Q1: Find Cost Function Using Trend Line for the data as given below
Also, find variable Cost (VC) and Fixed Cost (FC) by slope & intercept.
Units Total Cost
50 1600
100 2200
150 3000
200 4000
250 5000
300 6000
Answer
Linear Equation of two variable Y=A+Bx
Fixed Cost 493.333333
Variable Cost 17.9428571
Total Cost
7000
6000 y = 17.943x + 493.33
R² = 0.9924
5000
Total Cost
4000
3000 Total Cost
Linear (Total Cost)
2000
1000
0
0 50 100 150 200 250 300 350
Units
Q2: Production arrangements are such that if one product is given up,
the production of other can be increased by 50% . Advise
Particulars P1 P2 P3 P4
S.P. ₹70.00 ₹65.00 ₹55.00 ₹50.00
V.C. ₹40.00 ₹40.00 ₹36.00 ₹32.00
F.C. ₹9.00 ₹9.00 ₹9.00 ₹9.00
Units Produced 10000 5000 8000 5000
Answer
Particular P1 P2 P3 P4
S.P. ₹70 ₹65 ₹55 ₹50
V.C. ₹40 ₹40 ₹36 ₹32
Contribution ₹30 ₹25 ₹19 ₹18
F.C ₹9 ₹9 ₹9 ₹9
Units Produced ₹10,000 ₹5,000 ₹8,000 ₹5,000
Total Fixed Cost 252000
Calculation of Profit under four different situations
Cases P1 P2 P3 P4 Profit
Case1 (P4 given up) 15000 7500 12000 ₹6,13,500
Case2 (p3 given up) 15000 7500 7500 ₹5,20,500
Case3 (p2 given up) 15000 12000 7500 ₹5,61,000
Case4 (p1 given up) 7500 12000 7500 ₹2,98,500
Q.3 ABC Ltd. Produces three products P, Q and R. The data for the three products is given below:-
Calculate the best product mix in the following [Link] a trade agreement,
the firm cannot produce more than 10000 units.
Particulars P Q R
Maximum Capacity (Units) 8000 5000 6000
Direct Material (Rs. 20 per KG) 80 20 60
Other variable Cost 72 52 22
Selling Price 220 110 130
Fixed Cost 40000 30000 20000
Answer
Particulars P Q R
Maximum Capacity (Units) 8000 5000 6000
Direct Material (Rs. 20 per KG) ₹80 ₹20 ₹60
Other variable Cost ₹72 ₹52 ₹22
Selling Price ₹220 ₹110 ₹130
Fixed Cost ₹40,000 ₹30,000 ₹20,000
Contribution 68 38 48
Units 8000 0 2000
Giving priority to the highest contribution margin
Profits ₹6,40,000 Capacity Used Capacity Available
P Q R LHV RHV
When only Product P 1 8000 <= 8000
When only Product Q 1 0 <= 5000
When only Product R 1 2000 <= 6000
Production (P+Q+R<=7500) 1 1 1 10000 <= 10000
Q.4 Using Goal Seek, find (I) Profit, (II) Breakeven point (B.E.P.) and (III) level of Desired Profit of Rs. 2,50,000.
Sales Price ₹20
Variable Cost ₹8
Fixed Cost ₹50,000
Units 20000
Answer
(I) Profit (II) BEP (III) Desired Profit rs. 2,50,000
SP ₹20 SP ₹20 SP ₹20
VC ₹8 VC ₹8 VC ₹8
Contribution ₹12 Contribution ₹12 Contribution ₹12
FC ₹50,000 FC ₹50,000 FC ₹50,000
Units 20000 Units 4167 Units 25000
Profit ₹1,90,000 Profit ₹0 Profit ₹2,50,000
Q.5 A toy manufacturer earns an average net profit of Rs. 30 per unit in a selling price of Rs. 150 by
producing and selling 60,000 units at 60% of its capacity. The composition of his cost of sales is as follows:
Direct material Rs. 40
Direct wages Rs. 10
Works overheads Rs. 50 (50% Fixed)
Sales overheads Rs. 20 (25% Variable)
During the current year, he intends to produce the same number but anticipates that:
(i) The fixed charges will go up by 10%.
(ii) Rates of labour will increase by 20%.
(iii) Rates of direct materials will increase by 5%.
(iv) Selling price cannot be increased.
Under these circumstances he obtains an order for a further 20% of his capacity. What minimum price will
you recommend for accepting the order so as to ensure the manufacturer earn an overall profit of Rs. 17,40,000.
Answer
Year Last Year Current Year
Capacity 60% 60%
No. of Units 60000 60000
Selling Price 150 150
Variable Cost p.u:
Direct Material 40 42
Direct Labour 10 12
Work Overhead 25 25
Sales Overhead 5 5
Variale Cost 80 84
Contribution p.u 70 66
Total Contribution 4200000 3960000
Fixed Cost p.u:
Work Overhead 1500000 1650000
Sales Overhead 900000 990000
Total Fixed Overhead 2400000 2640000
Profit 1800000 1320000
Additional Contribution Calculation
Desired Profit 1740000
Less: Estimated Profit 1320000
Aditional Profit to be earned 420000
Aditional Units 20000
Additional Contribution 21
Recommended Selling price 105
Q.6 ABC Ltd. is working at 75% of its capacity. The following are the details of its operations:
Output (units) 15,000
Sales value ₹30,00,000.00
Material cost ₹6,00,000.00
Wages ₹4,50,000.00
Variable expenses ₹3,00,000.00
Semi-variable expenses ₹1,50,000.00
Fixed costs ₹7,50,000.00
The company has received an export order for 2,000 units at a much lower price of Rs. 120 per unit. The semi-
variable expenses will increase by Rs. 10,000 for additional production and sales. The export order will require a
special packing cost of Rs. 10,000 to be incurred for its completion. Management wants to reject the offer because
the export price is much below the domestic price. You are requested by the management to give your advice.
Answer
Particulars Cost p.u Domestic Sale Export Order Total
Sales 15000 2000 17000
Selling Price ₹200 ₹120 ₹320
Sales ₹30,00,000 ₹2,40,000 ₹32,40,000
Variable cost
Material Cost ₹40 ₹6,00,000 ₹80,000 ₹6,80,000
Wages ₹30 ₹4,50,000 ₹60,000 ₹5,10,000
Variable exp. ₹20 ₹3,00,000 ₹40,000 ₹3,40,000
Semi-Veriable Exp.(vab) ₹5 ₹75,000 ₹10,000 ₹85,000
Total Variable cost ₹95 ₹14,25,000 ₹1,90,000 ₹16,15,000
Contribution ₹15,75,000 ₹50,000 ₹16,25,000
Fixed Cost
Fixed Cost ₹7,50,000 ₹0 ₹7,50,000
Semi Variable Exp.(fixed) ₹75,000 ₹0 ₹75,000
Special Packing Cost ₹0 ₹10,000 ₹10,000
Total Fixed Cost ₹8,25,000 ₹10,000 ₹8,35,000
Profit ₹7,50,000 ₹40,000 ₹7,90,000
Export order Should be accepted as it increases overall contribution by Rs.50000 and Profit by Rs. 40000.
Decision YES