project noting with explaining all

Padhuka's - Students' Handbook on Strategic Cost Management & Performance Evaluation - CA Final EXE WYE 26 120 Particulars (c) Variable Costs of Department 2: Direct Materials Direct Labour Variable OH Total VC in Department-2 (d) Total Variable Cost per unit (b + c) (e) Contribution per unit (a - d) (10 hrs x 3.60) = 36 21 3 90 (7.5 hrs x 3.60) = 27 138 3258 117 3 182 3375 165 2. Computation of Quantity to be produced and profit using internal facilities only Particulars EXE WYE (a) Maximum Possible Production in Dept - 1 (1,75,000 hrs - 5 hrs pu) (1,75,000 hrs -7.5 hrs pu) = 35,000 units = 23,333 units (b) Maximum Possible Production in Dept - 2 (2,80,000 hrs: 7.5 hrs pu) (2,80,000 hrs = 10 hrs pu) = 37,333 units = 28,000 units (c) Maximum Production using the available hours in both Departments = Least of (a) and (b) 35,000 units 23,333 units (d) Maximum Possible Contribution (35,000 units x 117 pu) (23,333 unitsx 165 pu) = (Quantity as per (c)x Contribution pu) = 40,95,000 = 38,49,945 Decision: Internal Production of EXE gives the Maximum Contribution to the Company. The resultant Maximum Profit = Contribution 40,95,000 - Fixed Prodn OH 15,00,000 = 25,95,000. 3. Sub-Contracting Options available to the Company EXE = 38,500 units WYE = 31,500 units Dept Dept Own Production (maximum) (WN 2a) 35,000 units Sub-Contract 38,500 - 35,000 = 3,500 units (bal.fig) 1 Own Production (maximum) (WN 2a) 23,333 units Sub-Contract 31,500 - 23,333 = 8,167 units (bal.fig) 1 35,000 + 2,333 (b/) 1,167 units 2 = 37,333 units (i.e.3,500-2,333) uts (maximum) (WN 2b) Effect of above decision: (a) Own Production (Dept 1 & 2) 35,000 units (b) Sub-Contracting Dept 1 only 2,333 units ( Sub-Contracting Dept 1 & 2 1,167 units Total 38,500 units 23,333 + 4,667 (b) 3,500 units 2 = 28,000 units (i.e.8,167-4,667) uts (maximum) (WN 25) Effect of above decision: (a) Own Production (Dept 1 & 2) 23,333 units (b) Sub-Contracting Dept 1 only 4,667 units (C) Sub-Contracting Dept 1 & 2 3,500 units Total 31,500 units 1 4. Profit Statement using Sub-Contracting Facilities as per above options Particulars EXE WYE (a) Selling Price per unit * 375 3540 (b) 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 O Contribution per unit in case of - Own Prodn in both Dept 1 & 2 (a-b-c) 117 7165 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 3 136 (9) Total Contribution Earned Own Prodn in both Dept 1 & 2 (35,000 utsx 117)= 40,95,000 (23,333 utsx 165)= 338,49,945 Sub-Cont. Dept 1 & Own Prodn Dept 2 (2,333 uts x 99) = * 2,30,967 (4,667 utsx 146) = 6,81,382 Sub-Contract in both Dept 1 and 2 (1,167 uts x 387)= 1,01,529 (3,500 uts x 136) = 4,76,000 Total of above Contribution 44,27,496 50,07,327 9.136 Padhuka's - Students' Handbook on Strategic Cost Management & Performance Evaluation - CA Final WYE 3 26 120 182 7375 165 WYE Particulars EXE (c) Variable Costs of Department 2: Direct Materials 21 Direct Labour 90 Variable OH (7.5 hrs *3.60) = 27 (10 hrs x 3.60) = ? 36 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 35,000 units Departments = Least of (a) and (b) (d) Maximum Possible Contribution (35,000 unitsx 117 pu) (23,333 unitsx 165 pu) = (Quantity as per (C)x Contribution pu) = 3 40,95,000 = 38,49,945 Decision: Internal Production of Exe gives the Maximum Contribution to the Company. The resultant Maximum Profit = Contribution 40,95,000 - Fixed Prodn OH 15,00,000 = 25,95,000. 3. Sub-Contracting Options available to the Company EXE = 38,500 units WYE = 31,500 units Dept Dept Own Production (maximum) (WN 2a) 35,000 units Sub-Contract 38,500 - 35,000 = 3,500 units (bal.fig) Own Production (maximum) (WN 2a) 23,333 units Sub-Contract 31,500 - 23,333 = 8,167 units (bal.fig) 1 1 35,000 + 2,333 (b/f) 1,167 units 2 = 37,333 units (1.e.3,500-2,333) uts (maximum) (WN 2b) Effect of above decision: (a) Own Production (Dept 1 & 2) 35,000 units (b) Sub-Contracting Dept 1 only 2,333 units (C) Sub-Contracting Dept 1 & 2 1,167 units Total 38,500 units 23,333 + 4,667 (b/f) 3,500 units 2 = 28,000 units (i.e.8,167-4,667) uts (maximum) (WN 2b) Effect of above decision: (a) Own Production (Dept 1 & 2) 23,333 units (b) Sub-Contracting Dept 1 only 4,667 units (c) Sub-Contracting Dept 1 & 2 3,500 units Total 31,500 units 4. Profit Statement using Sub-Contracting Facilities as per above options Particulars EXE WYE (a) Selling Price per unit 375 540 (b) 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 3212 (e) Sub-Contract Cost per unit in Department 2 150 192 Contribution per unit in case of - Own Prodn in both Dept 1 & 2 (a-b-c) 3117 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 7136 (9) Total Contribution Earned Own Prodn in both Dept 1 & 2 (35,000 utsx 117)= 40,95,000 (23,333 utsx7165)= 38,49,945 Sub-Cont Dept 1 & Own Prodn Dept 2 (2,333 uts x 99) = 2,30,967 (4,667 utsx 146) = 6,81,382 Sub-Contract in both Dept 1 and 2 (1,167 uts x 87)= 1,01,529 (3,500 uts x 136) = 4,76,000 Total of above Contribution 44,27,496 50,07,327 9.136 sted on 2) - PONTIS.00,000 - 35,01,271 14 Federen Products ARE Lectores low in A, Cand. The towing details are restable for a production perint: D 124 Song Me 109 100 10 15 20 24 8 55.000 121 46 15 36 5 36.000 30 8 30,000 Arsen Department per hour Machine Deporte 17 per hour were head per Labourin Assembly Department 5 den Beland) 10.000 Tool Feed Cost is dependent on the output level and is tabulated below at different levels of output Production units any combination of one or more of any of A, B, C or D) Tere to 100.000 units 0.001 to 1.50.000 units 0.001 to 200.000 units Total Fored Cost (n) 8.3.000 12 50.000 15,00.000 Production Facilities can be inter-changeably used among the Products Labour availability in the Assembly Department is limited to 220,000 hours for the production period. A local Firm has offered make any quantity of any of the products on a subcontract basis at the following rates: Product Sub-Contract Price lunit) D C B A 85 101 100 95 Required Advise the Management on how many units of each Product are to be manufactured or sub-contracted to fulfill maximum Market Demand. What would be the corresponding Profits? What is the minimum number of units to be produced to achieve Break-Even Point? What would you advise as the best Strategy to maximize profits, if Assembly Labour is not a limiting factor and if there is no compulsion to fulfill Market Demand? (Only relevant figures need to be discussed. A detailed profitability Statement is not required) Solution: 1. Contribution Analysis Particulars A) B) CE) D) Sub-Contractor's Price p.u. (Buying Cost) 85 1 101 95 100 Owen Variable Cost of Production (Making Cost) 40 42 46 40 (a) Material (b) Labour Cost 15 20 15 20 - Assembly Department 24 18 36 30 - Machine Department 6 8 6 8 (c) Variable Overheads 79 103 94 Sub - Total of Variable Cost 98 6 1 (2) 2. 3. Savings p.u. it made (1 -2] Make Make Make 4. Preference / Decision 15 20 15 20 = 1.50 = 2.00 1.50 10 5. Assembly Hours required p.u. (in hours) 10 10 10 Buy = 2.00 1 4 0.50 NA Il 1 THI NA 6. Savings per Hour if made = (6) 7. Rank for Production 9.137 Handbook on Strategic Cost Management & Performance Evaluation - CA Final Particulars 8. Sale Price per unit A(C) B) C() 9. Contribution on Own Production (9 - 2) 100 109 10. Contribution on Sub-Contract (9 - 1) 21 15 NA 15 11. Market Demand (units) 14 20 40,000 55,000 121 D) 124 26 24 30,000 36,000 2. Units Allocation with DLH restricted to 2,20,000 hours Scenario 1 Assuming all 2,20,000 hours of Key Factor is used First A: 40,000 units x 1.5 hrs = 60,000 hrs First A: Next D: 30,000 units x 2 hrs = 60,000 hrs Next D: Balance for B: 50,000 units x 2 hrs = 1,00,000 hrs Balance for B: 60,000 hrs = 60,000 hrs = 50,000 hrs Note: to 2nd Slab of Fixed Cost = 3 12,50,000. Profit Statement Contribution on Production: A 30,000 x 15 = 8,40,000 = 4,50,000 = 7,80,000 20,70,000 Scenario 2 Assuming Output restricted to 1,00,000 units (FC Slab) 40,000 units X 1.5 hrs 30,000 units x 2 hrs 30,000 units x 2 hrs Total Production in above = 1,20,000 units, relating Note: Total Production in above = 1,00,000 units, relating to 1Slab of Fixed Cost = 38,43,000. Profit Statement Contribution on Production: 40,000 x 21 = 8,40,000 B A 40,000 x 21 50,000 x 15 = 7,50,000 B 30,000 x 26 = 7,80,000 30,000 x 26 Sub - Total Contribution on Sub-Contract 23,70,000 Sub - Total Contribution on Sub-Contract B 5,000 x 14 = 70,000 B C 36,000 x 20 = 7,20,000 Sub - Total 7,90,000 Sub - Total Total Contribution 31,60,000 Total Contribution Less: Fixed Cost 12,50,000 Less: Fixed Cost Profit 19,10,000 Profit Conclusion: From the above, Scenario 2 is preferable due to higher profits. 3. Computation of Break-Even Point (a) If Fixed Cost is 38,43,000 12,50,000 (b) Contribution earned from Product A (I Rank) [See Note] 38,40,000 38,40,000 = 40,000 units x 21 p.u. Hence, Balance Contribution required to achieve BEP (a - b) 3,000 34,10,000 7,60,00 (d) So, Required Quantity of D (II Rank) to recover the above Fixed 116 units 15,770 units Cost = (c) = 26 (e) Total Break-even Quantity = A: 40,000 + D (as per above) 40,116 units 55,770 units 69,231 un 25,000 x 14 36,000 x 20 = 3,50,000 = 7,20,000 10,70,000 31,40,000 8,43,000 22,97,000 16,00,000 38,40,00 29,231 un Alternatively, since the question considers "minimum" quantity for BEP, the Ranking may be based the Contribut per unit of Own Production, accordingly, BEP will be as under - (a) If Fixed Cost is 38,43,000 12,50,000 16,00 (b) Contribution earned from Product D = 30,000 units x 26 p.u. 7,80,000 7,80,000 7,80 (c) Hence, Balance Contribution required to achieve BEP (a - b) 63,000 34,70,000 8,20 (d) So, Reqd Qtty of A to recover the above Fixed Cost = (c) = 21 3,000 units 22,381 units 39,048 (e) Total Break-even Quantity = D: 30,000 + A (as per above) 33,000 units 52,381 units 69,048 4. Best Strategy if Assembly Labour is not a Limiting Factor and no compulsion to fulfill Market Demar Note: Assuming Sub-Contracting Prices remain as given, and hence it is beneficial to buy "C" than make. If Assembly Labour is not a Key Factor, decisions are based on Contribution p.u. as per Point 10 and 11 of WN 1 Hence, the two possible scenarios are evaluated as under- 9.138