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Pachka's Students and ook on Strategic Cost Management & Performance Evaluation CA Final WYE 726 120 136 2182 7 375 7165 WYE Particulars EXE Variable costs of Department 2: 121 Direct Materials 90 Direct Labour Variable OH (10 hrs 3.60) (7.5 hrs x 3.60) = 27 Total VC in Department - 2 138 (d) Total Variable Cost per unit (b + c) 258 (e) Contribution per unit (a -d) 117 2. Computation of Quantity to be produced and profit using internal facilities only Particulars EXE (a) Maximum Possible Production in Dept - 1 (1,75,000 hrs + 5 hrs pu) (1,75,000 hrs -7.5 hrs pu) - 23,333 units = 35,000 units (b) Maximum Possible Production in Dept - 2 (2,80,000 hrs+ 7.5 hrs pu) (2,80,000 hrs - 10 hrs pu) 28,000 units = 37,333 units (c) Maximum Production using the available hours in both 23,333 units Departments = Least of (a) and (b) 35,000 units (d) Maximum Possible Contribution (23,333 unitsx * 165 pu) (35,000 units x 117 pu) = (Quantity as per (C) Contribution pu) = 38,49,945 => 40,95,000 Decision: Internal Production of Exe gives the Maximum Contribution to the Company. The resultant Maximum Profit = Contribution 40,95,000 -- Fixed Prod OH 15,00,000 = 25,95,000. 3. Sub-Contracting Options available to the Company EXE = 38,500 units WYE = 31,500 units Sub-Contract 31,500 - 23,333 = 8,167 units (bal.fig) Dept Own Production (maximum) (WN 2a) 23,333 units Dept Sub-Contract 38,500 - 35,000 = 3,500 units (bal.fig) Own Production (maximum) (WN 2a) 35,000 units 1 1 3,500 units 35,000 + 2,333 (b/t) 1,167 units 23,333 + 4,667 (b/f) (i.e.8,167-4,667) uts 2 2 (i.e.3,5002,333) uts = 37,333 units = 28,000 units (maximum) (WN 2b) (maximum) (WN 2b) Effect of above decision: Effect of above decision: 23,333 units (a) Own Production (Dept 1 & 2) 35,000 units (a) Own Production (Dept 1 & 2) 4,667 units (b) Sub-Contracting Dept 1 only 2,333 units (b) Sub-Contracting Dept 1 only 3,500 units (c) Sub-Contracting Dept 1 & 2 1,167 units (C) Sub-Contracting Dept 1 & 2 31,500 units Total Total 38,500 units 4. Profit Statement using Sub-Contracting Facilities as per above options WYE EXE Particulars 540 375 (a) Selling Price per unit (6) Own VC per unit in Department 1 (WN 1b) 120 193 (c) Own VC per unit in Department 2 (WN 1c) 138 182 (d) Sub-Contract Cost per unit in Department 1 138 212 (e) Sub-Contract Cost per unit in Department 2 150 192 (1) Contribution per unit in case of - Own Prodn in both Dept 1 & 2 (a-b-c) 117 165 Sub-Cont. Dept 1 & Own Prodn Dept 2 (a-d-c) 99 146 Sub-Contract in both Dept 1 and 2 (a-d-e) 87 136 (9) Total Contribution Earned Own Prodn in both Dept 1 & 2 (35,000 utsx 117)= 40,95,000 (23,333 utsx3165)= 38,49,945 Sub-Cont. Dept 1 & Own Prodn Dept 2 (2,333 uts x 799) = 2,30,967 (4,667 utsx 146) = 7 6,81,382 Sub-Contract in both Dept 1 and 2 (1,167 uts x 3 87)= 31,01,529 (3,500 uts x 136) = 4,76,000 Total of above Contribution *44,27,496 50,07,32 9.136 ZEBRONICS Note: On comparison of "Ma Dit is preferable to make Pad D 1,98,000 1,80,000 3 3,72,000 3,36,000 36,000 c 3,42,000 3,12,000 30,000 37.74 2,32,200 18,000 7.20 1,29,600 (a) Machine Hours require Pb) Budgeted Sale Quant (c) Budgeted Machine H Observation: Total Re So there is a shortfal purchased from outside 1,79,280 Padukas - Students' Handbook on Strategic Cost Management & Performance Evaluation CA Final Since Chas lower ranking for production, it may be purchased externally. Hence, quantity of purchased to meet the shortage of 72,400 hours = 72,400 hours + 1 hour p.U. - 72,400 units. Additional cost of purchasing from outside - 24.20 per unit * 12,400 units = + 3,04,080. Total 3. Evaluation of Effect of Advertisement Campaign Particulars (a) Budget 2 Qtty (with Advt) (in units) 2,40,000 (b) Budget 1 Qtty (w/o Advt) (in units) 2,16,000 (c) Addnl Qtty with Advt (a - b) (in units) 24,000 (d) Contribution p.u. (WN 1c) 24.14 24.98 26,40,440 (e) Additional Contribution (cx d)) 3 99,360 Additional Costs 3,04,080 Buying C from outside (WN 2) 23,00,000 Advertisement Campaign Costs (given) 736,360 (9) Net Additional Profit (e- Hence, the Advertisement Campaign is worthwhile. D 4. Machine Hours Allocation Total Particulars A B 8,05,200 (a) Budget 1 (w/o Advt) (WN 2c) 1,29,600 2,01,600 8,15,000 (b) Budget 2 (with Advt) (as per WN 2e above, & Buy decision) 1,44,000 Note: In Budget 2 situation, shortfall is 72,400 hours as computed in WN 2 above. This shortfall will be entirely reduced from Product C, as per the decision taken in WN 2 above. (a) Cost of Buying p- (b) Variable Cost of C) Savings per unit (d) Machine Hours Me) Savings per M Ranking (Prefe Since Produs 1,62,000 3,12,000 3,42,000 - 72,400 = (Note) 2,69,600 1,78,200 2,23,200 Quantity of Hence bali Contribut N 16 S 99,000 47.88 24.96 6.36 2.16 Particul (a) Quantity (b) Quantit c) Contrib Total Less: OP 11.11 Moc far . Ranking as per WN 1 is not applicable here, since there is additional information relating to Make vs Buy decision. 11.10 Key Factor - Make or Buy A Company manufactures four products. The annual demand for Products, Selling Prices and Variable Production Costs are - Products R Q P Demand (Units) 1,20,000 1,86,000 1,71,000 Selling Price / Unit 23.88 28.68 55.08 Direct Material / Unit 10.08 13.20 30.48 Direct Labour / Unit 4.08 4.08 6.72 Variable Overheads / Unit () 1.44 1.44 2.40 Other Data: The Variable Overheads are absorbed on a machine hour basis at a rate of 7 1.20 per machine hour. Fixed Overheads total 46,84,000 per annum. Production Capacity available is 8,15,000 machine hours per annum. Products P, Q and R can be bought-in at * 21.36 per unit, * 24 per unit and 3 48 per unit respectively. You are required to calculate the best Product Mix for the year and the resulting Optimal Profit. Solution: 1. Contribution Analysis Particulars P. Q R (a) Sale Price p.u. 23.88 28.68 55.08 (b) Own Variable Production Cost: Direct Materials 10.08 13.20 30.48 Direct Labour 4.08 4.08 6.72 Variable OH 1.44 1.44 2.40 Sub Total VC p.u. (Note) 15.60 18.72 39.60 (C) Contribution p.u 8.28 9.96 15.48 (d) Machine hours required per unit = VOH = 1.2 ph 1.2 1.2 2 (e) Contribution per Machine hour, if made (C = d) 6.90 8.30 7.74 () Rank (for own production) (based on Line e) IV I III 47.88 24.96 6.36 2.16 33.48 14.40 1.8 8.00 II 9.130 Phukas Shandon Strategic Management Prome Evaluation CA Final 3. Assuming the Company has decided to try component from outside, which proposal for the use of IdlerSpare Capacity present ca hence, Total Fresent Idlec Hours now av Time require capacity will will you seket? rond out the theresse in protes de to acceptance of these proposal Total Lakh 6 Solutions 1. Profitability Statement as Budgeted (using Marginal Costing) (Output 2,10,000 units) p.ur. () 500 1090.00 Particulars Computation 2,10,000 units x 500 Less 205 50 96 26 21 398 102 2,10,000 units x 205 2,10,000 units FG 2 units of X x 25 2,10,000 units x 2 hours x 18 ph 2,10,000 units X (10% x 65) 2,10,000 units x (70% x 30) 430.5 105.00 201.60 54.60 14.10 835.80) 214.20 Additional D) Additional Additional Variable Costs Materials Component X (See Note 1) Direct Wages (See Note 2) Factory OH Selling & Distribution OH Total Variable Costs Contribution Fixed Costs Component X (Fixed Portion) Factory OH Administrative OH Selling & Distribution OH Total Fixed Costs Budgeted Profit 1.4 Make a X is a multi current Less: * 2,000 for 1,000 units, so for 4,20,000 units of X 2,10,000 units 40,95,000 Decision: Internal Production of Exe gives the Maximum Contribution to the Company. The resultant Maximum Profit = Contribution 40,95,000 -- Fixed Prod OH 15,00,000 = 25,95,000. 3. Sub-Contracting Options available to the Company EXE = 38,500 units WYE = 31,500 units Sub-Contract 31,500 - 23,333 = 8,167 units (bal.fig) Dept Own Production (maximum) (WN 2a) 23,333 units Dept Sub-Contract 38,500 - 35,000 = 3,500 units (bal.fig) Own Production (maximum) (WN 2a) 35,000 units 1 1 3,500 units 35,000 + 2,333 (b/t) 1,167 units 23,333 + 4,667 (b/f) (i.e.8,167-4,667) uts 2 2 (i.e.3,5002,333) uts = 37,333 units = 28,000 units (maximum) (WN 2b) (maximum) (WN 2b) Effect of above decision: Effect of above decision: 23,333 units (a) Own Production (Dept 1 & 2) 35,000 units (a) Own Production (Dept 1 & 2) 4,667 units (b) Sub-Contracting Dept 1 only 2,333 units (b) Sub-Contracting Dept 1 only 3,500 units (c) Sub-Contracting Dept 1 & 2 1,167 units (C) Sub-Contracting Dept 1 & 2 31,500 units Total Total 38,500 units 4. Profit Statement using Sub-Contracting Facilities as per above options WYE EXE Particulars 540 375 (a) Selling Price per unit (6) Own VC per unit in Department 1 (WN 1b) 120 193 (c) Own VC per unit in Department 2 (WN 1c) 138 182 (d) Sub-Contract Cost per unit in Department 1 138 212 (e) Sub-Contract Cost per unit in Department 2 150 192 (1) Contribution per unit in case of - Own Prodn in both Dept 1 & 2 (a-b-c) 117 165 Sub-Cont. Dept 1 & Own Prodn Dept 2 (a-d-c) 99 146 Sub-Contract in both Dept 1 and 2 (a-d-e) 87 136 (9) Total Contribution Earned Own Prodn in both Dept 1 & 2 (35,000 utsx 117)= 40,95,000 (23,333 utsx3165)= 38,49,945 Sub-Cont. Dept 1 & Own Prodn Dept 2 (2,333 uts x 799) = 2,30,967 (4,667 utsx 146) = 7 6,81,382 Sub-Contract in both Dept 1 and 2 (1,167 uts x 3 87)= 31,01,529 (3,500 uts x 136) = 4,76,000 Total of above Contribution *44,27,496 50,07,32 9.136 ZEBRONICS Note: On comparison of "Ma Dit is preferable to make Pad D 1,98,000 1,80,000 3 3,72,000 3,36,000 36,000 c 3,42,000 3,12,000 30,000 37.74 2,32,200 18,000 7.20 1,29,600 (a) Machine Hours require Pb) Budgeted Sale Quant (c) Budgeted Machine H Observation: Total Re So there is a shortfal purchased from outside 1,79,280 Padukas - Students' Handbook on Strategic Cost Management & Performance Evaluation CA Final Since Chas lower ranking for production, it may be purchased externally. Hence, quantity of purchased to meet the shortage of 72,400 hours = 72,400 hours + 1 hour p.U. - 72,400 units. Additional cost of purchasing from outside - 24.20 per unit * 12,400 units = + 3,04,080. Total 3. Evaluation of Effect of Advertisement Campaign Particulars (a) Budget 2 Qtty (with Advt) (in units) 2,40,000 (b) Budget 1 Qtty (w/o Advt) (in units) 2,16,000 (c) Addnl Qtty with Advt (a - b) (in units) 24,000 (d) Contribution p.u. (WN 1c) 24.14 24.98 26,40,440 (e) Additional Contribution (cx d)) 3 99,360 Additional Costs 3,04,080 Buying C from outside (WN 2) 23,00,000 Advertisement Campaign Costs (given) 736,360 (9) Net Additional Profit (e- Hence, the Advertisement Campaign is worthwhile. D 4. Machine Hours Allocation Total Particulars A B 8,05,200 (a) Budget 1 (w/o Advt) (WN 2c) 1,29,600 2,01,600 8,15,000 (b) Budget 2 (with Advt) (as per WN 2e above, & Buy decision) 1,44,000 Note: In Budget 2 situation, shortfall is 72,400 hours as computed in WN 2 above. This shortfall will be entirely reduced from Product C, as per the decision taken in WN 2 above. (a) Cost of Buying p- (b) Variable Cost of C) Savings per unit (d) Machine Hours Me) Savings per M Ranking (Prefe Since Produs 1,62,000 3,12,000 3,42,000 - 72,400 = (Note) 2,69,600 1,78,200 2,23,200 Quantity of Hence bali Contribut N 16 S 99,000 47.88 24.96 6.36 2.16 Particul (a) Quantity (b) Quantit c) Contrib Total Less: OP 11.11 Moc far . Ranking as per WN 1 is not applicable here, since there is additional information relating to Make vs Buy decision. 11.10 Key Factor - Make or Buy A Company manufactures four products. The annual demand for Products, Selling Prices and Variable Production Costs are - Products R Q P Demand (Units) 1,20,000 1,86,000 1,71,000 Selling Price / Unit 23.88 28.68 55.08 Direct Material / Unit 10.08 13.20 30.48 Direct Labour / Unit 4.08 4.08 6.72 Variable Overheads / Unit () 1.44 1.44 2.40 Other Data: The Variable Overheads are absorbed on a machine hour basis at a rate of 7 1.20 per machine hour. Fixed Overheads total 46,84,000 per annum. Production Capacity available is 8,15,000 machine hours per annum. Products P, Q and R can be bought-in at * 21.36 per unit, * 24 per unit and 3 48 per unit respectively. You are required to calculate the best Product Mix for the year and the resulting Optimal Profit. Solution: 1. Contribution Analysis Particulars P. Q R (a) Sale Price p.u. 23.88 28.68 55.08 (b) Own Variable Production Cost: Direct Materials 10.08 13.20 30.48 Direct Labour 4.08 4.08 6.72 Variable OH 1.44 1.44 2.40 Sub Total VC p.u. (Note) 15.60 18.72 39.60 (C) Contribution p.u 8.28 9.96 15.48 (d) Machine hours required per unit = VOH = 1.2 ph 1.2 1.2 2 (e) Contribution per Machine hour, if made (C = d) 6.90 8.30 7.74 () Rank (for own production) (based on Line e) IV I III 47.88 24.96 6.36 2.16 33.48 14.40 1.8 8.00 II 9.130 Phukas Shandon Strategic Management Prome Evaluation CA Final 3. Assuming the Company has decided to try component from outside, which proposal for the use of IdlerSpare Capacity present ca hence, Total Fresent Idlec Hours now av Time require capacity will will you seket? rond out the theresse in protes de to acceptance of these proposal Total Lakh 6 Solutions 1. Profitability Statement as Budgeted (using Marginal Costing) (Output 2,10,000 units) p.ur. () 500 1090.00 Particulars Computation 2,10,000 units x 500 Less 205 50 96 26 21 398 102 2,10,000 units x 205 2,10,000 units FG 2 units of X x 25 2,10,000 units x 2 hours x 18 ph 2,10,000 units X (10% x 65) 2,10,000 units x (70% x 30) 430.5 105.00 201.60 54.60 14.10 835.80) 214.20 Additional D) Additional Additional Variable Costs Materials Component X (See Note 1) Direct Wages (See Note 2) Factory OH Selling & Distribution OH Total Variable Costs Contribution Fixed Costs Component X (Fixed Portion) Factory OH Administrative OH Selling & Distribution OH Total Fixed Costs Budgeted Profit 1.4 Make a X is a multi current Less: * 2,000 for 1,000 units, so for 4,20,000 units of X 2,10,000 units