Page 288 - DMGT403_ACCOUNTING_FOR_MANAGERS

Unit 13: Decision Involving Alternative Choices

If it is decided to work the factory at 50% capacity, the selling price falls by 3%. At 90% Notes
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.
5. Examine the various kinds of managerial decisions.
6. The management of a company is very much perturbed by the result of product O which
is one of the three products. The cost and other data are given below:
Products M (Rs.) N (Rs.) O (Rs.) Total
Sales 1,20,000 60,000 90,000 2,70,000
Materials 15,000 7,500 15,000 37,500
Labour 6,000 7,500 24,000 37,500
Variable overheads 15,000 7,500 30,000 52,500
Fixed overheads 30,000 15,000 30,000 75,000
Total cost 66,000 37,500 99,000 2,02,500
Analysis of Fixed expenses :
Identified 21,000 12,000 24,000 57,000

General -- -- -- 18,000

The product O has an assured market and no cost reduction is possible. Present these data
in a suitable form and recommend whether or not product O should be discontinued?
(Ans. Closure of product O will save 3,000)
7. A confectioner of sweets markets three products, all of which require sugar. His average
monthly sales, cost of sales and sugar consumption are as follows:
Products X Y Z Total
Sales (Rs.) 10,000 12,000 8,000 30,000
Variable cost of sales (Rs.) 6,000 8,000 5,600 19,600
Sugar needed (Kg.) 500 800 240 1,540

Due to government restrictions his sugar quota has been reduced to 1,405 Kg. per month.
Suggest a suitable product mix.

(Ans. Product X 10,000, Product Y 9,975 and Product Z 8,000)
8. Company manufacturing electric motors at a price of 6,900 each, made up as under:
Cost in
Direct material 3,200

Direct wages 400
Variable overheads 1,000
Fixed overheads 200
Depreciation 200

Variable selling overheads 100
Royalty 200

LOVELY PROFESSIONAL UNIVERSITY 283