Q.1

a) CVP analysis help managers to take better decision. Justify with real life scenario.

b)

Paste Corporation has established new plant for the production of new product called "Diazinon". There are two different manufacturing methods available to produce Diazinon. Either by using a process or an order base method. The assembling technique won't influence the quality or deals of the item. The evaluated manufacturing expenses of the two strategies are as per the following:

Process baseOrder base

Variable manufacturing cost per unit..................... Rs14.00Rs.17.60

Fixed manufacturing cost per year ......................Rs. 2,440,000Rs. 1,320,000

The organization's statistical surveying office has suggested an initial selling cost of Rs.35 per unit for Diazinon. The yearly fixed selling and admin costs of the Diazinon are Rs.500, 000. The variable selling and regulatory costs are Rs. 2 per unit.

Required:

I.CM ratio and variable expenses ratio. If Paste Corporation uses the:

1. Process base manufacturing method.

2. Order base manufacturing method.

II.Break-even point in units and amount by formula method. If Paste Corporation uses the:

1. Process base manufacturing method.

2. Order base manufacturing method.

III.Margin of safety. Assuming 250,000 units are actual sales for.

1. Process base manufacturing method.

2. Order base manufacturing method.

IV.Degree or operating leverage at actual sales level for.

1. Process base manufacturing method.

2. Order base manufacturing method.

Q.2

a.Standard cost systems provide companies with a number of advantages, argue the statement.

1. Following are the details of Abbass Industries for the period ended June 30, 2020. Company establish standard on its normal capacity of 120,000 units/hours in a year:

Direct Material 600,000 kgs at Rs. 9 per kg

Direct Labor 4 hours per unit at Rs. 6 per hour

Factory overhead:

Fixed costRs. 240,000 per year or Rs. 20,000 per month.

Variable Cost Rs. 4.50 per hour.

During the one month of operation, company produced 11,000 units.

Direct material used: 60,500 kgs at Rs. 9.10 per kg

Direct labor used:41,250 hours at Rs. 268,125

Actual variable Factory overheadRs. 55,000

Required:

Calculate the two variances for material, two variances for labor, and two variances for factory overhead.