance Fixed Costs to be Recovered (a - b) 22,500 d) II Rank: Additional 1,000 units of either E or Z with Contribution of 20 p.u. (20 x 1000) (20,000) (e) Balance Fixed Costs to be Recovered (c-d) 2,500 MO) II Rank: Additional units of either E or Z (as per previous decision) with Contribution of 20 p.u. (2500) lote: Number of units to be sold = 32,500 = 320 p.u = 125 units Z lumber of Units from which All Fixed Costs are recovered is as under- Particulars E Option I Given 3,000 + WN 3(b) 1,000+ WN 3(d) 1,000 = 5,000 units Option II Given 3,000 + WN 3(b) 1,000+ WN 3(1) 125 = 4,125 units Given 2,000 + WN 3(1) 125 = 2,125 units Given 2,000 + WN 3(d) 1,000 = 3,000 units 9.113 9,000 units E 5,000 & 2 4,000 uts A) Pre D) 50 De Padukt - Students Handbook on Strategic Cost Management & Performance Evaluation - CA Final 4. Computation of Optimum Product Mix, etc. (a) Total Quantity to be sold 5,000 units + 4000 units (1) From the Ranking Table, the Optimum Combination will be (in units) (c) Total Contribution: E(4,000 units X 725) + (1,000 units x 20) = 1,20,000 z (4,000 units X 20) (d) Total Average Contribution per unit - (2,00,000+ 9,000 units) (e) Total Profits - Total Contribution 2,00,000 less Fixed Cost 93,500 2,00,000 22.22 per unit * 1,06,500 80,000 RTP e) 9) A B 3,000 31,000 7700 * 600 . C B 20.15 Multiple Key Factor - Product Mix Decision, Price Payable for Alternative Material * 2,500 A Company produces three products, details of Costs & Sales Value per unit is given below. Particulars 800 * 2,000 Sales Value 400 500 Direct Material 500 units) Particulars 80 750 (a) Selling Price 750 860 (b) Variable Costs: Material w 2*4=8 2*4=82 x 4 = 8 1x4? 8 3x4-123x34= 12 6 x 76-736 Material y NA NA NA 6x3 18 NA NA NA Material x 1x8=8 28 16 18 8 1x8? 8 Other Materials 13 36 12 35 36 7 13 Variable OH 34 38 34 38 Sub-Total 30 340 730 21 347 3 65 (c) Contribution pu 20 20 29 33 15 (d) Forming Hours required pu 6 2 10 (e)Contribution per Forming Hr 84.00 33.33 75.00 32.90 5.50 2.50 (Rank MI II V 1 VI (9) Maximum Demand 2,000 units 2,000 units 4,000 units 3,000 units 500 units 3,500 units (h) Maximum Hours required 10,000 hours 12,000 hours 8,000 hours 30,000 hours 3,000 hours 21,000 hours 10 6 6 5 IV Tota 27,000 3. Key Factor Allocation under different scenarios Particulars B E D (a) Maximum Demand 2,000 units 2,000 units 4,000 units 3,000 units 4,000 units (b) Max. Hrs required 10,000 hours 12,000 hours 8,000 hours 30,000 hours 24,000 hours (c) Normal Hrs Allocation Hours allocation based on 10,000 hours (bal. fig) 8,000 hours Nil 500 x 6 = Rank as per 2e above 6,000 hours 3,000 hours . Production Quantity as per 2,000 units 1,000 units 4,000 units Nil 500 units above allocation Contribution from this 340,000 * 20,000 340,000 Nil 3 16,500 allocation (Qtty x 2c) (d) Quantity without 2,000 units 2,000 units 1,000 units 3,000 units 1,000 units considering special order (e) Hours required for above 10,000 hours 12,000 hours 2,000 hours 30,000 hours quantity (w/o spl order) 6,000 hours 1,16, 9.116