Page 97 - DCOM206_COST_ACCOUNTING_II

Cost Accounting – II

Notes Solution:
(a)
Output (in units)
60,000 1,20,000 1,80,000 2,40,000 3,00,000 3,60,000
Fixed cost 1,42,000 1,42,000 1,42,000 1,42,000 1,42,000 1,42,000
Semi-fixed 1,50,000 1,50,000 1,70,000 1,70,000 2,00,000 2,00,000
cost
Variable cost 4,18,000 8,18,000 12,78,000 15,78,000 17,78,000 19,02,000
Total cost 7,10,000 11,10,000 15,90,000 18,90,000 21,20,000 22,44,000
Differential 4,00,000 4,80,000 3,00,000 2,30,000 1,24,000
cost (Col 2 – Col 1) (Col 3 - Col 2) (Col 4 - Col 3 (Col 3 - Col 4) (Col 6 - Col 5)
Sales value 7,20,000 13,20,000 18,00,000 21,60,000 24,00,000 25,20,000
Marginal 6,00,000 4,80,000 3,60,000 2,40,000 1,20,000
revenue

(b) As long as the increment in toil revenue exceeds the differential costs, it pays to increase
output, but as SOMI as the incremental revenue equals differential costs, it is no longer
profitable to read the volume of production. In the above case the incremental revenue is
about equal to differential costs at 3,00,000 output level and beyond that it is decreasing so
the production should be fixed at this level (correctly between 3,00,000 and 1,60,000 levels).
(c) The sale price at this level is ` S per unit which should be adopted for the year, which
would bring in maximum profit.
Problem 2:
(Acceptance or rejection of an offer). Following particulars are extracted from the books of
Adarsh Co. Ltd. for the period ending 31st Dec, 1992.
Capacity Unit Cost (in `) Unit Selling price (in `)
6,000 80 100
7,000 75 97
8,000 74 95
9,000 72
10,000 71

The firm is operating at 8,000 unit’s capacity and has received an order for 2000 units from an
export market at a price of ` 70 per unit. Advise the company as to whether the export order
should be accepted or not.
Solution:
Statement showing Incremental Cost and Revenue

Capacity Unit Cost Total Cost Incremental Unit price Total sales Incremental
(in `) Cost revenue
6,000 80 4,80,000 100 6,00,000
7,000 75 5,25,000 45,000 97 6,79,000 79,000
8,000 74 5,92,000 67,000 95 7,60,000 8,000
9,000 72 6,48,000 56,000
10,000 71 7,10,000 62,000

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