Page 101 - DCOM206_COST_ACCOUNTING_II

Cost Accounting – II

Notes Statement showing Gain or Loss on Accepting Various Export Orders
Sources of Export Capacity Differential cost FOB price Sales revenue Gain or
export orders in utilisation Per unit Total per unit from the Loss
order units exports
A 5,000 75 57 2,85,000 55 2,75,000 (10,000)
B 10,000 85 5000 @ 57 5,20,000 52 5,20,000 NIL
5000 @ 47
C 10,000 95 5000 @47 4,20,000 51 5,10,000 90,000
5000 @37
25,000 95% 12,25,000 13,05,000 80,000

From the above analysis it can be said that when all the three exports orders are accepted the
company will make a profit of ` 80,000. But accepting only source A and B orders will give a loss
of ` 10,000.
Problem 6:
(Accepting an offer at a lower selling price) The overhead expense of a factory producing a
single article at different operating levels is as follows:

Operating Level Capacity Works Overhead
80% 36,000
100% 40,000
120% 50,000
60% 33,000

The factory is currently operating at 60% operating level and its annual sales amount in ` 1,44,000.
Selling price has been based on 100% capacity and have the following relationships with cost at
this level:

Factory Cost: 66.67% of sales value
Price Cost: 75% of factory cost
Adm and selling exp. 20% of sales value
The management receives an offer for carrying out some work for another company valued at
` 33,000 per annum which will be an addition to admistration expenses of ` 1,500 per month.
The sales manager estimates that the sales of the company’s own product will increase to 80%
capacity by the time new order materialises.
Calculate the profit on current production.
Solution:
Statement Showing Profitability

100% 60%
Sales 2,40,000 1,44,000
Less Cost Sales:
Prime cost 1,20,000 72,000
Works overhead 40,000 33,000
Factory Cost 1,60,000 1,05,600
Adm. and Selling Exp. 48,000 33,600 2,08,000 1,38,600

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