l
:'-."*,
Q. No. 10
Vimal Enterprises
Before Expansion
:
PAT
39
Return
on
Equity
Equity 300
13%o
Return on Capital
Employed
PBIT
80
TotalCapital
Employed
=
400
ZOTo
= Equity + Debt
After Expansion
:
Equity 15% Debt
400 200
Fixed Asset
Net W.C.
400 200
profit and Loss A/C Sales 1.4 x 500
VC .95 x 0.7 x 700
700
456.5
234.5
42.O
contribution
Cost 1.O5 x 40 Depr 40.0
Fixed 10
lnterest 15 x 2OO
PBT
40.0 152.5 30.0
722.5
CW
40;/"
49.0
?35
Return on
Equity-
73.5
=
18.38%
400
152.5
Return on CapitalEmployed =
=25.42%
Total Asset Turnover 500 Before Expansion
600
= 1.25
AfterExpansion=
600
=1'167
Q. No. 11
Shubham EnterPrises
{a) Contribution earned by Division B =
TP
1000
- VC
950 = Rs 50 Per unit
Total Contribution earned = 50 x 10,000 = Rs' 5,00,000/lf division A decides to buy it from outside the capacity at Division B as well as company will incur a out of pocket loss of Rs. 5,00,000/- per year
(b) Current Market Price Rs. 1000
Reduction in
Revised MP
MP
Rs.
80 Rs. 920
Rs- 30
lnternal VC at Div B Saving per unit 950-920 =
lf company buys at Rs. 920. lt will save 30 x 1000 = Rs. 3,00,000. Buy from outside when Market Price is lower than Variable Cost"
{c) When we utilize the full capacity
of Division B contribution earned by the company is Rs 5,00,000. lf this capacity could be sold for Rs. 14.5 lacs. The company stand to gain Rs. 14.5 lacs - Rs. 5 = Rs. 9.5 lacs. Sell it capacity to outsider.
Q.12
At S0% of capacity SP = Rs 200 Matl Cost Rs 100, Labout = Rs. 30, Factory O/H - Rs. 30. Admn O/H = Rs. 20. Total Cost/ Unit Rs. 80. Sincer factory O/H and Adm OH are semi variable. We need to separate the variable and fixed factory OH is 40% fixed. Fixed component of factory O/H is. 40 x 30 = Rs. 12 per unit there for annual fixed factory O/H t2 x 10,000 = Rs. 1,20,000. The variable component of factory OH is Rs. 18 per Unit. Admn o/H is Rs. 20/Unit and 50% in fixed so fixed Admn O/H = 50 x 20 = Rs. 10. Total fixed Admn O/H = 10 x 10,000 = Rs. 1,00,000. Variable Admn O/H is Rs. 10 per unit.
Budget at Different Capacity
<Aol
oVTo
80% 12,000 r6,000
19O x 16,000
Capacity in No. of Units
Sales Sales
2OO
10,000
x 1OOOO = 20,00,000
Rs. 100
196 x 12,OO0
23,52,0000
Rs. 102 12,24,OOO
30,40,000
Rs. 105
Variable Cost
Material Cost per Unit
Total Matl Cost
Labour Cost Var Fact O/H Var Adm O/H Fixed Factory O/H Fixed Admn O/H
10,00,000 3,00,000 1,80,000 1,00,000 1,20,000
1,O0,000
Total
18,00,000
Rs. 1,O0,0O0
3,60,000 2,16,000 1.20,000 1,20.000 1,00,000 21,40,000
2,12,OO0
16,80,000 4,80,000 2,88,000
r,20,000
1,20.000 1,00,000 28,28,000
Profit
2,r2,000
We find that profit at 6o% and 80% of the capacity is same. But we recommend that the company would better off if it works at 80% as we would produce more and keep our men and machine utilized better. we could also capture higher market share which benefits us in the long run.
Q. 13
Veena Television
Color TV (CTV) Black & White (8
TV)
Spare Park (SP)
235
Service 470
SG
Market Price
Cost Gross Profit
14,150 I'J.,420
5000
3500*
1,500
235/2.4 = 97.92
137.08
2,730
47A/4.5 = 704.44
36s.56
o
*we assume BW sells old
iS
taken as cost.
c
after repair and service and therefore the price given by Business Magzine
Profit after
allocated overheads and service commission.
[Link] BTV
SP SG
Gross Profit
2730
835
150&
665 250
137.08
32
Allocated Overheads
Service
356.56
r14
Commission Net Profit
1895
585
105.08
251.s6
spare Parts and sG cannot survive as independent division as they are fully dependent as BW BW May survive as independent profit center besides CTV.
Soniya Ltd,
Budget
Q.1 5ales
Budget
Q.2 40
21
7
1
Actual
Q.3 36
19 6
3
Factory Cost Marketing Cost
Freight
1A
Admn Exp Profit
FA CA (Cash+AR+tnv)
0.9
)(;
7q )n )9
48
7
o.8 3.2 10
8 20 30
20
32
52
Total Asset
ROr
50
8/so -- 16%
.5/48 = 15.63
70/52 = 1928%
Though Actual Rol of Quarter 1 is higher than budgeted. we should be concerned about achieving only 34/40 = 85% of Budgeted sales- This will bring down lnventory Turhover to ration and Accounts Receivable Turnover to Ratios. we find against budgeted Marketing cost of Rs. 7Cr, the actual spending only Rs.
second Quarter Budget is quite ok. There was a printing mistake fixed Assets are showing as Rs. instead of Rs. 20.
Out sales is lower as well as our lnventory to and A/R to is lower.
3 Cr. Thus we have not given sufficient effort to Market.