assignment 2

Assignment -2

Exercise-3.30 :

The digital company has fixed costs of rs 300000 and a variable cost percentage of 75 percent .the company earns net income after taxes of rs 80000 in current year .the income tax rate is 40%

1) Compute the operate income.

Tax % = 40%

Net Income after tax = (1 - .4) * x

rs 80000 = (1 - .4) * x

x = 80000 / .6

x = 133333.33

Operating Income = 133333.33

2) Contribution margin

Operating income = Revenues – variable cost – fixed cost

133333.33 = (1 - .75) * q – 300000433333.33 = .25qQ = Contribution margin = Total revenues – Total Variable costs

= 80000 - 225000

= 1450003) Total revenue

= 80000*0.40= 32000 before tax

4) Break even revenues

Contribution margin percentage = (Revenues- variable cost)/revenues = 80000-225000/80000

Break even revenues = Fixed cost/ Contribution margin percenatge= 225000/1.81= 1240309

Exercise 3.31

CVP Exercises. The Reynolds company manufactures and sell pens .currently 600000 units are sold per year at 10 per unit.fixed costs are 1500000 per year ,variable cost are rs6 per unit.

Consider each case separately:

1a) what is the present operating income of a year?

Operating Income = [(selling price – variable price)*quantity of units sold]-fixed cost=[(10-6)*600000]-1500000

=[4*600000]-1500000=900000

1b) what is the present break even point in revenues.

Break even revenues = fixed costs/contribution margin% Contribution margin per unit= selling price- variable cost price

= 10-6 Contribution margin per unit = 4

Contribution margin percentage = contribution margin per unit/ selling price= 4/100.4 = 40 %

Break even revenues = 1500000/40% =3750000

Compute the new operating income for each of the following changes

2) A Re0.50 per unit increase in variable cost

Operating Income = [(selling price – variable price)*quantity of units sold]-fixed cost

=[(10-6.5)*600000]-1500000= [3.5*600000]-1500000= 600000

3) A 10 Percent increase in fixed cost and a 10% increase in units sold.

10% increase of Fixed Cost= 0.10*1500000 +1500000 = 1650000

10% increase of units sold = 0.10*600000+600000 =660000


=[(10-6.0)*660000]-1650000=[4*660000]-1650000=990000

4) A 20 percent decrease in fixed costs, a 20 percent decrease in selling price, a 10 percent decrease in variable cost per unit and 40% increase in units sold.

20% decrease of Fixed Cost= 1500000- 0.20*1500000

=1500000-300000 =1200000

20% decrease of selling price = 10-0.20*10= 8

10% decrease in variable cost per unit = 6-0.10*6 = 5.4

40% increase of units sold = 0.40*600000+600000=840000


=[(8-5.4)*840000]-1200000=[2.6*840000}-1200000=984000

Compute New break even points

5) A 15 % increase in fixed costs

15% increase of Fixed Cost= 0.15*1500000 +1500000 = 1725000




Break even revenues = 1725000/0.4 =4312500

6)A 10% increase in selling price and a rs 100,000 increase in fixed costs

10 % increase of selling price =0.10*10+10=11




Break even revenues = 1600000/0.45 =3555555

Exercise 3.33

CVP Analysis, service firm. Thomas cook India generates average revenue of rs 20000 per persons on its five day package tours to goa. the variable costs per persons as follows

Airfare 5000Hotel accommodation 2000Meals 3000Ground transportation 3000Park tickets and other costs 1000Total 14000

Annual fixed costs rs 1800000

1. Calculate the Number of package tours that must be sold to break even

Break even = fixed costs/contribution margin

Contribution margin per unit= selling price- variable cost price = 20000-14000

Contribution margin per unit = 6000Break even = 1800000/6000

=300

2. Calculate the revenue needed to earn a target operating income 600000


600000 = (20000-14000)*q - 1800000

2400000 = 6000 * q

Q = 2400000 / 6000

Q = 400

Revenue required = 400 * 20000

= 8000000

3. If fixed costs increase by rs.300000 what decrease in variable costs must be achieved to maintain the break even point calculated in requirement1?

Breakeven in requirement 1 = 300

Fixed cost = 1800000+300000 = 2100000

Contribution margin = 2100000/300 = 7000

Contribution margin = sale price – variable price

7000 = 20000 – x

X = 20000 – 7000

X = 13000

Therefore decrease in variable price = 1000 to maintain same breakeven.

Exercise 3.39 Sales mix,two products.the VIP company retails twpo products , a standard and a deluxe version of a luggage carreier.the budgeted income statement for next period as follows

Particulars Standard carrier Deluxe carrier totalunits sold 150000 50000 200000

Revenues at rs1000 and 1500 per unit 150000000 75000000 225000000

Variable costs at Rs700And rs 900 per unit 105000000 45000000 150000000

Contribution marginat rs 300And rs 600 per unit 45000000 3000000 75000000

Fixed cost 60000000

Operating income 15000000

1) Compute the BEP in units assuming that the planned sales mix is attained.

Break even = fixed costs/contribution margin%

Contribution margin per unit(standard carrier) = 4 50 00 000/300 Contribution margin per unit = 150000

Contribution margin per unit(Deluxe carrier) = 30 00 000/600 Contribution margin per unit = 5000

Contribution margin per unit (sales mix)= 155000

2) Compute the break even point in units(a) if only standard carriers are soldand b) if only deluxe carriers are sold

3) suppose 2,00,000 units are sold but only 20000of the are deluxe. compute the operating income .compute the break even point in units. compare your answer with the answer to requirement 1 what is the major lesson of this problem.

Exercise 5.29 Cost smoothing or peanut butter costing, cross subsidization. for many years five former classmates- Ashish, amit, ankur and ankush have had a reunion dinner at the annual meeting of the college alumni association .the details of the bill for the most recent dinner at the parikrama restaurant break down shown below.

Diner entrée Dessert Drinks TotalAashish 270 80 240 590

Amit 240 30 0 270Nitin 210 60 130 400

Ankur 310 60 120 490Aakash 150 40 60 250

For at least 10 diners nitin has put the total restaurant bill on his ICICI bank card .H then mails the other 4 bills for the average cost .nitin continued this practice for the parikrama dinner .However ,just before he sent the bill to the diners, aakash phoned him to complain .he was lived at ankur for ordering the steak and lobster entrée and at aashish for having three glasses of imported champagne

1. Why is the average cost approach isn the context of the reunion dinner an example of cost smoothing or peanut butter costing?

2.compute the average cost to each of the five diners. who is under charged and who is over charged under the average cost approach? Is aakash complaint justified

3.Give an example of a dining situation in which nitin would find it more difficult to compute the amount of under or over costing. how might the behavior of the diners be affected if each person paid his or her own bill instead of continuing with average cost approach?

Exercise 5.34 Job costing with single direct cost category, single indirect cost pool,law firm.ramesh associates is a recently formed law partnership .ramesh the managing partner of ramesh associates has just finished a tense phone call with harish .president of coal India ltd. harish strongly complained about the price ramesh charged for some legal work done for coal India.

Ramesh has also received a pone call from its only other client (Asahi glass)which was very pleased with both the quality of the work and the price charged on its most recent job.

Ramesh associates uses a cost based approach to pricing(billing) each job. currently it uses a single direct cost category (Professional labor hours) and a single indirect cost pool (general support).indirect costs are allocated to cases on the basis of professional labor hours per case. the Job files show the following.

Coal India Asahi glassProfessional labor 104 hrs 96 hrs

Professional labor costs at ramesh associates are rs.700 an hour. indirect costs are allocated to cases at rs1050 an hour. total indirect costs in the most recent period were 210000

1) why is it important for ramesh associates to understand the costs associated with individual jobs?

2) Compute the costs of the coal India and aashi glass jobs using ramesh’s existing job costing system

Exercise 5.34 Jobs costing with multiple direct cost categories, single indirect cot pool law firm(continuation of 5-34).ramesh asks his assistant ,rattan to collect details on those costs included in the rs 10000 indirect cost pool that can be traced to each

individual job. after analysis rattan is able to reclassify rs 1,40,000 of the rs 10,000 as direct costs.

other direct costscoal india

Asahi glass

Research support labor 16000 34000computer time 5000 13000travel and allowances 6000 44000telephones/faxes 2000 10000photocopying 2500 7500Total 31500 108500

Ramesh deiced to calculate the costs of each job .ratan used six direct cost pools and a single indirect cost pool .the single indirect cost pool would have rs 70000of costs and would be allocated to each case using the professional labor hours base

1. What is the revised indirect-cost allocation rate per professional labor hour for ramesh associates when total indirect cots are 70,000

2. Compute the costs of the coal India and Asahi glass jobs if the firm in question has used its refined costing system with multiple direct cost categories and one indirect cost pool.

3. Compare the costs of coal India and Asahi glass jobs in 2 above with those requirement of problem 5-34 comment on the results.

assignment 2

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