Page 117 - DMGT202_COST_AND_MANAGEMENT_ACCOUNTING

Cost and Management Accounting

Notes Variable overheads 1,000

Fixed overheads 200
Depreciation 200
Variable selling overheads 100
Royalty 200
Profi t 1,000
Central excise duty 600

Total 6,900
(a) A foreign buyer has offered to buy 200 such motors at ` 5,000 each. As a cost
accountant of the company would you advise acceptance of the offer?

(b) What should the company quote for a motor to be purchased by a company under
the same management if it would be at cost.
(Ans. (a) Accept it because incremental profi t is ` 40,000 and (b) ` 5,200)

13. The management of a company finds that while the cost of making a component part is
` 10, the same is available in the market at ` 9 with an assurance of continuous supply.
Give a suggestion whether to make or buy this part. Also give your views in case the
supplier reduces the price from ` 9 to ` 8.
The cost information is as follows:
`
Material 3.50
Direct labour 4.00
Other variable expenses 1.00
Fixed expenses 1.50
Total 10.00

Answers: Self Assessment

1. Marginal cost 2. variable overhead
3. fi xed overhead 4. False
5. True 6. False
7. volume of sales 8. costs and revenues
9. profi t 10. P/V ratio
11. optimum level 12. zero profi t
13. False 14. True
15. True 16. break-even point
17. profi ts 18. fi xed costs
19. cost and revenue 20. alternative

21. additional costs 22. sale
23. production or manufacturing 24. optimum level

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