Part -1:
1. Wildlife escapes generates average revenue of Rs. 4000 per person on its five-day package tours to wildlife parks in Kenya. The variable costs per person are
Airfare Rs 1500
Hotel Accomodation Rs. 1000
Meals Rs 300
Ground Transportation Rs 600
Park Tickets and other costs Rs 200
Total Rs 3600
Annual Fixed cost total Rs 480,000
a) Calculate the no. of package tours that must be sold to break even
b) Calculate the revenue needed to earn a target operating income of Rs 100,000
c) If fixed costs increase by Rs 24,000, what decrease in variable costs must be achieved to maintain the breakeven point calculated in requirement (a)?
2. Classification of cost into direct and indirect is a matter of policy -Elucidate the statement?
3. Use of Target Costing requires detailed marketing research much in advance of launching a production. Do you agree with this statement. Explain why?
4. Explain the concept of sunk cost and opportunity cost with example?
5. XYZ Co. Ltd has received an order which will require use of materials i.e., already in stock. There is 10,000 units in the stock which was purchased at a price of Rs 80 per unit. The stock is not moving and the company has decided to dispose it off at Rs 60 per unit. The material available in the market at Rs 100 per unit.
Part -2:
The budgeted income statement by product lines of Multi Products Ltd.,
for 2003 is as follows:
|
Product A
|
Product B
|
Product C
|
|
Sales
|
Rs. 2,00,000
|
Rs. 5,00,000
|
Rs. 3,00,000
|
|
Variable expenses:
|
|
|
|
|
Cost of goods sold
|
90000.00
|
1,70,000
|
1,50,000
|
|
Selling expenses
|
30000.00
|
90,000
|
45,000
|
|
Overhead:
|
|
|
|
|
Fixed
|
36000.00
|
90,000
|
54,000
|
|
Administrative
|
16000.00
|
40,000
|
24,000
|
|
Income before tax
|
28000.00
|
10,000
|
27,000
|
|
Income tax @ 40%
|
11200.00
|
4,000
|
10,800
|
|
Net income
|
16800.00
|
6,000
|
60,200
|
All products are manufactured in the same facilities under common administrative control. Fixed expenses are allocated among the products in proportion to their budgeted sales volume:
(a) Computer the budgeted break-even point of the company as a whole, from the data provided.
(b) What would be the effect on budgeted income if half of the budgeted sales volume of Product B were shifted to Product A and C in equal rupee amounts, so that the total budgeted sales in rupee remains the same?
(c) What could be the effect of the shift in the product-mix suggested in (b) above on the budgeted break-even point of the whole company?
Part -3:
Shiplon Product Ltd., manufactures three different products. The relevant data of these products are as under:
|
Name of the Product
|
Cream
|
Pomade
|
Jelly
|
|
Production capacity (unit)
|
5,000
|
7,000
|
8,100
|
|
Machine hours per unit
|
1
|
3
|
4
|
|
Variable cost per unit Rs
|
3
|
2.5
|
3.5
|
|
Selling price -Rs./unit Rs.
|
4
|
5.5
|
6
|
The total fixed overheads at current capacity level are Rs. 40,000 per annum. The company has various alternatives for improving profitability as given below:
(a) To stop the production of Jelly and use the released capacity for producing pomades. The machines for both the products are common. However, cream is produced on a special purpose machine.
(b) To export the total production of Jelly at current price. On export the following additional revenue is expected.
(i) 8% duly drawback on export price
(ii) 12% cash compensatory support against an export scheme of government.
(iii) 5% replenishment license which can be sold in market at a premium of 80%.
(c) To replace the conventional machine used for Jelly by a special purpose machine, which will reduce the production time from 4 hours to 3 hours per unit. Due to this change the variable cost of Jelly will be reduced by Re.0.50 per unit. The released machine will be used for producing pomade. This proposal will entail an additional burden of fixed cost to the tune of Rs. 32,000 per annum.
Please advise the management about the right choice of an alternative so as to maximize profits.
Theoretical Question:-
Write short notes on any of the following:
a) Target Costing
b) Activity-based Costing
c) Zero-based Budgeting