Cash Flow Problems (Consolidated)

1. X Ltd made a profit of Rs.500,000 after considering the following :

(i) Goodwill Written Off – Rs.5,000

(ii) Depreciation on Fixed Tangible Assets – Rs.50,000
(iii) Loss on sale of Machinery – Rs.20,000
(iv) Provision for Doubtful debts – Rs.10,000
(v) Gain on sale of Land – 7,500
Additional Information :
31.03.2021 31.03.2022
Trade Receivables 78,000 52,000
Prepaid Expenses 3,000 2,000
Trade Payables 51,000 40,000
Expenses Payable 20,000 34,000

You are required to calculate Cash from Operating Activity

2. The profit of Mercury Ltd after appropriations was Rs.250,000. The

profit was arrived at after taking in to consideration the following
items :

Depreciation on Machinery – Rs.20,000

Loss on sale of Furniture – Rs.2,000
Goodwill written off – Rs.9,000
Provision for Taxation – Rs.35,000
Transfer to General Reserve – Rs.17,500
Gain on sale of Machinery – 8,000
Additional Information :
31.03.2021 31.03.2022
Trade receivables 50,000 62,000
Trade payable 45,000 55,000
Inventory 12,000 8,000
Income received in Advance 8,000 Nil
Outstanding Expenses 6,000 3,000

Prepaid Expenses Nil 5,000

 3. From the following calculate Cash from Operaing Activities :

31.03.2021 31.03.2022
Balance of Profit & Loss 3,00,000 2,50,000
Provision for Depreciation 60,000 80,000
Outstanding Wages 18,000 15,000
Prepaid Insurance 6,000 9,000
Goodwill 40,000 32,000
Provision for Doubtful Debts 10,000 14,000
Balance of Trade Receivables 1,40,000 98,000
Cash & Bank Balance 30,000 25,000

4. From the following particulars of Bharat Gas Ltd, Calculate Cash flows
from Investing activities including opening of relevant Ledger
accounts :

31.03.2017 31.03.2018
Goodwill 1,00,000 3,00,000
Patents 2,80,000 1,60,000
Machinery 10,20,000 12,40,000
10% Long term Investments 60,000 1,60,000
Investment in Land 1,00,000 1,00,000
Shares of Amazon Ltd 1,00,000 1,00,000

Additional information :

(i) Patents were written off to extent of Rs.40,000 and some Patents
were sold at a profit of Rs.20,000
 (ii) A machine costing Rs.140,000 (Depreciation provided thereon
Rs.60,000) was sold for Rs.50,000. Depreciation charged during the
year was Rs.140,000

(iii) On 31st march,2018, 10% investments were purchased for

Rs.180,000 and some investments were sold at a profit of Rs.20,000.
Interest on Investments was received on March 31,2018

(iv) Amazon Ltd paid a dividend of 10% on its shares

(v) A plot of land was purchased out of surplus funds for investment
purpose and let out for commercial purpose and rent received Rs
30,000

5. Calculate Cash flow from investing activities from the following

particulars :

Plant & Machinery (Written down value) Rs.720,000 (01.04.2021)

Plant & Machinery (Written down value) Rs.860,000 (31.03.2022)

(i) Depreciation charged during the year Rs. 85,000

(ii) Plant & Machinery having a written down value of Rs.110,000 was
sold for Rs.125,000
 6. The following is the extract of Balance Sheet as a 31 st March,2021 of a
company -

31.03.2021 31.03.2020
Equity share capital 9,00,000 7,00,000
12% Preference share capital 3,00,000 5,00,000
Security Premium Reserve 1,25,000 1,00,000
12% Debentures 4,00,000 3,00,000
Cash credit 1,50,000 1,25,000
Interest on Cash credit 20,000 10,000

Additional Information :

(i) Interim dividend on Equity shares @15% was paid on 1st

January,2021

(ii) Dividend on Preference shares were Paid.

(iii) Preference shares were redeemed at par on the last date of

current year.

(iv) New Shares and Debentures were issued on 31.03.2021

(v) Share issue expenses amounting to Rs.15,000 were debited to

securities Premium reserve

7. Calculate Cash flow from Financing Activities from following

information -

31.03.2021 31.03.2020
Equity Share capital 20,00,000 15,00,000
12% Preference capital - 5,00,000
14% Debentures 2,50,000 -
(i) Equity shares were issued at a premium of 20%

(ii) 12% Preference shares were redeemed at par.

(iii) 14% Debentures were issued at a discount of 10%

(iv) Interim dividend paid on Equity shares - Rs.150,000
(v) Interest paid on 14% Debentures - Rs.35,000
(vi) Underwriting commission on Equity shares - Rs.20,000
(vii) Dividend paid on Preference shares Rs.60,000
 Cost Reduction Strategy
1. Let's consider a fictional company called XYZ Corp. that wants to reduce its
operational costs. One common strategy for cost reduction is to improve
efficiency.

Scenario: XYZ Corp. currently produces 1,000 units of a product per month with a total
monthly production cost of $100,000. Each unit is sold for $150.

Cost Reduction Strategy: XYZ Corp. decides to implement a cost reduction strategy by
improving efficiency in the production process, which leads to a 10% reduction in the
production cost.

Submit your observation with supporting calculations

2. (i) If the initial cost of a project was $100,000 and the final cost after
implementing cost reduction measures is $80,000, then find the cost reduction
percentage.

(ii) If the cost-saving measures cost $50,000 to implement and result in a net cost
savings of $200,000, then find the ROI

(iii) If fixed costs are $100,000, selling price per unit is $20, and variable cost per unit
is $10, then find the break-even point

3. Suppose a company is currently producing a component in-house at a cost of $80

per unit. An external supplier offers to provide the same component at a cost of
$60 per unit. The company needs 1,000 units of this component.

Submit your suggestion whether to go for Make or Buy the product based on supporting
calculations

4. Company XYZ is currently manufacturing a component internally. The cost

breakdown for producing one unit of the component internally is as follows:

Direct Materials: $5 per unit

Direct Labor: $8 per unit
Variable Overhead: $2 per unit
Fixed Overhead: $10,000 per month (for all units produced)

The company receives a quote from an external supplier to provide the same
component for $20 per unit. The company is currently producing and selling 2,000 units
per month.

Submit your suggestion whether to go for make or buy the product based on supporting
calculations
Cost Concepts, Classification & Behaviour
Unit-02

Problems on Cost Reduction Strategies

For Problem 1 to 5 - Being a qualified Management Accountant, what
would be your advice
1. Labor Cost Reduction: Scenario: The company is considering reducing labor
costs by implementing automation in its production process.

Current Labor Cost per Month: $50,000

Automation Implementation Cost: $20,000
Expected Monthly Savings after Automation: $30,000

2. Supply Chain Optimization: Scenario: The company decides to optimize its

supply chain by negotiating better terms with suppliers, reducing lead times, and
minimizing inventory carrying costs.

Annual Inventory Carrying Cost: $60,000

Annual Savings from Inventory Reduction: $20,000
Annual Cost Reduction in Transportation: $10,000

3. Energy Efficiency: Scenario: The company implements energy-efficient

technologies to reduce electricity costs.

Current Monthly Electricity Cost: $5,000

Monthly Savings after Energy Efficiency Measures: $1,000

4. Process Improvement: Scenario: The company identifies and eliminates

inefficiencies in its production process, reducing waste and labor costs.

Current Monthly Production Costs: $80,000

Monthly Savings after Process Improvement: $15,000

5. Overhead Cost Reduction: Scenario: The company consolidates office space and
renegotiates leases to reduce rent and utilities costs.

Current Monthly Overhead Costs: $15,000

Monthly Savings after Consolidation: $3,000
 6. ABC Manufacturing is a company that produces widgets. They are currently facing
challenges with high production costs. The management is exploring cost
reduction strategies to improve profitability. Below are some financial data for
ABC Manufacturing:

 Current annual production cost: $2,000,000

 Average selling price per widget: $50
 Annual sales volume: 100,000 widgets
 Variable cost per widget: $30
 Fixed overhead cost: $400,000
 Direct labor cost: $300,000
 Other operating expenses: $100,000

Problem:

Calculate the following:

(i) Current annual profit:

 Current annual profit = (Annual Sales Revenue) - (Annual Production Cost)

(ii) Contribution Margin:

 Contribution Margin = (Selling Price per Widget) - (Variable Cost per
Widget)

(iii) Break-Even Point (in units and dollars):

 Break-Even Point (in units) = (Total Fixed Costs) / (Contribution Margin
per Widget)
 Break-Even Point (in dollars) = (Break-Even Point in units) * (Selling Price
per Widget)

(iv) If ABC Manufacturing reduces its fixed overhead cost by $100,000 through
efficiency improvements, recalculate the break-even point (in units and dollars).

(v) Suggest one additional cost reduction strategy ABC Manufacturing can implement
to further reduce its production costs.

7. XYZ Manufacturing is a company that produces electronic gadgets. They want to

reduce their operational costs by improving their manufacturing process. Here is
some financial data for XYZ Manufacturing:

 Current annual production cost: $5,000,000

 Average selling price per gadget: $200
 Annual sales volume: 25,000 gadgets
 Variable cost per gadget: $120
 Fixed overhead cost: $1,000,000
 Direct labor cost: $600,000
 Other operating expenses: $200,000
XYZ Manufacturing has identified a cost reduction strategy that involves implementing
process improvements, which is estimated to save $300,000 in annual production costs.

Problem:

Calculate the following:

(i) Current annual profit

(ii) Current contribution margin

(iii) Calculate the company's current break-even point (in units and dollars):
 Break-Even Point (in units)
 Break-Even Point (in dollars) = (Break-Even Point in units) * (Selling Price
per Gadget)

(iv) Calculate the new annual profit after implementing the cost reduction
strategy (savings of $300,000).

(v) Calculate the new break-even point (in units and dollars) after implementing the
cost reduction strategy.

(vi) Calculate the degree of operating leverage (DOL) before and after
implementing the cost reduction strategy.

8. XYZ Manufacturing is a company that produces electronic gadgets. They are

looking to improve their cost structure by implementing various cost reduction
strategies. Here's some financial data for XYZ Manufacturing:

 Current annual production cost: $8,000,000

 Average selling price per gadget: $200
 Annual sales volume: 50,000 gadgets
 Variable cost per gadget: $120
 Fixed overhead cost: $2,000,000
 Direct labor cost: $1,000,000
 Other operating expenses: $500,000

Problem:

(i) Calculate the following for XYZ Manufacturing:

a. Current annual profit.
b. Current contribution margin.
c. Current break-even point (in units and dollars).

(ii) XYZ Manufacturing is considering implementing two cost reduction

strategies:
Strategy A: Reducing direct labor costs by $200,000 through automation.
Strategy B: Negotiating better supplier contracts to reduce variable costs per
gadget by 10%.

Calculate the potential impact of each strategy on annual profit, contribution

margin, and the break-even point.

(iii) Calculate the new break-even point (in units and dollars) if XYZ
Manufacturing implements both Strategy A and Strategy B.
Cost Reduction Strategy - 04
1. A company is currently producing 10,000 units of a product annually.
The total production cost is $500,000. By implementing a cost
reduction strategy, the company can reduce its variable cost per unit
by 20%.
Current Cost Structure:
 Fixed Costs: $200,000
 Variable Cost per Unit: $30
Cost Reduction Strategy:
 Reduce variable cost per unit by 20%.
Questions:
(i) What will be the new variable cost per unit?
(ii) What is the total cost savings after implementing the strategy?
(iii) What will be the new total production cost after the strategy is
applied?

2. A manufacturing company is producing 10,000 units of a product per

year.
The cost structure is as follows:
 Direct materials cost per unit: ₹200
 Direct labor cost per unit: ₹150
 Overhead costs (fixed): ₹5,00,000 per year
 Selling price per unit: ₹500
The company is considering a cost reduction strategy to reduce direct
material cost by 20% through supplier negotiations.
Task:
1. Calculate the current profit.
2. Calculate the profit after implementing the cost reduction strategy.
3. Determine the increase in profit percentage.
3.A company manufactures 20,000 units of a product annually. The cost
structure is as follows:
 Variable Cost per Unit: ₹40
 Fixed Costs: ₹5,00,000 annually
 Selling Price per Unit: ₹100
The company implements a cost reduction strategy that reduces variable
costs by 20% and fixed costs by 10%.
Tasks:
1. Calculate the initial profit before the cost reduction strategy.
2. Calculate the profit after the cost reduction strategy.
3. Determine the incremental profit due to the strategy.

4. A company manufactures 20,000 units of a product annually. The

financials are as follows:
 Selling Price per Unit: ₹200
 Variable Cost per Unit: ₹120
 Fixed Costs: ₹15,00,000
The company plans a cost reduction strategy involving:
1. A 20% reduction in variable costs.
2. A 10% reduction in fixed costs.
Tasks:
1. Calculate the current profit before cost reduction.
2. Calculate the new profit after the cost reduction strategy.
3. Determine the percentage increase in profit.
Cost Reduction Strategy – 5
1. A firm purchased some materials for Rs.1000 sometime back which
would realise Rs.500 if sold now. If the material is not sold, it could be
used in making a product which would sale for Rs.1,500 after incurring
additional cost of Rs.650.

Suggest the company whether to make the product or sell the material.

2. A manufacturing company produces 20,000 units by operating at 60%

of the capacity and sells at a price of Rs.30 per unit. The budgeted
figure for the year 2021 are as follows :

Production – 20,000 Units

Raw material @ Rs.4.25 Rs.85,000
Direct labour @Rs.5.75 115,000
Variable Factory overhead @Rs.7.75 155,000
Fixed factory overhead 125,000

Variable selling cost @ 2.75% of selling price

Fixed selling and administrative cost 72,500

The company receives a special order for10,000 units from a firm. The
company desires to earn a profit of Rs.1 per unit and no selling
expenses are to be incurred for the special order.

Suggest the management whether to take the special order of 10,000

units.

3. The management of a concern manufacturing two products X & Y, have

the following independent possibilities before them :
(i) To produce and sell 16,000 additional units of Y but if the production of X
is reduced by 20,000 units
(ii) To reduce the price of X By Rs.0.20 per unit. This will result in a 25%
increase in the sale of X without any change in the activity of Y
(iii) To produce and sell 55,000 units-of X and 105,000 units of Y
 Product X Product Y Total
Sales (in units) 50,000 1,00,000
Sales (value in Rs) 2,50,000 8,50,000
Cost of sales 1,50,000 6,00,000

Gross Margin 1,00,000 2,50,000 3,50,000

Selling & Distribution Exp 60,000 1,50,000
Net Profit 40,000 1,00,000 1,40,000

The direct cost includes in the total cost amount to Rs. 120,000 for the
product X and Rs.340,000 for the product Y.
Present the information to the management in a suitable form giving Your
recommendation.

4. A Radio manufacturing company finds that while it costs Rs.6.25 each

to make component X 273 Q, the same is available in the market at
Rs.5.75 each with a assurance of continued supply.
The breakdown of cost is -
Materials- Rs.2.75 each
Labour - 1.75 each
Other variables - 0.50 each
Depreciation and fixed cost - 1.25 each
Total - Rs. 6.25 each
(i) Should you make or buy ?
(ii) What would be your decision if the supplier offered the component at
Rs.4.85 each
Cost Volume Profit (CVP) Analysis

Cost-Volume-Profit (CVP) analysis helps businesses understand how

changes in costs, sales volume, and price affect profitability. It is a vital tool
for planning, decision-making, and evaluating the financial feasibility of
various strategies.
Key Objectives of CVP Analysis:
 Determine the breakeven point (BEP).
 Assess the impact of sales volume changes on profitability.
 Analyze the effects of cost changes on profits.
 Aid in decision-making regarding product pricing and sales strategies.

Applications of CVP Analysis

1. Break-Even Analysis: To determine the minimum sales required to
avoid losses.
2. Pricing Decisions: Assess the impact of price changes on profitability.
3. Profit Planning: Set sales targets to achieve desired profit levels.
4. Product Mix Decisions: Evaluate the profitability of different
products in a portfolio.
5. Cost Control: Analyze the effect of cost reduction strategies on profits.
6. Sales Forecasting: Evaluate the impact of expected sales changes on
the bottom line.

Key Components of CVP Analysis

a. Fixed Costs (FC):
 Costs that remain constant regardless of the level of production or
sales (e.g., rent, salaries).
b. Variable Costs (VC):
 Costs that vary directly with production or sales volume (e.g., raw
materials, direct labor).
c. Contribution Margin (CM):
 Formula:
Contribution Margin=Selling Price per Unit−Variable Cost per Unit

4. Breakeven Point (BEP)

The breakeven point is the sales level where total revenue equals total costs,
resulting in zero profit.

a. Breakeven in Units:
BEP (Units)=Fixed Cost / Contribution per unit
b. Breakeven in Rs = Fixed Cost / Profit volume (PV) ratio

Contribution / Sales x 100

Margin of Safety
The margin of safety measures the cushion between actual sales and the
breakeven sales. It indicates the risk of incurring losses if sales decrease.
Formula:
Margin of Safety=Actual Sales−Breakeven Sales
Role of CVP in management decision making

Break-Even Analysis
Purpose: Helps determine the level of sales at which total revenues equal
total costs (fixed + variable), i.e., no profit or loss.
Managerial Application: Managers can decide whether a product or service
is viable based on whether it can achieve or exceed its break-even point.

Profit Planning
Purpose: Assists in setting sales targets to achieve desired profit levels.
Managerial Application: Management can calculate the sales volume
needed to achieve specific profit margins using the formula:
Sales Volume=Fixed Costs+Target Profit / Contribution Margin Per Unit

Pricing Decisions
Purpose: Evaluates how changes in selling price affect sales volume and
profitability.
Managerial Application: Management can test different pricing strategies
to assess their impact on the bottom line, ensuring competitiveness and
profitability.

Cost Management
Purpose: Provides insights into the effects of fixed and variable costs on
overall profitability.
Managerial Application: Managers can make decisions to optimize cost
structures, such as reducing variable costs or spreading fixed costs over a
larger sales volume.
Product Mix Decisions
Purpose: Helps evaluate the contribution margin of different products in a
portfolio.
Managerial Application: Managers can prioritize high-margin products or
adjust the sales mix to maximize overall profitability.

Make-or-Buy Decisions
Purpose: Assists in deciding whether to produce a component in-house or
outsource it.
Managerial Application: Compares variable costs of production with
purchase costs to make cost-effective decisions.

Operational Efficiency
Purpose: Evaluates how changes in production efficiency or economies of
scale impact profitability.
Managerial Application: Helps in setting efficiency benchmarks or
justifying investments in automation or technology.
Cost Volume Profit Analysis

1. S Ltd, a multi product company, furnishes the following data relating

to the year 2012 :

1st Half of 2nd Half of

the Year the Year
Sales (Rs) 45,000 50,000
Total Cost (Rs) 40,000 43,000
Assuming that there is no change in prices and variable costs and the fixed
expenses are incurred equally in the two half period, calculate for the year
2011 :
(i) Profit Volume Ratio
(ii) Fixed expenses
(iii) Break even sales
(iv) Margin of safety
(v) The % of Margin of Safety to total sales.

2. RXG Ltd reports the following results for the year ended 31st
March,2012 :
Sales (Rs) – 20,00,000
Variable Cost – Rs.12,00,000
Fixed cost – Rs.500,000
Net Profit – Rs.300,000
Calculate (i) P/V Ratio (ii) BEP (iii) Margin of safety

3. The following figures are extracted from the books of a manufacturer :

Direct materials - Rs.250,000

Direct labour - Rs.83,000
Fixed overheads - Rs.69,000
Variable overheads - Rs.115,000
Sales - Rs.550,000

Calculate (i) BEP (ii) What will be effect of BEP if there is an decrease of
3% in Fixed cost and 4% increase in variable cost

4. A product has a profit volume ratio of 28%. Fixed operating costs

directly attributable to the product during the quarter II of the
financial year 2010-11 will be Rs.280,000.

Calculate the sales revenue required to achieve a quarterly profit of

Rs.70,000
Cost Information & Decision Making

Unit-04

Problems On Cost Volume Profit

1. The Asian Industries specialise in the manufacture of small capacity motors. The
cost structure of a motor is as under :

Material – Rs.50
Labour – Rs.80
Variable Overhead – Rs.75% of labour cost

Fixed overheads of the company amount to Rs.2.40 lacs per annum. The sale
price of the motor is Rs.230 each.

(i) Determine the number of motors that have to be manufactured and sold
in a year in order to break even.
(ii) How many motors have to be made and sold to make a profit of Rs.1.00
lakh per annum
(iii) If the sale price is reduced by Rs.15 each , how many motors have to be
sold to break even ?

2. The following figures are extracted from the books of a manufacturing concern
for the year 2002-2003 :

Direct materials – Rs.205,000

Direct labour – Rs.75,000
Fixed overheads – Rs.60,000
Variable overheads – Rs.100,000
Sales – Rs.500,000

Calculate the Break even point (BEP).

What will be the effect on BEP of an increase of 10% in (i) Fixed expenses and (ii)
Variable expenses

3. From the following data , compute the break-even sales and margin of safety :

Sales – Rs.10,00,000
Fixed cost – Rs.300,000
Profit – Rs.200,000

4. If Margin of safety is Rs.240,000 (40% of sales) and P/V Rtaio is 30% of AB Ltd.,
calculate its (i) Break even sales (ii) Amount of Profit on sales of Rs.900,000
Case Based Numerical Of Cost Volume Profit (CVP)

1. The following figures were extracted from the records of a concern :

Particulars Departments
I II III IV Total
Sales (Rs) 1,00,000 2,00,000 3,00,000 4,00,000 10,00,000
Costs
Direct materials 40,000 1,00,000 1,80,000 2,90,000 6,10,000
Direct labour 20,000 75,000 90,000 70,000 2,55,000
Direct expenses 2,000 3,000 4,000 5,000 14,000
Prime Cost 62,000 1,78,000 2,74,000 3,65,000 8,79,000

Overheads :
Variable 10,000 15,000 12,000 10,000 47,000
Fixed 5,000 10,000 5,000 4,000 24,000

Total 77,000 2,03,000 2,91,000 3,79,000 9,50,000

Profit /(Loss) 23,000 -3,000 9,000 21,000 50,000

On the basis of above information, the management is inclined to close

Department II. Give advice

2. The company present the following cost estimates for three

prospective Plant X, Y & Z :
Plant X Plant Y Plant Z
Annual fixed cost (Rs) 60,000 1,08,000 1,20,000
Variable cost per unit
(Rs) 2.5 2.2 2.1
Annual capacity (Units) 75,000 1,20,000 1,50,000

(i) Calculate the BEP (Sales) and the % of BEP sales to annual
capacity
(ii) If sales are steady at 100,000 units per year and the unit selling
price is Rs.4 per unit, what will be the profits earned with each
 of the plant ? Assume that Plant X can be worked double shift
with an additional expenses of 10% in fixed costs and 5% in
variable costs of all units.

3. V Ltd engaged in manufacturing plastic bucket is working at 40%

capacity and produces 10,000 buckets per month. The present cost
break up for one bucket is as under :
Materials – Rs.20
Labour – Rs.6
Overheads – Rs.10 (60% fixed)
The selling price is Rs.40 per bucket. If it is decided to work with the factory
at 50% capacity, the selling falls by 3%. At 90% capacity, the selling price falls
by 5% accompanied by a similar fall in the price of materials.
You are required to prepare a statement showing the profits at 50% and 90%
capacities and also determine the break even points at each of these
production level.

4. A company has two plants at Location I & II at 100% and 75% of their
capacities respectively. The company is considering a proposal to
merge the two plants at one location to optimise available capacity.
The following details are available in respect of the two plants,
regarding their present operations:

Location I Location II
Sales (Rs) 2,00,00,000 75,00,000
Variable cost (Rs) 1,40,00,000 54,00,000
Fixed cost (Rs) 30,00,000 14,00,000

For decision making purposes, you are required to work out the
following information :

(i) The capacity at which the merged plant will break even.
(ii) The profit of the merged plant working at 80% capacity.
(iii) Sales required if the merged plant is required to earn an
overall profit of Rs.22,00,000
Class Room Exercise
Standard Costing (rk)

1. Gemini Chemical Industries provide the following information from their records for
making 100Kgs of GEMCO,the standard material requirement is -

Qnty
Material (Kg) Rate/Kg
A 8 6
B 4 4

During April,2003 , 1000 Kg of Gemco were produced. The actual consumption of materials
is as under :

Qnty
Material (Kg) Rate/Kg
A 750 7
B 500 5

Calculate (i) Material Cost Variance

(ii) Material Price Variance
(iii) Material Usage Variance

2. A company manufacturing distempers operates a standard costing system. The

standard cost (500,000 Kg) of one of the product of the company shows the following
standards :

Material Qnty (%) Std Price Per Kg (Rs) Total (Rs)

A 40 75 3,000
B 10 50 500
C 50 20 1,000
Material Cost per Unit 4,500

The standard input mix is 100 kg and the standard output of the finished product is 90 Kg

The actual results for the period are :

A 240,000 Kg @ Rs.80/kg
B 40,000 Kg @ Rs.52/kg
C 220,000 Kg @ Rs.21/kg
 Standard Output for Actual Mix - 450,000 Kg
Actual Output of Finished product = 420,000 Kg

You are required to calculate the material price, mix and yield variance

3. 100 Skilled workmen , 40 semi-skilled workmen and 60 unskilled workmen were to

work for 30 weeks to get a contract job completed. The standard weekly wages were
Rs.60, Rs.36 and Rs.24 respectively. The job was actually completed in 32 weeks by 80
skilled, 50 semi-skilled and 70 unskilled workmen who were paid Rs.65, Rs.40 and Rs.20
respectively as weekly wages.

Find out labour cost variance, labour rate variance , labour mix variance and labour
efficiency variance

4. From the Following data of A & Co Ltd, relating to budgeted and actual performance for
the month of March,2003 , compute the Direct material and Direct labour cost variances.

Budgeted data for March:

Units to be manufactured - 150,000

Units of Direct materials required (based on standard rates) - 495,000
Planned purchase of raw materials (Units) - 540,000
Average Unit cost of Direct materials - Rs.8
Direct labour hours per unit of finished goods - Rs.3/4 Hr
Direct labour cost (Total) - Rs.29,92,500

Actual data at the end of March :

Units actually manufactured - 160,000

Direct material cost (purchase cost based on units actually Issued) - Rs.43,41,900
Direct material cost - (purchase cost based on units actually Purchased) Rs.45,10,000
Average unit cost of direct material - Rs.8.20
Total direct labour hours for March - 125,000 Hrs
Total labour cost for March - Rs.33,75,000

Class Room Exercise

Standard Costing (bb)

1. Calculate Material and Labour variances from the following information :

Standard direct cost per unit :

Material cost 5 kg - Rs.50

Labour cost 20 Hrs - Rs.10

Rs.60

For production of 500 units , materials consumption amounted to Rs.25,650

against 2.7 M.T. Wage payment was Rs.6,050 for Rs.11,000 hours including 20
hrs idle time due to machine breakdown.

2. In respect of Department A of a manufacturing concern, the following data

are submitted for the week ended 31 st December,2005 :

Standard output for 40 hrs per week - 1,400 Units

Standard Fixed overheads – Rs.1,400

Actual Output – 1,200 Units

Actual hrs worked – 32

Actual fixed overheads - Rs.1,500

Prepare a statement of Variances.

3. ( Labour Variance including Mix)

The standard labour complement and the actual labour complement engaged
in a week for a job are as under :

Workers
Skilled Semi-Skilled Unskilled
Standard number of workers in
32 12 6
the gang
Standard Wage rate per hour (Rs) 3 2 1
Actual numbers of workers
employed in the gang during the 28 18 4
week
Actual Wage rate per hour (Rs) 4 3 2

During the 40 hour working week, the gang produced 1,800 standard labour
hours of work.

Calculate : (i) Labour Efficiency Variance

(ii) Rate of Wages Variance

(iii) Labour Mix Variance

(iv) Total Labour cost Variance