Question

Budgeted Profit and Loss Statement

Sales 124,321

Less cost of goods sold

Opening Stock 8,000
Cost of Goods Manufacture 70,404
Closing stock (8,688) (69,716)
Gross profit 54,605
Selling and admin (43,100)
Net Profit 11,505

Budgeted Cash flow statement

Sales 123,891

Payment for
Raw Materials (36,245)
Conversion cost (21,149)
Fixed production cost (9,670)
Variable Selling cost (33,499)
Fixed Selling and Admin cos (5,372)
Advertising cost (3,000) ###
Net Cash inflows 14,957

Working

Sales for next year

Last year sales 109,000

Next year sales 125,895
Cash Sales 31,474
Credit sales 94,421

Receipts from cash sales 29,900

Credit sales 94,421
Sales net of discount 124,321
Cash recovery

Opening receivables 8,750 (109-19) x 30/360

Credit sales 94,421
Closing receivables (9,180) (94.421 x 35/360)
Collection against debtors 93,991

Total cash collected during the yeas 123,891

Materials

Consumption last year 30,000

Inflation 10%
Volume increase 10%
Consumption current year 36,300

Purchases
Opening stock 2,500
Consumption (36,300)
Closing (3,025)
Purchases (36,825)

Payment to creditors
Opening payable 3,000
Purchases 36,825
Closing Payable (3,580)
36,245

Conversion cost variable

Cost last year 18,000

Inflation 8%
Volume increase 10%
Cost current year 21,384

Payment
Opening payables 1,250
Expense during the year 21,384
Closing payables (1,485)
 21,149

Fixed over heads

Last year cost 12,000

Depriciation (3,000)
Cash Cost 9,000

Cash cost next year 9,720

Depriciation 3,000
Next year cost 12,720

Payment
Opening payable 625
Expenses 9,720
Closing payable (675)
CaSh payment 9,670

Operating Expense

Last year cost 25,000

Inflation 8%
Volume increase 10%
Cost current year 29,700

Payment
Opening payable 1,736
Expenses 29,700
Closing payable 2,063
CaSh payment 33,499

Fixed Selling over heads

Last year cost 10,000

Depriciation (5,000)
Cash Cost 5,000

Cash cost next year 5,400

Depriciation 5,000
Next year cost 10,400
Payment
Opening payable 347
Expenses 5,400
Closing payable (375)
CaSh payment 5,372

Cost of goods manufactured

Raw material conumed 36,300

Conversion variable cost 21,384
Fixed Conversion cost 12,720
70,404

Closing stock last year

Cost of goods manufactured 60,000

Cost of goods if no volume increase expected

Material 33,000
Variable Conversion cost 19,440
Fixed conversion cost 12,720
Cost of Goods manuf 65,160

Weighted average change in cost 8.60%

Last year closing stock cost 8,000

Next year cost of closing stock 8,688
Question

Strike Price
The price at which the holder of the call option can buy the underlying. It is
also the price at which the put option hooder can sell the underlying to the
counter party.

Call option / put option

The mentioned trasaction is a call option in which investor can buy (call) the
underlying at the contracted strike price of Rs 40 at any time before the
expiry.

Total strike price 20,000

Share 500
Strike price per share 40

In / out of money
A call option is in the money as long as the market price of the underlying (share here
is more than strike price. In the mentioned case the market price is less than exercise
price, hence, it would not be in the benefit of the company to purchase the same from
the counter parrty at strike price of Rs 40 where it is available in the market for Rs 35
The call option, here, is out of money
 derlying. It is
erlying to the

buy (call) the

before the

e underlying (share here)

ice is less than exercise
purchase the same from
in the market for Rs 35.
Question

Budgeted Profit and Loss

Sales 25,000
Cost of goods sold
Opening Stock -
COGM 17,000
Closing stock (340) (16,660)
Gross CM 8,340
Fixed Cost (3,800)
4,540

Cost of goods manufactured

Material 9,000
Labour 3,600
VOH 4,400
17,000

Actual Profit and Loss

Revenue 30,000
Cost of goods sold
Opening Stock -
COGM 19,744
Closing stock (1,700) ###
Gross CM 11,956
Fixed Cost (3,840)
8,116

Reconciliation of Budegeted and Actual profits

Budgeted profit 4,540

Sales
Rate Variance 1,939
Volume Variance 1,021 2,960
Material
Price Variance (165)
Qty Variance 540 375
Labour
Rate Variance (410)
Effeciency Variance 216 (194)
VOH
Expenditure Variance (185)
Effeciency Variance 660 475
FOH
Expenditure Variance (40) (40)

Actual Profit 8,116

Cost of goods manufactured

Material from opening stock 5,700
New units of materials used 4,725
Labour 4,514
VOH 4,805
19,744
Fixed over heads
Budgeted figure 3,800
Depriciation (1,600)
Rent (1,200)
Others 1,000

Current year Fixed overheads

Depriciation 1,600
Rent 1,200
Others 1,040
3,840

Labour Hours
Per unit standard 2.40
Actual units 12,000
Actual expected hours 28,800
After incorporating effec 27,360

Actual rate 0.17

Variable Over heads

Actual Hours 2,100
Per hour VOH 2.20
Actual hourly rate 2.29
Actual Cost 4,804.80

Closing Stock

Actual Cost 1,700

Actual units 1,000
Budgeted rate per unit 1.70
Budgeted cost for Closing S 1,700
Variance -

Price Variances
Factor Sp Ap Aq Variance
Sales 2.55 2.73 11,000.00 1,939
Material 1.80 1.83 5,700.00 (165)
Labour 0.15 0.17 27,360.00 (410)
VOH 2.20 2.29 2,100.00 (185)
FOH 3,800 3,840.00 (40) 1,139

Qty Variances
Factor Sq Aq Sp Variance
Sales 9,800.00 11,000.00 0.85 1,021
Material 6,000.00 5,700.00 1.80 540
Labour 28,800.00 27,360.00 0.15 216
VOH 2,400.00 2,100.00 2.20 660
Volume variance - 2,437
Question

- 1 2 3 4
Cost of Plant ###
Inflows 5,900 5,200 2,450 1,000
Residual Value 500
### 5,900 5,200 2,450 1,500
NPV@15% ### 5,130 3,932 1,611 858
NPV@15% 1,531

Internal rate of return of buying the machine (only financing decision)

- 1 2 3
Cost of Plant ###
Lease rentals 2,000 3,900 3,900 4,790
(8,000) 3,900 3,900 4,790

NPV at 20% (8,000) 3,250 2,708 2,772 730

NPV at 28% (8,000) 3,047 2,380 2,284 (289)

NPV delta 1,019

Rate delta 8
NPV per unit of rate 127.38

Change required 730

Change of rate required 6
IRR hence is 25.73

Internal rate of return of buying the machine (only Investing decision)

- 1 2 3 4
Cost of Plant ###
Inflows 5,900 5,200 2,450 1,000
Residual Value 500
### 5,900 5,200 2,450 1,500
NPV@20% ### 4,917 3,611 1,418 723 669
NPV@25% ### 4,720 3,328 1,254 614 (83)

NPV delta 752

Rate delta 5
NPV per unit of rate 150.44

Change required 669

Change of rate required 4
IRR hence is 24.45
ing decision)

ing decision)
Question

Fabrication Finishing Q. Control

Indirect Labour 1,500 1,200 500
Factory Rent 1,000 500 300
Power 600 480 48
Depriciation 4,800 3,000 300
Actual Factory OH 7,900 5,180 1,148
Reallocation of Logistics 943 550 79
8,843 5,730 1,227
Reallocation of Q. Control 491 736 (1,227)
Actual OH 9,334 6,466 -

Allocation of Actual Overheads between products

Depart Alpha Beta

Fabrication 6,534 2,800
Finishing 3,880 2,586
Actual OHs 10,413 5,387

Under / Over Absorption of Overheads

Alpha Beta
Allocated OHs 10,400 5,000
Actual OHs (10,413) (5,387)
Under Applied OHs (13) (387)

Journal Entries

WIP - Aplha 10,400

WIP - Beta 5,000
Applied FOH 15,400

Actual FOH 15,800

Cash 15,800

Profit / Loss A/C 400

Applied FOH 15,400
Actual FOH 15,800
Logistics Total
400 3,600
200 2,000
72 1,200
900 9,000
1,572 15,800
(1,572) -
- 15,800
- -
- 15,800
Question

Qty Schedule
Opening Stock 5,000
Input 20,000
25,000

Transferred 18,000
Closing WIP 6,000
Normal Loss 1,250
Ab. Gain (250)
25,000

Opening Current Total Completed Closing

Cost elements Cost Cost Cost Units WIP
Material 2,713 9,875 12,588 18,000 6,000
Conversion 1,499 5,760 7,259 18,000 3,600
19,847
Material Cost
Cost for the year 10,000
Scrap Value of lo (125) Journal Entries
Net Cost 9,875 Date Account Amount
Process A/C 4,212
Cost Accounted for Material A/C 10,000
Labour A/C 5,760
Compeleted units 15,660 Process A/C 15,760

Closing WIP Stock 15,660

Material 3,180 Cl WIP 4,404
Labour 1,224 4,404 N. Loss Rec 125
Process A/C 218
Ab Gain Ab Gain 218
Cost (218)
Loss of Scrap val 25 (193) Cash 1,000

19,872

Reconciliation of Actual Outflow with cost Accounted for

Actual Cost Process Account
Material 12,713 Op WIP 4,212
Conversion 7,259 Material 10,000
19,972 Conv. Cost 5,760
Losses Scrap Value (100) Ab Gain 218
19,872 20,190

Actual cosy accouned for 19,872

 Cost
Total per
Ab. Gain Units unit
(250) 23,750 0.53
(250) 21,350 0.34
0.87

Account Amount
WIP 4,212
Cash 10,000
Cash 5,760
Material A/C 10,000
Labour A/C 5,760
Process 15,660
Process 4,404
Process 125
Ab Gain 218
P/L 193
N. Loss Rec 25
N. Loss Rec 1,000
ocess Account
Stock A/C 15,660
N. Loss 125
Closing WIP 4,404

20,190
Question
Rate Qty Amount
Material

Material A 200 5,000 1,000,000

Material B 135 3,000 405,000
Material C (10) 2,000 (20,000) 1,385,000

Labour

Skilled Hours 200 80 16,000

Unskilled 250 120 30,000 46,000

Machine
Opertunity cost 60,000

Fixed Overheads
Incremental FOH 150,000

Total relevant cost 1,641,000

Selling Price (including profit) 2,051,250

Question

Cost per unit

Sales price W3 200.00

Commission (4.00)
Direct Material (40.00)
Direct Labour (33.33)
VOH W2 (44.27)
Contribution Margin 78.4000 40.0%

Fixed Cost W1 6,590,000

Break Even (units) 84,056

Break Even (Rs) 16,811,224

Variable Cost per unit

Direct Material 40
Direct Labour 33
Variable production OH 44

Fixed Cost

Production related Fixed Cost

Depriciation 500,000
Factory rent 1,800,000
Indirect Labour - Fixed 750,000
Power and Fuel 600,000
Fixed POH 3,650,000

Sales and Administration related Fixed Cost

Salaries of sales team 600,000
Delivery Van 840,000
Advertising Campaign 1,500,000
2,940,000

Total Fixed Cost 6,590,000

Production Overheads 10,290,000
Fixed profduction overhe (3,650,000)
Variable POH 6,640,000

Sales price
Let sales be x
Commission be 2% x
Eqquation
X - 2% X - VC = 0.98X x 40%

CM ratio 41%
VC ratio (Except Commission) 59%
Variable Cost (117.60)

Sales Price 200

Sales 16,811,224
Commission (336,224)
Net Sales 16,475,000
Variable prod cost (9,885,000)
Fixed Cost (6,590,000)
-