Page 104 - DCOM206_COST_ACCOUNTING_II

Unit 5: Differential Costing

(b) 400 units of B only Notes
Product B Contribution 400 units × ` 8 ` 3,200
Fixed overheads ` 1,500
Profit ` 1,700
(c) 400 units of A and 100 units of B
Product of A 400 units × ` 4 ` 1,600

Product of B 100 units × ` 8 ` 800
Contribution ` 2,400
Fixed overheads ` 1,500
Profit ` 900
(d) 150 units of A and 350 units of B

Product A 150 units × ` 4 ` 600
Product B 350 units × ` 8 ` 2,800
Contribution ` 3,400
Fixed overheads ` 1,500
Profit ` 1,900
The profit level among the given various mixes, the mix (d) is able to generate highest volume
of profit over the others.
Determining Optimum Level of Operations: Under this method, the level has to be found out
which is having lesser selling price, cost of operations and greater profits known as optimum
level of operations.
Problem 8:

A factory engaged in manufacturing plastic buckets is working at 40% capacity and produces
10,000 buckets per annum.
The present cost break up for bucket is as under

Material ` 10
Labour ` 3
Overheads ` 5 (60% fixed)
The selling price is ` 20 per bucket.

If it is decided to work the factory at 50% capacity, the selling price falls by 3%. At 90% capacity
the selling price falls by 5% accompanied by a similar fall in the prices of material.
You are required to calculate the profit at 50% and 90% capacities and also calculate break even
point for the same capacity productions.
Solution:
The very first step is to compute number of units at every level of capacity i.e. 50% and 90%.

But in this problem, 40% capacity utilization given which amounted 10,000 units.
10,000 units
For 50% =  50 = 12,500 units
40

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