JOURNAL TRIAL BALANCE

Assignment I - Journal
Q.1 Journalize the following relating to April 2009:

Particulars Rs.
1. R. started business with 1,00,000
2. He purchased furniture for 20,000
3. Paid salary to his clerk 1,000
4. Paid rent 5,000
5. Received interest 2,000

Q.2 Journalize transactions of M/s X & Co. for the month of March 2009 on the
basis of double entry system:
1. X introduced cash Rs. 4,00,000.
2. Cash deposited in the Citibank Rs. 2,00,000.
3. Cash loan of Rs. 50,000 taken from Y.
4. Salaries paid for the month of March 2009, Rs. 30,000 and Rs. 10,000 is still
payable for the month of March 2009.
5. Furniture purchased Rs. 50,000.

Q.3 Journalize the following transactions.
1. December 1, 2008, Ajit started-business with cash Rs. 4,00,000.
2: December 3, he paid into the bank Rs. 20,000.
3. December 5, he purchased goods for cash Rs. 1,50,000.
4. December 8, he sold goods for cash Rs. 60,000.
5. December 10, he purchased furniture and paid by cheque Rs. 50,000.
6. December 12, he sold goods to Arvind Rs. 40,000.
7. December 14, he purchased goods from Amrit Rs. 1,00,000.
8. December 15, he returned goods to Amrit Rs. 50,000.
9. December 16, he received from Arvind Rs. 39,600 in full settlement.
10. December 18, he withdrew goods for personal use Rs. 10,000.
11. December 20, he withdrew cash from business for personal use Rs. 20,000.
12. December 24, he paid telephone charges Rs. 10,000.
13. December 26, cash paid to Amrit in full settlement Rs. 49,000.
14. December 31, paid for stationery Rs. 2,000, rent Rs. 5,000 and salaries to staff
Rs. 20,000.
15. December 31, goods distributed by way of free samples Rs. 10,000.

16. December 31, wages paid for erection of Machinery Rs. 80,000.
17. Personal income tax liability of X of Rs. 17,000 was paid out of petty cash of
business.
18. Purchase of goods from Naveen of the list price of Rs. 20,000. He allowed 10%
trade discount, Rs. 500 cash discount was also allowed for quick payment.

Q 4 Transactions of Ramesh for April are given below. Journalize them.

2009 Rs.
April 1 Ramesh started business with 1,00,000
April 2 Paid into bank 70,000
April 3 Bought goods for cash 5,000
April 5 Drew cash from bank for credit 1,000
April 13 Sold to Krishna goods on credit 1,500
April 20 Bought from Shyam goods on credit 2,250
April 24 Received from Krishna 1,450
Allowed him discount 50
April 28 Paid Shyam cash 2,150
Discount allowed 100
April 30 Cash sales for the month 8,000
Paid Rent 500
Paid Salary 1,000

Assignment II - Ledger
Q. 1 Prepare the Stationery Account of a firm for the year ended December 31, 2008:
2008 Particulars Rs.
January 1 Stock in hand 480
April 5 Purchase of stationery by cheque 800
November 15 Purchase of stationery on credit from Five Star Stationery Mart 1,280
December 31 Stock in hand 240
Q.2 Prepare a ledger from the following transactions in the books of a trader
Debit Balance on January 1, 2008:
Cash in Hand Rs. 8,000, Cash at Bank Rs. 25,000, Stock of Goods Rs. 20,000, Building Rs.
10,000. Sundry Debtors: Vijay Rs. 2,000 and Madhu Rs. 2,000.
Credit Balances on January 1, 2008:
Sundry Creditors: Anand Rs. 5,000.
Following were further transactions in the month of January 2008:
January 1 Purchased goods worth Rs. 5,000 for cash less 20% trade discount and 5%
cash discount.
January 4 Received Rs. 1,980 from Vijay and allowed him Rs. 20 as discount.
January 8 Purchased plant from Mukesh for Rs. 5,000 and paid Rs. 100 as cartage for
bringing the plant to the factory and another Rs. 200 as installation charges.
January 12 Sold goods to Rahim on credit Rs. 600.
January 15 Rahim became insolvent and could pay only 50 paise in a rupee.
January 18 Sold goods to Ram for cash Rs. 1,000.
Q. 3 The following data is given by Mr. S, the owner, with a request to compile only the two
personal accounts of Mr. H and Mr. R, in his ledger, for the month of April 2008.
1 Mr. S owes Mr. R Rs. 15,000; Mr. H owes Mr. S Rs. 20,000.
4 Mr. R sold goods worth Rs. 60,000 @ 10% trade discount to Mr. S.
5 Mr. S sold to Mr. H goods prices at Rs.30,000.
17 Record purchase of Rs. 25,000 net from R, which were sold to H at profit of Rs. 15,000.
18 Mr. S rejected 10% of Mr. R‘s goods of 4th April.
19 Mr. S issued a cash memo for Rs. 10,000 to Mr. H who came personally for this
consignment of goods, urgently needed by him.
22 Mr. H cleared half his total dues to Mr. S, enjoying a ½% cash discount (of the payment
received, Rs. 20,000 was by cheque).
26 R‘s total dues (less Rs. 10,000 held back) were cleared by cheque, enjoying a cash discount
of Rs. 1,000 on the payment made.
29 Close H‘s Account to record the fact that all but Rs. 5,000 was cleared by him, by a
cheque, because he was declared bankrupt.
30 Balance R‘s Account.

Assignment III – Trial Balance
Q. 1 Given below is a ledger extract relating to the business of X and Co. as on March 31, 2009.
You are required to prepare the Trial Balance.
Cash Account
Dr. Cr.
Particulars Rs. Particulars Rs.
To Capital A/c 10,000 By Furniture A/c 3,000
To Ram‘s A/c 25,000 By Salaries A/c 2,500
To Cash Sales 500 By Shyam‘s A/c 21,000
By Cash Purchases 1,000
By Capital A/c 500
By Balance c/d 7,500
35,500 35,500
Furniture Account
Dr. Cr.
To Cash A/c 3,000 By Balance c/d 3,000
3,000 3,000
Salaries Account
Dr. Cr.
To Cash A/c 2,500 By Balance c/d 2,500
2,500 2,500
Shyam’s Account
Dr. Cr.
To Cash A/c 21,000 By Purchases A/c 25,000
(Credit Purchases)
To Purchase Returns A/c 500
To Balance c/d 3,500 -
25,000 25,000
Purchases Account
Dr. Cr.
To Cash A/c (Cash Purchases) 1,000 By Balance c/d 26,000
To Sundries as per Purchases 25,000 -

Book (Credit Purchases)
26,000 26,000
Purchases Returns Account
Dr. Cr.
To Balance c/d 500 By Sundries as per Purchases 500
Return Book
500 500
Ram’s Account
Dr. Cr.
To Sales A/c (Credit Sales) 30,000 By Sales Returns A/c 100
By Cash A/c 25,000
By Balance c/d 4,900
30,000 30,000
Sales Account
Dr. Cr.
To Balance c/d 30,500 By Cash A/c (Cash Sales) 500
By Sundries as per Sales Book
(Credit sales) 30,000
30,500 30,500
Sales Returns Account
Dr. Cr.
To Sundries as per Sales
Return Book 100 By Balance c/d 100
100 100
Capital Account
Dr. Cr.
To Cash A/c 500 By Cash A/c 10,000
To Balance c/d 9,500 -
10,000 10,000

Q.2 From the following ledger balances, prepare a trial balance of Anuradha Traders as on
March 31, 2009:
Account Head Rs.
Capital 1,00,000
Sales 1,66,000
Purchases 1,50,000
Sales return 1,000
Discount allowed 2,000
Expenses 10,000
Debtors 75,000
Creditors 25,000
Investments 15,000
Cash at bank and in hand 37,000
Interest received on investments 1,500
Insurance paid 2,500
Q.3 One of your clients, X has asked you to finalize his accounts for the year ended March 31,
2009. Till date, he himself has recorded the transactions in books of accounts. As a basis for
audit, X furnished you with the following statement.
Dr. Balance Cr. Balance
X‘s Capital 1,556
X‘s Drawings 564
Leasehold premises 750
Sales 2,750
Due from customers 530
Purchases 1,259
Purchases return 264
Loan from bank 256
Creditors 528
Trade expenses 700
Cash at bank 226
Bills payable 100
Salaries and wages 600
Stock (1.4.2008) 264
Rent and rates 463
Sales return 98
5,454 5,454
The closing stock on March 31, 2009 was valued at Rs. 574. X claims that he has recorded every
transaction correctly as the trial balance is tallied. Check the accuracy of the above trial balance.

Assignment IV – Final Accounts

Q.1 From the following information, prepare a Trading Account of M/s. ABC Traders for the
year ended March 31, 2009: Rs.
Opening Stock 1,00,000
Purchases 6,72,000
Carriage Inwards 30,000
Wages 50,000
Sales 11,00,000
Returns inward 1,00,000
Returns outward 72,000
Closing stock 2,00,000

Q.2 Revenue expenses and gross profit balances of M/s ABC Traders for the year ended on
March 31, 2009 were as follows:
Gross Profit Rs. 4,20,000, Salaries Rs. 1,10,000, Discount (Cr.), Rs. 18,000, Discount (Dr.) Rs.
19,000, Bad Debts Rs. 17,000, Depreciation Rs. 65,000, Legal Charges Rs. 25,000, Consultancy
Fees Rs. 32,000, Audit Fees Rs. 1,000, Electricity Charges Rs. 17,000, Telephone, Postage and
Telegrams Rs. 12,000, Stationery Rs. 27,000, Interest paid on Loans Rs. 70,000.
Prepare Profit and Loss Account of M/s ABC Traders for the year ended on March 31, 2009.

Q.3 Mr. X submits you the following information for the year ended March 31, 2009:
Rs.
Stock as on April 1, 2008 1,50,000
Purchases 4,37,000
Manufacturing expenses 85,000
Expenses on sale 33,000
Expenses on administration 18,000
Financial charges 6,000
Sales 6,25,000
Gross profit is 20% of sales.
Compute the net profit of Mr. X for the year ended March 31, 2009. Also prepare Trading &
Profit & Loss A/c.

Q.4 A book keeper has submitted to you the following trial balance of X wherein the total of
debit and credit balances is not equal:
Particulars Debit Balances Credit Balances
Rs. Rs.

Capital - 7,670
Cash in hand - 30
Purchases 8,990 -
Sales - 11,060
Cash at bank 885 -
Fixtures & fittings 225 -
Freehold premises 1,500 -
Lighting and heating 65 -
Bills receivable - 825
Returns inwards - 30
Salaries 1,075 -
Creditors - 1,890
Debtors 5,700 -
Stock (1.1.2008) 3,000 -
Printing 225 -
Bills payable 1,875 -
Rates, taxes and insurance 190 -
Discounts received 445 -
Discounts allowed - 200
24,175 21,705
You are required to:
(i) Redraft the Trial Balance correctly.
(ii) Prepare a Trading and Profit and Loss Account and a Balance Sheet after taking into account
the following adjustments:
(a) Stock in hand on 31.12.2008 was valued at Rs. 1,800
(b) Depreciate fixtures and fittings by Rs. 25.
(c) Rs. 350 was due and unpaid in respect of salaries.
(d) Rates and insurance had been in paid in advance to the extent of Rs. 40.

Q.5 The following is trial balance extracted from the books of X as on 31 March 2009:
Debit Amount Credit Amount
Rs. Rs.
Capital Account - 1,00,000
Plant and Machinery 78,000 -
Furniture 2,000 -
Purchases and Sales 60,000 1,27,000
Returns 1,000 750

Opening stock 30,000 -
Discount 425 800
Sundry Debtors/Creditors 45,000 25,000
Salaries 7,550 -
Manufacturing wages 10,000 -
Carriage outwards 1,200 -
Provision for doubtful debts - 525
Rent, rates and taxes 10,000 -
Advertisements 2,000 -
Cash 6,900 -
2,54,075 2,54,075
Prepare trading and profit and loss account for the year ended 31 March 2009 and a balance
sheet on that date after taking into account the following adjustments:
(a) Closing stock was valued at Rs. 34,220.
(b) Provision for doubtful debts is to be kept at Rs. 500
(c) Depreciate plant and machinery @ 10% p.a.
(d) The proprietor has taken goods worth Rs. 5,000 for personal use and additionally
distributed goods worth Rs. 1,000 as samples.
(e) Purchase of furniture Rs. 920 has been passed through purchases book.

Q.6 From the following trial balance and other information prepare profit and loss account for
the year ended 31 March 2009 and a balance sheet on that date:
Debit Credit
Rs. Rs.
X‘s Capital Account - 10,00,000
Withdrawals of goods for personal use 1,000 -
Balance at bank 1,76,000 -
Motor Vehicle 1,50,000 -
Debtors and Creditors 2,94,000 2,30,000
Printing and stationery 6,600 -
Gross Profit - 5,71,400
Provision for doubtful debts - 5,000
Bad debts 11,400 -
Freehold premises 8,00,000 -
Repairs to Premises 47,600 -
General Reserve - 2,00,000
Proprietor‘s remuneration 20,000 -

Stock 2,80,000 -
Delivery expenses 99,000 -
Administrative expenses 1,31,400 -
Rates and taxes 15,000 -
Drawings 1,00,000 -
Unpaid wages - 1,600
Last Year Profit and Loss Account Balance - 1,24,000
21,32,000 21,32,000
Adjustments
(i) Depreciation on Motor Vehicles @ 50%
(ii) Creditors include a claim for damages of Rs. 30,000 and which was settled by paying Rs.
20,000.
(iii) Rates paid in advance Rs. 3,000.
(iv) Provision for bad debts is to be reduced to Rs. 3,500.
(v) The item of repairs to premises includes Rs. 20,000 for acquisition of capital asset.
(vi) Stock of stationery in hand on 31 March 2009 is Rs. 2,200.

Q.7 The following trial balance has been extracted from the books of Ms. X. Prepare the final
accounts for the year ended 31 March 2009 and a balance sheet on that date:
Debit Credit
Rs. Rs.
Drawings 35,000 -
Buildings 60,000 -
Debtors and creditors 50,000 80,000
Returns 3,500 2,900
Purchases and sales 3,00,000 4,65,000
Discount 7,100 5,100
Life insurance 3,000 -
Cash 30,000 -
Stock (opening) 12,000 -
Bad debts 5,000 -
Reserve for bad debts - 17,000
Carriage inwards 6,200
Wages 27,700
Machinery 8,00,000
Furniture 60,000
Salaries 35,000

Bank commission 2,000
Bills receivable/payable 60,000 40,000
Trade expenses/Capital 13,500 9,00,000
15,10,000 15,10,000
Adjustments:
(i) Depreciate building by 5%; furniture and machinery by 10% p.a.
(ii) Trade expenses Rs. 2,500 and wages Rs. 3,500 have not been paid as yet.
(iii) Allow interest on capital at 5% p.a.
(iv) Make provision for doubtful debts at 5%.
(v) Machinery includes Rs. 2,00,000 of a machine purchased an 31 December 2008. Wages
include Rs. 5,700 spent on the installation of machine.
(vi) Stock on 31 March 2009 was valued at Rs. 50,000.

Q.8 The following is the Trial Balance of X on 31 March 2009:
Debit Credit
Rs. Rs.
Capital - 8,00,000
Drawings 60,000 -
Opening Stock 75,000 -
Purchases 15,95,000 -
Freight on Purchases 25,000 -
Wages (11 months upto 28-2-2009) 66,000 -
Sales - 23,10,000
Salaries 1,40,000 -
Postage, Telegrams, Telephones 12,000 -
Printing and Stationery 18,000 -
Miscellaneous Expenses 30,000 -
Creditors - 3,00,000
Investments 1,00,000 -
Discounts Received - 15,000
Debtors 2,50,000 -
Bad Debts 15,000 -
Provision for Bad Debts - 8,000
Building 3,00,000 -
Machinery 5,00,000 -
Furniture 40,000 -
Commission on Sales 45,000 -

Interest on Investments - 12,000
Insurance (Year up to 31-7-2009) 24,000 -
Bank Balance 1,50,000 -
34,45,000 34,45,000
Adjustments:
(i) Closing Stock Rs. 2,25,000.
(ii) Machinery worth Rs. 45,000 purchased on 1-10-08 was shown as Purchases. Freight paid on
the Machinery was Rs. 5,000, which is included in Freight on Purchases.
(iii)Commission is payable at 2½% on Sales.
(iv) Investments were sold at 10% profit, but the entire sales proceeds have been taken as Sales.
(v) Write off Bad Debts Rs. 10,000 and create a provision for Doubtful Debts at 5% of Debtors.
(vi) Depreciate Building by 2½% p.a. and Machinery and Furniture at 10% p.a. Prepare Trading
and Profit and Loss Account for the year ending 31 March 2009 and a Balance Sheet as on
that date.

Assignment V - Financial Statement Analysis

Q.1 From the following particulars relating to AB Co. prepare a Balance Sheet as on 31.12.2009:
Fixed assets / turnover ratio 1:2
Debt collection period Two months
Gross profit 25%
Consumption of raw materials 40% of cost
Stock of Raw materials 4 months consumption
Finished goods 20% of turnover at cost
Fixed Assets to Current Assets 1:1
Current Ratio 2:1
Long Term loan to current Liability 1:3
Capital to Reserve 5:2
Value of Fixed Assets Rs. 10,50,000
Q.2 From the following particulars prepare the Balance Sheet of A Ltd.:
Current Ratio 1.50
Current Assets/Fixed Assets 1:2
Fixed Assets to turnover 1:1
Gross Profit 25%
Debtors Velocity 2 months
Creditors Velocity 2 months
Stock Velocity 3 months
Debt equity ratio 2:5
Working Capital Rs. 2,00,000
Q.3 From the following information, you are required to prepare a Balance Sheet:
Current Ratio 1.75
Liquid Ratio 1.25
Stock Turnover ratio (Closing Stock) 9
Gross profit ratio 25%
Debt collection period 1.50 months
Reserves and surplus to capital 0.20
Turnover to fixed assets 1.20
Fixed assets to net worth 1.25
Sales for the year Rs. 12,00,000
Q. 4 Mr. Desai intends to supply goods on credit to A Ltd. and B Ltd. The relevant financial data
relating to the companies for the year ended 30th June, 2009 are as under:

A Ltd. B Ltd.
Stock 8,00,000 1,00,000
Debtors 1,70,000 1,40,000
Cash 30,000 60,000
Trade Creditors 3,00,000 1,60,000
Bank overdraft 40,000 30,000
Creditors for expenses 60,000 10,000
Total purchases 9,30,000 6,60,000
Cash purchases 30,000 20,000
Advice with reasons, as to which of the companies he should prefer to deal with.

Q.5 The following is the Trading & Profit & Loss A/c of X Ltd. As on December 31, 2008:
Trading & P&L Account (31.12.2008)
Opening Stock 1,30,000 Cash Sales 80,000
Purchases 4,20,000 Credit Sales 3,20,000
G.P. 60,000 Stock 2,10,000
Depreciation 13,100 G.P. 60,000
G. Expenses 20,900
Director‘s Fees 10,000
N.P. 16,000
60,000 60,000
st
Balance Sheet as at 31 December, 2008
Share Capital 3,60,000 Fixed Assets 2,05,600
Profit & Loss A/c 24,600 Stock 2,10,000
Creditors 1,40,000 Debtors 1,60,000
Bank overdraft 51,000
5,75,000 5,75,000
1. The rate of stock turnover is to be doubled.
2. Stock is to be reduced by Rs. 60,000 by the end of the financial year.
3. The ratio of cash sales to Credit sales is to be doubled.
4. Directors – remuneration are to be increased by Rs. 15,000.
1
5. Rate of gross profit to sales is to be increased by 33 /3%.
6. The ratio of trade creditors to closing stock and the ratio of debtors to credit sales will remain
the same as in the year just ended.
7. General expenses and depreciation are to remain the same.
Draft budgeted Trading and Profit and loss account and balance sheet, assuming that the
objectives had been achieved.

Q.6 You are given the following figures worked out from the profit and loss account and balance
sheet of Z Ltd. relating to the year 2008. Prepare the balance sheet.
Fixed Assets (net after writing off 30%) Rs. 10,50,000
Fixed Assets Turnover ratio 2
Finished goods turnover ratio 6
Rate of gross profit to sales 25%
Net profit (before interest) to sale 8%
Fixed charges over (debenture interest 7%) 8
Debt collection period 1½ months
Material consumed to sales 30%
Stock of raw materials (in terms of number of month‘s consumption) 8
Current ratio 2.4
Quick ratio 1.0
Reserves to capital 0.20

Q.7 The summarized Balance Sheet of X Ltd. as at 31st December 2008 and its summarized
Profit and Loss Account for the year ended on that date, are as follows. The corresponding
figures of the previous year are also shown:
Balance Sheet
Liabilities 2008 2007 Assets 2008 2007
(Rs. in lakhs ) (Rs. in lakhs)
Share capital 60,000 Fixed Assets –
shares of Rs. 100 each At cost less
60.00 60.00 Depreciation:
Reserve & Surplus Property 21.00 18.00
29.25 24.00 Plant 61.50 48.00
8% Debenture 15.00 15.00 82.50 66.00
Current Liabilities & Current Assets -
Provisions :
Sundry Creditors 45.75 24.00 Stock of finished goods 42.75 31.50
Provision for Taxation 13.50 10.50 Sundry Debtors 41.25 30.00
Proposed Bank 1.50 9.00
Dividend 4.50 3.00
63.75 85.50
Total : 168.00 136.50 168.00 136.50
Trading & Profit and Loss Account
2008 2007 2008 2007
(Rs. in lakhs) (Rs. in lakhs)
Cost of Sales 162.00 135.00 Sales (all credit) 225.00 180.00

Gross Profit C/d 63.00 45.00
225.00 180.00 225.00 180.00
Overhead Expenses 43.50 30.00 Gross Profit b/d 63.00 45.00
Net Profit before taxation 19.50 15.00
63.00 45.00 63.00 45.00
Provision for taxation 8.25 6.30 Net profit b/d 19.50 15.00
Dividend-paid and Proposed 6.00 4.50
Surplus for the year carried to
Balance Sheet 5.25 4.20
19.50 15.00 19.50 15.00
You are required to interpret the above statement using significant accounting ratios.
Q.8 X Ltd. has been existence for two years. Summarized Balance Sheets as on 31st December,
2007 and 31st December, 2008 are given below:
Balance Sheet (Figures in lakhs of rupees)
Liabilities 2008 2007 Assets 2008 2007
Equity shares of Rs. 100 each 2 2 Fixed Assets (Less Dep.) 4.16 3.96
Reserves .20 .40 Stock .60 1.20
Profit & Loss A/c .28 .04 Debtors .80 1.60
Loans on Mortgage 2.20 1.60 Cash and Bank Balances .60 .04
Bank overdraft .40
Creditors .60 1.80
Provision for Taxation .68 .26
Proposed Dividend .20 .30
6.16 6.80 6.16 6.80
You are also given the Profit and Loss Account of the Company for the two years.
Profit & Loss Account (Figures in lakhs of rupees)
2008 2007 2008 2007
Interest on Loan .048 .096 Balance B/F - .28
Directors‘ Profit for the year after running
Remuneration .20 .60 costs & Depreciation 1.608 1.216
Provision for Taxation .68 .26
Dividends .20 .30
Transfer to Reserve .20 .20
Balance C/F .28 .04
1.608 1.496 1.608 1.496
Total Sales amounted to Rs. 12 lakhs in 2007 and Rs. 10 lakhs in 2008.
Make a through overall analysis of this company.

Marginal Costing – Assignment I
Q.1 X Ltd., manufacturers only pens where the marginal cost of each pen is Rs. 3. It has fixed
costs of Rs. 25,000 per annum. Present production and sales of pens is 50,000 units and selling
price per pen is Rs. 5. Any sale beyond 50,000 pens is possible only if the company reduces 20%
of its current selling price.
However, the reduced price applies only to the additional units. The company wants a target
profit of Rs. 1,00,000. How many pens to company must produce and sell if the target profit is to
be achieved?
Q.2 From the following data, calculate break-even point (BEP):
Selling price per unit Rs. 20
Variable cost per unit Rs. 15
Fixed overheads Rs. 20,000
If sales are 20% above BEP, determine the net profit.
Q.3 If fixed costs are Rs. 4,000 variable costs Rs. 32,000 and break-even point Rs. 20,000, find:
(i) Profit-volume ratio; (ii) Sales; (iii) Net profit; (iv) Margin of safety.
Q.4 (i) Ascertain profit, when sales = Rs. 2,00,000
Fixed Cost = Rs. 40,000
BEP = Rs. 1,60,000
(ii) Ascertain sales, when fixed cost = Rs. 20,000
Profit = Rs. 10,000
BEP = Rs. 40,000
Q.5 From the following data, compute break-even sales and margin of safety:
Sales Rs. 10,00,000
Fixed cost Rs. 3,00,000
Profit Rs. 2,00,000
Q.6 X Ltd. produces a single article. Following cost data is given about its product:
Marginal cost per unit Rs. 120
Fixed cost per annum Rs. 8,000
Calculate:
(a) P/V ratio (b) Break-even sales
(c) Sales to earn a profit of Rs. 10,000 (d) Profit at sales of Rs. 60,000
(e) New break-even sales, if sales price is reduced by 10%.
Q.7 From the following data, find out (i) sales; and (ii) new break-even sales, if selling price is
reduced by 10%:
Fixed cost Rs. 4,000
Break-even sales Rs. 20,000
Profit Rs. 1,000

Q.8 From the data given below, find out:
(a) P/V ratio; (b) Sales, and (c) Margin of safety
Fixed cost : Rs. 2,00,000
Profit : Rs. 1,00,000
B.E. Point : Rs. 4,00,000
Q.9 If fixed costs are Rs. 24,000, margin of safety Rs. 40,000 and break-even 80,000, find out:
(1) Sales; (2) Profit-volume ratio; (3) Net profit; (4) Variable cost
Q.10 Profit/Volume ratio of X Ltd. is 50%, while its margin of safety is 40%. If sales of the
company are Rs. 50 lakh find out its (i) break-even sales and (ii) net profit.
[Hint: Margin of Safety (in terms of %) = Actual Sales – Break even sales]
Actual Sales
Q.11 The profit/volume ratio of X Ltd. is 50% and the margin of safety is 40%. You are required
to calculate the net profit if actual sale is Rs. 1,00,000.
Q.12 The ratio of variable cost of sales is 70%. The break-even occurs at 60% of the capacity
sales. Find the break even sales when fixed costs are Rs. 90,000. Also compute profit at 75% of
the capacity sales.
Q.13 The following figures are extracted from the books of X Ltd. for 2007-08:
Direct material Rs. 2,05,000
Direct labour Rs. 75,000
Fixed overheads Rs. 60,000
Variable overheads Rs. 1,00,000
Sales Rs. 5,00,000
Calculate the break-even point (B.E.P.). What will be the effect of BEP of an increase of 10% in:
(i) fixed expenses; and (ii) variable expenses?
Q.14 A Ltd. maintains a margin of safety of 37.5% with an overall contribution to sales ratio of
40%. Its fixed costs amount to Rs. 5 lakh. Calculate the following:
(i) Break-even sales; (ii) Total sales; (iii) Total variable cost; (iv) current profit; (v) New
―margin of safety‖ if the sales volume is increased by 7½%.
Q.15 The trading results of PJ Ltd. for the two years have been:
Year Sales Rs. Profits Rs.
2007 5,40,000 12,000
2008 6,00,000 30,000
Compute the following:
(i) P/V ratio; (ii) Fixed costs; (iii) Break-even sales;(iv) Margin of safety at a profit of Rs.
48,000 (v) Variable costs during the two year.
Q.16 Following figures relating to the performance of a company of the year 2007 and 2008 are
available. Assuming that (i) the ratio of variable cost to sales and (ii) the fixed costs are the same
for both the years, ascertain:
(a) The profit-volume ratio, (b) the amount of the fixed costs (c) the Break-even point, and (d)
the budgeted profit for year 2009, if budgeted sales for that year are Rs. 1 crore.

Total Sales (Rs. in ‗000) Total Costs (Rs. in ‗000)
Year 2007 7,000 5,800
Year 2008 9,000 6,600
[P/V Ratio = Change in profit / Change in sales x 100]
Q.17 S. Ltd., a multi-product company, finished following data relating to year 2007:
1st half of the year 2nd half of the year
Sales Rs. 45,000 Rs. 50,000
Total cost Rs. 40,000 Rs. 43,000
Assuming that there is no change in prices and variable costs and that the fixed expenses are
incurred equally in the two half year periods, calculate for the year 2007:
(i) the profit volume ratio, (ii) the fixed expenses
(iii) the break-even sales, and (iv) the percentage of margin of safety to total sales.
Q.18 A company wants to buy a new machine to replace one, which is having frequent
breakdown. It received offers for two models M1 and M2. Further details regarding these models
are given below:
M1 M2
Installed capacity (units) 10,000 10,000
Fixed overhead per annum (Rs.) 2,40,000 1,00,000
Estimated profit at the above capacity (Rs.) 1,60,000 1,00,000
The product manufactured using this type of machine (M1 or M2) is sold at Rs. 100 per unit. You
are required to determine:
(a) Break-even level of sales for each model.
(b) The level of sales at which both the models will earn the same profit.
(c) The model suitable for different levels of demand for the product.
Q.19 Two competing companies ABC Ltd. and XYZ Ltd. produce and sell the same type of
product in the same market. For the year ended March 2008, their forecasted profit and loss
accounts are as follows:
Particulars ABC Ltd XYZ Ltd.
Rs. Rs. Rs. Rs.
Sales 2,50,000 2,50,000
Less: Variable Cost of Sales 2,00,000 1,50,000
Fixed Costs 25,000 75,000
2,25,000 2,25,000
Forecasted net operating profits 25,000 25,000
You are required to compute: P/V Ratio (2) Break-even sales volume
You are also required to state which company is likely to earn greater profits in condition of: (a)
low demand, and (b) high demand.
Q.20 From the following data, calculate (i) P/V Ratio; (ii) Profit when sales are Rs. 20,000 and
(iii) New break-even point if selling price is reduced by 20%

Fixed expenses Rs. 4,000 Break-even point Rs. 10,000
Q.21 A company has a fixed cost of Rs. 20,000. It sells two products – A and B, in the ratio of 2
units of A and 1 unit of B. Contribution is Re.1 per unit of A and Rs. 2 per unit of B. How many
units of A and B would be sold at break-even point?
Q.22 A company budgets for a production of 1,50,000 units. The variable cost per unit is Rs. 14
and fixed cost is Rs. 2 per unit. The company fixes its selling price to fetch a profit of 15% on
cost.
(a) What is the break-even point?
(b) What is profit-volume ratio?
(c) If it reduces its selling price by 5%, how does the revised selling price affect the break-even
point and the profit-volume ratio?
(d) If a profit increase of 10% is desired more than the budget, what should be the sale at the
reduced prices?
Q.23 From the following data, calculate:
(i) Break-even point expressed in amount of sales in rupees;
(ii) Number of units that must be sold to earn a profit of Rs. 60,000 per year.
(iii) How many units must be sold to earn a net income of 10% of sales?
Rs.
Sales price 20 per unit
Variable manufacturing costs 11 per unit
Variable selling costs 3 per unit
Fixed factory overheads Rs. 5,40,000 per year
Fixed selling costs Rs. 2,52,000 per year
Q.24 A company is intending to purchase a new plant. There are two alternative choices
available.
Plant X: The operation of this plant will result in a fixed cost of Rs. 4,80,000 and variable costs
of Rs. 5 per unit;
Plant Y: The purchase of this plant will result in a fixed cost of Rs. 5,20,000 and variable costs of
Rs.4 per unit.
Compute the cost break-even point and state which plant is to be preferred and when.
Q.25 X Ltd. a retail dealer in garments is currently selling 24,000 shirts annually. It supplies the
following details for the year ended 31st March:
Selling price per shirt Rs. 400
Variable cost per shirt Rs. 250
Fixed cost:
Staff salaries for the year Rs.12,00,000
General office costs for the year Rs. 8,00,000
Advertisement costs for the year Rs. 4,00,000
As a Cost Accountant of the firm you are required to answer the following each part
independently:

(i) Calculate the break-even point and margin of safety in sales revenue and number of shirt sold.
(ii) Assume that 20,000 shirts were sold in a year. Find out the net profit of the firm.
(iii) If t is decided to introduce selling commission of Rs. 30 per shirt, how many shirts would
require to be sold in a year to earn a net income of Rs. 1,50,000.
(iv) Assuming that for the year 2009 an additional staff salary of Rs. 3,30,000 is anticipated and
price of a shirt is likely to be increased by 15%, what should be the break-even point in number
of shirts and sales revenue?
Q.26 Indian Plastics make plastic buckets. An analysis of their accounting reveals:
Variable cost per bucket Rs. 20
Fixed cost Rs. 50,000 for the year
Capacity 2,000 buckets per year
Selling price per bucket Rs. 70
Required: (i) Find the break-even point
(ii) Find the number of buckets to be sold to get a profit of Rs. 30,000
(iii) If the company can manufacture 600 buckets more per year with an additional fixed cost of
Rs. 2,000, what should be the selling price maintain to the profit per bucket as at (ii) above?
Q.27 Green Valley Hotel has annual fixed costs applicable to rooms of Rs. 15,00,000 for a 300
rooms hotel with average daily room rates of Rs. 400 and average variable cost of Rs. 60 for
each room rented. The hotel operates 365 days per year. It is subject to an income-tax rate of 30
per cent. You are required to:
(i) Calculate the number of rooms the Hotel must rent to earn a net income after taxes of Rs.
10,00,000 and
(ii) Compute the break-even point in terms of number of rooms rented.
Q.28 X Ltd. manufactures a document-reproducing machine, which has a variable cost structure
as follows:
Rs.
Material 40
Labour 10
Overhead 4
and a selling price of Rs. 90.
Sales during the current year are expected to be Rs. 13,50,000 and fixed overhead Rs. 1,40,000.
Under a wage agreement, an increase of 10% is payable to all direct workers from the beginning
of the forthcoming year, whilst material costs are expected to increase by 7½%, variable
overhead costs by 5% and fixed overhead costs 3%.
You are required to calculate:
(a) The new selling price if the current profit/volume ratio is to be maintained; and
(b) The quantity to be sold during the forthcoming year to yield the same amount of profit as the
current year assuming the selling price to remain as Rs. 90.

Marginal Costing – Assignment II
Key factor
Q.1 The following particulars are obtained from costing records of a factory.
Product A Product B
(per unit) (per unit)
Rs. Rs.
Selling Price 200 500
Material (Rs. 20 per litre) 40 160
Labour (Rs. 10 per hour) 50 100
Variable Overhead 20 40
Total Fixed Overheads –Rs. 15,000
Comment on the profitability of each product when:
(a) Raw material is in short supply;
(b) Production capacity is limited;
(c) Sales quantity is limited;
(d) Sales value is limited;
(e) Only 1,000 litres of raw material is available for both the products in total and maximum
sales quantity of each product is 300 units.
Q.2 A manufacturer produces three products whose cost data are as follows:
X Y Z
Direct materials (Rs./unit) 32.00 76.00 58.50
Direct Labour:
Department. Rate / hour (Rs.) Hours Hours Hours
1 2.50 18 10 20
2 3.00 5 4 7
3 2.00 10 5 20
Variable overheads (Rs.) 8 4.50 10.50
Fixed overheads: Rs. 4,00,000 per annum.
The budget was prepared at a time, when market was sluggish. The budgeted quantities and
selling prices are as under:
Product Budgeted quantity Selling Price/unit
(Units) (Rs.)
X 19,500 135
Y 15,600 140
Z 15,600 200
Later, the market improved and the sales quantities could be increased by 20 per cent for product
X and 25 per cent each for product Y and Z. The sales manager confirmed that the increased
sales could be achieved at the prices originally budgeted. The production manager stated that the
output could not be increased beyond the budgeted level due to the limitation of direct labour
hours in department 2.
Required: (i) Prepare a statement of budgeted profitability.

(ii) Set optimal product mix and calculate the optimal profit.
Acceptance of sales order
Q.3 X Company manufactures cookware. Expected annual volume of 1,00,000 sets per year is
well below its full capacity of 1,50,000. Normal selling price is Rs. 40 per set. Manufacturing
cost is Rs. 30 per set (Rs 20 variable and Rs. 10 fixed). Total fixed manufacturing cost is Rs.
10,00,000. Selling and administrative expenses are expected to be Rs. 5,00,000 (Rs. 3,00,000
fixed and Rs. 2,00,000 variable). A departmental store offers to buy 25,000 sets of Rs. 27 per set.
No extra selling and administrative costs would be caused by the order. Further, the acceptance
of this order will not affect regular sales. Should the offer be accepted?
Q.4 X Calculators Ltd. manufactures engineering calculators and the selling price was fixed at
Rs. 400. The following are the cost particulars.
Rs.
Direct Material Cost 140
Direct Labour Cost 40
Variable Factory Overhead 20
Other Variable Cost 20
Fixed Overhead 5,00,000 per annum
Commission 30% on selling price
The company was producing only 10,000 units, since the demand was only 10,000 units.
However, the company has the capacity to produce another 1,000 units without any additional
fixed overheads. One of the distributors offered that he would take 1,000 units in addition to his
normal quota, but at a selling price of Rs. 320 per unit. He was also prepared to accept only half
of his regular commission for this transaction.
The Managing Director wants you as the Management Accountant to prepare a statement to the
Board of Directors with your specific recommendations.
Determination of selling price
Q.5 A manufacturing company has an installed capacity of 1,50,000 units per annum. Its cost
structure is given below:
(Per unit) Rs.
Variable costs 10
Labour (Minimum Rs. 1,00,000 per month) 10
Overheads 4
Fixed overheads: Rs. 1,92,300 per annum
Semi-variable overheads Rs. 60,000 per annum at 75% capacity, which increases by Rs. 4,000
per annum for every 5% increase in capacity utilization for the year as a whole.
The capacity utilization for the next year is estimated at 75% for three months, 80% for six
months and 90% for the remaining part of the year. If the company is planning to have a profit of
20% on the selling price, calculate the selling price per unit?
Q.6 A highly skilled technician is paid Rs. 100 per hour and is fully engaged in the manufacture
of a certain product which earns a contribution of Rs. 200 per hour to firm.
The firm has received an order, which will require the services of the technician for 25 hours. If
the material and other processing costs amount to Rs. 11,250 and mark up 20% on cost, what
price should be quoted for the new order?

CVP Analysis
Q.7 A company has developed a new product. The sales volume of the new product was
estimated to be between 15,000 and 20,000 units per month at a price of Rs. 20 per unit.
Alternatively, if the selling price is reduced to Rs. 18 per unit, the sales volume will be between
24,000 and 36,000 units per month. If the production is maintained below 20,000 units per
month, the variable manufacturing cost will be Rs. 16.50 per unit and the fixed costs Rs. 48,500
per month. If the production exceeds 20,000 units per month, the variable manufacturing cost
will be reduced to Rs. 15.50 per unit, but the fixed costs will increase to Rs. 64,500 per month.
The company paid Rs. 40,000 as fee for market survey and in addition incurred a cost of Rs.
60,000 in developing the new product.
In the event of taking up this new line of business, it will be necessary to use the building space,
which has been let out for a rental of Rs. 5,600 per month.
You are required to analyze the Potential Profitability of the proposal of the company at different
levels of output and make suitable recommendations relating to the price and volume of output to
be set.
Marginal costing v. Absorption costing
Q.8 X Fabrics manufactures quality napkins at its unit in Tirupur. The unit has a capacity of
60,000 napkins per month. Present monthly production for April is 40,000 napkins. Cost
incurred for production is as below: (per unit).
Direct material Rs. 6 No fixed cost
Direct Labour Rs. 2 Fixed cost 75%
Manufacturing overhead Rs. 4 Variable 25%
Total Rs. 12
The marketing cost per unit is Rs. 7 (Rs. 5 is variable). Marketing costs include distribution costs
and customer service costs. Present selling price is Rs. 22.50 per unit
Due to a strike at its existing napkin supplier, a hotel group has offered to buy 10,000 napkins
from X Fabrics @Rs. 11 per napkin for the month of June. No further sales to the hotel are
anticipated. Fixed manufacturing costs and marketing costs are tied to the 60,000 napkins. The
acceptance of the special order is not expected to affect the selling price to regular customers.
No marketing costs involved in special order. Prepare:
(i) Budgeted income statement for June.
(ii) Actual income statement under absorption costing for April.
(iii) Should X Fabrics accept the special order from the hotel or not?

Marginal Costing – Assignment III

CVP Analysis
Q.1 An enthusiastic marketing manager suggests to his managing director that only if he is
permitted to reduce the selling price of a product by 20%, he would be able to achieve a 30 per
cent increase in sales volume. The managing director, finding that the sales volume increase
exceeds in percentage the extent of requested reduction in price, gives the clearance. You are
given the following information:
Present selling price per unit Rs. 7.50
Present volume of sales 2,00,000 Nos.
Total variable costs Rs. 10,50,000
Total fixed costs Rs. 3,60,000
Assuming no changes in the costs pattern in the coming period.
(i) Examine the consequences of the managing director‘s decision assuming that 30% increase in
sales is realized.
(ii) At what volume of sales can be present quantum of profits be sustained, after effecting the
price reduction?

Q.2 The sales turnover and profit during two periods were as follows:
Period 1 Sales Rs. 20 lakhs Profit Rs. 2 lakhs
Period 2 Sales Rs. 30 lakhs Profit Rs. 4 lakhs
Calculate:
(i) P/V Ratio,
(ii) Sales required to earn a profit of Rs. 5 lakhs, and
(iii) Profit when sales are Rs. 10 lakhs.

Q.3 A manufacturer of a certain product has been selling exclusively in the Indian market up to
now. He has just received his first export enquiry and wants to quote as competitively as the
circumstances will allow. His latest Indian cost sheet is as follows:
Rs. per unit
Raw Materials 34
Direct Labour 13
Services (Rs. 4 per unit is variable) 6
Works Overhead (fixed) 7
Office Overhead (fixed) 2
Total Cost 62
Profit earned in India 6
Indian Selling Price 68
Management is thinking of quoting a selling price somewhere between Rs. 62 and Rs. 68 per unit
for this export order. One of the directors suggests quoting an even lower price based on the
principle of marginal costing. As the firm‘s Finance Manager, you are requested to compute the
lowest price the management could quote on those principles. State clearly any assumptions that
you may make on the above facts, and also on any other costs or facts.

Determination of sales mix
Q.4 The budgeted results for A Company Ltd., included the following:
Rs. in lakhs Variable cost as % of sales value
Sales:
Product A 50.00 60%
B 40.00 50%
C 80.00 65%
D 30.00 80%
E 44.00 75%
Fixed overheads for the period are Rs. 90 lakhs. You are asked to (a) prepare a statement
showing the amount of loss expected, (b) recommend a change in the sale volume of each
product which will eliminate the expected loss. Assume that the sale of only one product can be
increased at a time.

Profit Planning
Q.5 A firm has Rs. 10,00,000 invested in its plant and sets a goal of 15% annual return on
investment. Fixed costs in the factory presently amount to Rs. 4,00,000 per year and variable
costs amount to Rs. 15 per unit produced. In the past year the firm produced and sold 50,000
units at Rs. 25 each and earned a profit of Rs. 1,00,000. How can management achieve their
target profit goal by varying different variables like fixed costs, variable costs, quantity sold or
increasing the selling price per unit.

Q.6 The budget of AB Ltd. includes the following data for the forthcoming financial year:
(a) Fixed expenses Rs. 3,00,000
(b) Contribution per unit Product X – Rs. 6
Product Y – Rs. 2.50
Product Z – Rs. 4
(c) Sales forecast Product X – 24,000 units @ Rs. 12.50
Product Y – 1,00,000 units @ Re. 7.00
Product Z – 50,000 units @ Rs. 10.00
Calculate the composite P/V ratio and composite BEP.

Q.7 AB Chemicals Ltd. has two factories with similar plant and machinery for manufacture of
soda ash. The Board of Directors of the company has expressed the desire to merge them and to
run them as one integrated unit. Following data are available in respect of these two factories:
Factory X Y
Capacity in operation 60% 100%
Turnover 120 lakhs 300 lakhs
Variable cost 90 lakhs 220 lakhs
Fixed costs 25 lakhs 40 lakhs
Find out:
(a) What should be the capacity of the merged factory to be operated for break-even?
(b) What is the profitability of working 80% of the integrated capacity?

(c) What turnover will give an overall profit of Rs. 60 lakhs?
[Hint: Merger of plants takes place at 100% capacity level]

Q.8 A company is producing an identical product in two factories. The following are the details
in respect of both the factories:
Factory X Factory Y
Selling price per unit Rs. 50 Rs. 50
Variable cost per unit Rs. 40 Rs. 35
Fixed cost Rs. 2,00,000 Rs. 3,00,000
Depreciation included in above Rs. 40,000 Rs. 30,000
Sales (units) 30,000 20,000
Production capacity (units) 40,000 30,000
You are required to determine:
(a) Break-even Point (BEP) for each factory individually.
(b) Which factory is more profitable?
(c) Cash BEP for each factory individually (Cash BEP = Fixed cost – Depreciation).
(d) BEP for company as a whole, assuming the present product mix.
(e) BEP for company as a whole, assuming the product mix can be altered as desired.
(f) Consequence on profits and BEP if products mix is changed to 2:3 and total demand
remains constant.
Note: BEP may be indicated in number of units.

Marginal Costing – Assignment IV
Q.1 X Ltd. has estimated the unit variable cost of a product to be Rs. 10 and the selling price as
Rs. 15 per unit. Budgeted sales for the year are 20,000 units.
Estimated fixed costs are as follows:
Fixed Cost per annum (Rs.) Probability
50,000 0.1
60,000 0.3
70,000 0.3
80,000 0.2
90,000 0.1
What is the probability that the company will equal or exceed its target profit of Rs. 25,000 for
the year?
Q.2 X manufactures lighters. He sells his products at Rs. 20 each, and makes profit of Rs. 5 on
each lighter. He worked 50% of his machinery capacity at 50,000 lighters. The cost of each
lighter is as under:
Rs.
Direct Material 6
Wages 2
Works Overhead 5 (50% fixed)
Sales Expenses 2 (25% variable)
His anticipation for the next year is that the cost will go up as under:
Fixed charges 10%
Direct Labour 20%
Material 5%
There will not be any change in selling price. There is an additional order for 20,000 lighters in
the next year. What is the lowest rate he can quote for the additional order so that he can earn the
same profit as the current year?
Q.3 X Ltd. is currently buying a component from a local supplier at Rs. 15 each. The supply is
tending to be irregular. Two proposals are under consideration:
a) Install a semi-automatic machine for manufacturing this component, which would involve an
annual fixed cost of Rs. 9 lakh and a variable cost of Rs. 6 per manufactured component.
b) Install an automatic machine for manufacturing this component. Annual fixed cost Rs. 15 lakh
and variable cost Rs. 5 per manufactured component.
Determine (i) Annual volume required, in each case, to justify a switch over from outside
purchase to own manufacture (ii) Annual volume required to justify selection of the automatic
machine instead of semi-automatic (iii) If annual requirement is 5,00,000 components (It is
expected to rise at the rate of 20% annually), would you recommend automatic or semi-
automatic?
Q.4 XY Ltd., Nasik, is currently operating at 80 per cent capacity. The profit and loss account
shows the following:

(Rs. in lakhs)

Sales 640
Less: Cost of Sales:
Direct Materials 200
Direct Expenses 80
Variable Overheads 40
Fixed Overheads 260 580
Profit 60
The Managing Director has been discussing an offer from Middle East of a quantity, which will
require 50 per cent capacity of the factory. The price is 10 per cent less than the current price in
the local market. Order cannot be split. You are asked by him to find out the most profitable
alternative. The factory capacity can be augmented by 10 per cent by adding facilities at an
increase of Rs. 40 lakh in fixed cost.
Q.5 The following is the summarized Trading Account of a manufacturing concern, which
makes two products, X and Y.
Summarized Trading Account for the four months to 30 April 2008
X Y Total
Rs. Rs. Rs.
Sales 10,000 4,000 14,000
Less:
Cost of sales X Y
*Direct Costs
Labour 3,000 1,000
Material 1,500 1,000 4,500 2,000 6,500
5,500 2,000 7,500
Indirect costs
* Variable Expenses 2,000 1,000 3,000
3,500 1,000 4,500
+ Fixed Expenses
Common to both X & Y 1,250 1,250 2,500
Net profit 2,250 (-) 250 2,000
* These costs tend to carry in direct proportion to physical output.
+ These costs tend to remain constant irrespective of the physical output of X and Y.
It has been the practice of the concern to allocate these cost equally between X and Y.
The following proposals have been made by the Board of directors for your consideration
as financial adviser:
1. Discontinue Product Y
2. As an alternative to (1) reduce the price of Y by 20 per cent (It is estimated that the demand
will then increase by 40 per cent).
3. Double the price of X (It is estimated that this will reduce the demand by three-fifths).
Make suitable recommendation after evaluating each of the proposals.
Q.6 A Ltd. manufactures three different products and the following information has been
collected from the books of accounts.
S T Y

Sales mix (Amt.) 35% 35% 30%
Selling price Rs. 30 40 20
Variable cost Rs. 15 20 12
Total fixed cost Rs. 1,80,000
Total sales Rs. 6,00,000
The company has currently under discussion, a proposal to discontinue the manufacture of
product Y and replace it with product M, when the following results are anticipated:
S T M
Sales mix (Amt.) 50% 25% 25%
Selling price Rs. 30 40 30
Variable cost Rs. 15 20 15
Total fixed costs Rs. 1,80,000
Total sales Rs. 6,40,000
Will you advise the company to changeover to production of M? Give reasons for your answer.
Shut down or continue
Q.7 X Ltd. has the following annual budget for the year ending on June 30, 2008.
Production capacity 60% 80%
Costs (Rs. lakh)
Direct Material 9.60 12.80
Direct Labour 7.20 9.60
Factory Expenses 7.56 8.04
Administrative Expenses 3.72 3.88
Selling and Distribution Exp. 4.08 4.32
Total 32.16 38.64
Profit 4.86 10.72
Sales 37.02 49.36
Owing to adverse trading conditions, the company has been operating during July/
September 2008 at 40% capacity, realizing budgeted selling prices.
Owing to acute competition, it has become inevitable to reduce prices by 25% even to
maintain the sales at the existing levels. The directors are considering whether or not their
factory should be closed down until the trade recession has passed. A market research consultant
has advised that in about a year‘s time there is every indication that sales will increase to 75% of
normal capacity and that the revenue to be produced for a full year at that volume could be
expected to be Rs. 40 lakh.
If the directors decide to close down the factory for a year it is estimated that:
a. The present fixed costs would be reduced to Rs. 6 lakh per annum.
b. Closing down costs (redundancy payment, etc.) would amount to Rs. 2 lakh.
c. Necessary maintenance of plant would cost Rs. 50,000 per annum; and
d. On re-opening the factory, the cost of overhauling the plant, training and engagement of new
personnel would amount to Rs. 80,000.
Give your recommendations.

Marginal Costing- Assignment V

Q.1 A Ltd. manufacturing and sells four types of products. The sales mix in value comprise of:
Products Percentage
A1 33.1/3
A2 41.2/3
A3 16.2/3
A4 8.1/3
The total budgeted sales are Rs. 6,00,000 per month. The variable costs are: A-1 60% of selling
price, A-2 68% of selling price, A-3 80% of selling price and A-4 40% of selling price. Fixed
cost Rs. 1,59,000 per month. Find B.E.P.

Q.2 A Company produces and sells two items A&B. Its F.C. is Rs.13,77,000 p.a. VC per unit of
A Rs. 7.80. VC per unit of B Rs. 8.90. Selling price A Rs. 15, B Rs. 20, 80% of total sales
revenue is realized from sale of B. Find B.E.P. What should be sales revenue to result in 9 per
cent post-tax profit on sales. Tax rate 55 per cent.

Marginal costing v. Differential costing
Q.3 X Ltd., makers of a specialized line of toys, receives an order for 2,000 units of toy battle
tanks, from a large mail-order house at a price of Rs. 3 per unit.
The company sells this type of toy to its other customers at Rs. 5 each but it has surplus capacity
and can take the special order without adversely affecting its regular operations for the coming
month.
The income statement of the company for the preceding month is as follows:
Rs.
Net Sales—10,000 units @ Rs. 5 50,000
Costs: Rs.
Direct Material: Rs. 1.50 per unit 15,000
Direct Labour: Re. 1 per unit 10,000
Factory Overhead (fixed) 10,000
Selling and Administration Expenses (fixed) 10,000
Total Costs 45,000
Net Profit 5,000
Direct material and direct labour costs to be incurred on the special order are estimated to be of
the same amount per unit as for the regular business. Special tools costing Rs. 500 would be
required to meet the specifications of the mail-order house. You are required to prepare a
differential cost analysis for deciding about the acceptance of the order.

Q.4 A company is manufacturing three products A, B and C. The data regarding cost, sales and
profits are as follows:

Product Sales (units) Selling price Variable cost Contribution
per unit per unit per unit
A 2,000 5 2 Rs. 3
B 1,000 5 3 Rs. 2
C 1,000 5 3 Rs. 2
The fixed costs are Rs. 5,000. The Company wants to change the sales mix from the
existing proportion of 2: 1 : 1 to 2 : 2 : 1 of A, B and C respectively.
You are required to calculate the number of units of each product, which the company
should sell to maintain the present profit.

Q.5 Two competing food vendors were located side by side at a state fair. Both occupied
buildings of the same size, paid the same rent, Rs. 1,250, and charged similar prices for their
foods. Vendor A employed three times as many employees as B and had twice as much income
as B even though B had more than half the sales of A.
Other data are as follows:
Vendor A Vendor B
Sales Rs. 8,000 Rs. 4,500
Cost of goods sold 50% of Sales 50% of Sales
Wages Rs. 2,250 Rs. 750
Explain why vendor A is twice as profitable as Vendor B.

Q.6 X Ltd. produces and markets industrial containers and packing cases. Due to competition,
the company proposes to reduce the selling price. If the present level of profit is to be
maintained, indicate the number of units to be sold if the proposed reduction in selling price is:
(a) 5%, (b) 10% and (c) 15 %
The following additional information is available:
Rs. Rs.
Present Sales Turnover (30,000 units) 3,00,000
Variable Cost (30,000 units) 1,80,000
Fixed Costs 70,000 2,50,000
Net profit 50,000

Q.7 Following information relates to cost records of X Ltd., manufacturing spare parts:
Direct Materials Per unit
X Rs. 8
Y Rs. 6
Direct Wages
X 24 hours @ 25 paise per hour
Y 16 hours @ 25 paise per hour
Variable Overheads 150% of direct wages
Fixed Overheads (total) Rs. 750
Selling Price
X Rs. 25
Y Rs. 20

The directors want to be acquainted with the desirability of adopting any one of the following
alternative sales mixes in the budget for the next period.
(a) 250 units of X and 250 units of Y
(b) 400 units of Y only
(c) 400 units of X and 100 units of Y
(d) 150 units of X and 350 units of Y.
State which of the alternative sales mixes you would recommend to the management.

Discontinue of a Product line
Q.8 A company manufactures three products A, B and C. there are no common processes and the
sale of one product does not affect prices or volume of sale of any other. The company‘s
budgeted profit/loss for 2008 has been abstracted thus:
Total A B C
Rs. Rs. Rs. Rs.
Sales 3,00,000 45,000 2,25,000 30,000
Production Cost: Variable 1,80,000 24,000 1,44,000 12,000
Production Cost: Fixed 60,000 3,000 48,000 9,000
Factory Cost 2,40,000 27,000 1,92,000 21,000
Selling & Administration Costs:
Variable 24,000 8,100 8,100 7,800
Fixed 6,000 2,100 1,800 2,100
Total Cost 2,70,000 37,200 2,01,900 30,900
Profit 30,000 7,800 23,100 (-) 900
On the basis of above, the board had almost decided to eliminate product C, on which a loss was
budgeted. Meanwhile, they have sought your opinion. As the Company‘s Finance Manager, what
would you advise? Give reasons for your answer.

Exploring new markets
Q.9 A company annually manufactures 10,000 units of a product at a cost of Rs. 4 per unit and
there is home market for consuming the entire volume of production at the sale price of Rs. 4.25
per unit. In the year 2007, there is a fall in the demand for home market, which can consume
10,000 units only at a sale price of Rs. 3.72 per unit. The analysis of the cost per 10,000 units is:
Materials Rs. 15,000
Wages 11,000
Fixed overheads 8,000
Variable overheads 6,000
The foreign market is explored and it is found that this market can consume 20,000 units of the
product if offered at a sale price of Rs. 3.55 per unit. It is also discovered that for additional
10,000 units of the product (over initial 10,000 units) that fixed overheads will increase by 10 per
cent. Is it worthwhile to try to capture the foreign market?

Change v. Status quo
Q.10 The following details have been furnished to you regarding two proposals, which are for
consideration before a firm.

(a) Improvement in the quality of the product, which will result in an additional sale of 5,000
units at the existing price. However, this improvement in quality will result in increase in the
variable cost by 10 paise per unit.
(b) Reduction in the selling price of the product by 12 paise per unit. This will push up sales by
5,000 units.
In both cases, the fixed expenses will increase by Rs. 1,000.
The present sales of the firm are 10,000 units at the rate of Rs. 2.10 per unit. The variable cost is
Rs. 1.60 per unit and the total fixed costs are Rs. 3,000.
You are required to state whether it will appropriate for the firm to select any of the new
proposals or should it continue with the existing scheme.

Shut down or continue
Q.11 A Ltd. is experiencing recessionary difficulties and as a result its directors are considering
whether or not the factory should be closed down till the recession has passed. A flexible budget
is complied giving the following details:
Production Capacity
Fixed Costs (Fixed Costs + Variable Costs)
Close down Normal 40% 60% 80% 100%
Rs. Rs. Rs. Rs. Rs. Rs.
Factory Overheads 6,000 8,000 10,000 11,000 12,000 13,000
Administration 4,000 6,000 6,500 7,000 7,500 8,000
Overheads
Selling and 4,000 6,000 7,000 8,000 9,000 10,000
distribution
Overheads
Miscellaneous 1,000 1,000 1,500 2,000 2,500 3,000
Direct Labour — — 10,000 15,000 20,000 25,000
Direct Material — — 12,000 18,000 24,000 32,000
Total 15,000 21,000 47,000 61,000 75,000 91,000
The following additional information has been supplied to you:
(i) Present sales at 50% capacity are estimated at Rs. 30,000 per annum.
(ii) Estimated costs of closing down are Rs. 4,500. In addition maintenance of plant and
machinery is expected to amount to Rs. 800 per annum.
(iii) Cost of reopening after being closed down are estimated to be Rs. 2,000 for overhauling of
machines and getting ready and Rs. 1,400 for training of personnel.
(iv) Market research investigation reveal that sales should take an upward swing to around 70%
capacity at prices which would produce revenue of Rs. 1,00,000 in approximately twelve
months‘ time.
You are required to advise the directors whether to close down for twelve months or continue
operating indefinitely.

Q.12 A manufacturer is thinking whether he should drop one item from his product line and
replace it with another. Below are given his present cost and output data:
Product Price per unit Variable Cost of Sales Percentage
Rs. Rs.

Book shelves 60 40 30%
Tables 100 60 20%
Beds 200 120 50%
Total Fixed Costs per year Rs. 7,50,000
Sales last year Rs. 25,00,000
The change under consideration consists in dropping the line of tables in favour of cabinets. If
this dropping and change is made the manufacturer forecasts the following cost output data:

Product Price per unit Variable Cost of Sales Percentage
Rs. Rs.
Book shells 60 40 50%
Cabinets 160 60 10%
Beds 200 120 40%
Total Fixed Costs per year Rs. 7,50,000
Sales this year Rs. 26,00,000
Is this proposal to be accepted? Comment.

Standard Costing– Assignment VI
Q.1 The standard material cost for 100 kgs of chemical ‗X‘ is made up of:
Component A 30 kg @ Rs. 4 per kg;
Component B 40 kg @ Rs. 5 per kg; and
Component C 80 kg @ Rs. 6 per kg.
In a batch, 500 kgs of chemical ‗X‘ were produced from a mix of
Component A 140 kgs (cost Rs. 688);
Component B 220 kgs (Rs. 1156); and
Component C 440 kgs. (Rs. 2660).
Calculate material variances.

Q.2 A Co. Ltd., manufactures a particular product the standard cost of which is as under:
(Calculate variances).
Material Units Price Amount
M1 100 2.00 Rs. 200
M2 200 1.70 Rs. 340
300
Less Normal wastage - 30
Production 270 Rs. 540

Actual result in a period were as follows:
Material Units Price Amount
M1 215 1.80 Rs. 387
M2 385 2.00 Rs. 770
600
Less wastage -70
Production 530 Rs. 1157

Q.3 The standard set for a chemical mixture of a firm is:
Material Standard Mix. St. price per tonne
A 40% Rs. 20
B 60% Rs. 30
The standard loss is 10 per cent. During a period 182 tonnes of output were produced from A 90
tonnes (Rs. 18 per tonne) and B 110 tonnes (Rs. 34 per tonne). Calculate variance.
Q.4 A Co. manufactures a special tile of 12‖×8‖×½‖ size. The standard mix of material used is
as follows:
1200 kgs A @ 30 paise per kg
500 kg B @ 60 paise per kg and
800 kg C @ 70 paise per kg.
The mix should produce 12,000 square feet of tiles. During a period, 1,00,000 tiles were
produced from a mix of the following:
7000 kg A (paise 32 per kg);
3000 kg B (paise 65 per kg); and
5000 kg. C (paise 75 per kg). Compute variances.

Q.5 The standard set for output of a company is as under:
Material Standard Mix Standard price per kg.
A 40% Rs. 4
B 60% Rs. 3
The standard loss is 15 per cent of input. During April 2007, the company produced 1,700 kgs of
finished output. The materials details are given below:
Material Opening Stock Closing Stock Purchase in April
A 35 kg. 5 kg. 800 kg. Rs. 3,400
B 40 kg. 50 kg. 1,200 kg. Rs. 3,000

Q.6 A gang of workers normally consists of 30 men, 15 women and 10 boys. The standard
hourly labour rates are – Men: 80 paise, Women: 60 paise, and boys: 40 paise. In a normal week
of 40 hours, the gang is expected to produce 2000 unit of output.
During the week ended December 31, 2007, the gang consisted of 40 men, 10 women and 5
boys. The actual wage rates were 70 paise, 65 paise, and 30 paise respectively. 4 hours were lost
due to power breakdown, Actual output 1600 units. Compute labour variances.
Q.7 A gang of workers normally consists of 10 skilled, 5 semi-skilled and 5 unskilled workers
paid at standard hurly rates 75p, 50p, and 40p respectively. In a normal working week of 40
hours the gang is expected to produce 1,000 unit of output.
In a certain week, the gang consisted of 13 skilled, 4 semi-skilled and 3 unskilled workers and
produced 1,000 units. Actual wages Rs. 450. Actual hours worked 720. Assuming that each
worker worked the same hours, compute variances.
Q.8 The standard labour and actual labour engaged in a week for a job are as under:
Skilled Semi-skilled Unskilled
Standard No. of workers 32 12 6
Standard hourly Rate (Rs.) 3 2 1
Actual No. of workers 28 18 4
Actual Hourly Rate (Rs.) 4 3 2
During the 40 hour working week, the gang produced 1,800 standard labour hours of work.
Compute variances.
Q.9 In a factory, 100 workers are engaged and an average rate of wages is Rs. 5 per hour.
Standard working hours per week are 40 hours and the standard output is 10 units per hour.
During a week in February, wages were paid for 50 workers @ Rs. 5 per hour, 10 workers @ Rs.
7 per hour and 40 workers @ Rs. 4 per hour. Actual output was 380 units. The factory did not
work for 5 hours due to breakdown of machinery.
Calculate – (i) Labour cost variance; (ii) Labour rate variance; (iii) Labour efficiency variance;
and (iv) Idle time variance.
Q.10 The standard labour – mix for producing 100 units a of product is:
4 skilled men @ Rs. 3 per hour for 20 hours
6 unskilled men @ Rs. 2 per hour for 20 hours
But due to shortage of skilled men, more unskilled men were employed to produce 100 units.
Actual hours paid for were:
2 skilled men @ Rs. 4 per hour for 25 hours
10 unskilled men @ Rs. 2.50 per hour for 25 hours. Calculate labour variances.

JOURNAL TRIAL BALANCE

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