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Solution Practice Problems On Differential Costing

This document summarizes the costs and profits for three different products (A, B, C) produced by XYZ Ltd. It shows the sales volume, selling price, variable costs, contribution, and profit for each product. The total figures are also provided. While product A generates the highest contribution and profit, product C results in a loss. The document also evaluates the costs for a component if purchased from an external market versus internal production, finding it would be less costly to produce internally.

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Akhil Narang
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35 views7 pages

Solution Practice Problems On Differential Costing

This document summarizes the costs and profits for three different products (A, B, C) produced by XYZ Ltd. It shows the sales volume, selling price, variable costs, contribution, and profit for each product. The total figures are also provided. While product A generates the highest contribution and profit, product C results in a loss. The document also evaluates the costs for a component if purchased from an external market versus internal production, finding it would be less costly to produce internally.

Uploaded by

Akhil Narang
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as XLSX, PDF, TXT or read online on Scribd
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Solution: Bonbon Ltd

Production 60% 70% 80% 90% 100%


Units 60000 70000 80000 90000 100000
Sales 54000 63000 60000 60300 61000
Variable cost @ 0.15 9000 10500 12000 13500 15000
Contribution 45000 52500 48000 46800 46000

Note: As the Fixed cost is constant at Rs.40,000 the decision regarding


production level can be taken on the basis of contribution.
As the contribution is maximum at 70% capacity production. The firm should
produce 70000 units
Solution : Peter England Ltd.

Particulars Do not Accept Accept


Units sold per month 3,500.00 3,800.00
Sales 1,400,000.00 1,460,000.00
Material 280,000.00 304,000.00
Labour (Fixed) 420,000.00 420,000.00
Variable overheads(@Rs.20 70,000.00 76,000.00
Fixed overheads 280,000.00 280,000.00
Distribution cost (fixed) 105,000.00 105,000.00
Name insertion cost 3,000.00
Profit per month 245,000.00 272,000.00

There is an increase in profit by Rs.27,000 so the special order can be accepted


Difference
300.00
60,000.00
24,000.00
-
6,000.00
-
-
3,000.00
27,000.00

er can be accepted
Solution: XYZ Ltd

Particulars Product A Product B


Per unit Total Per unit Total
Sales Volume (units) 10,000.00 15,000.00
Selling Price 80 800,000.00 60 900,000.00
Direct Material 28 280,000.00 24 360,000.00
Direct Labour 20 200,000.00 12 180,000.00
Variable Factory Overheads 8 80,000.00 6 90,000.00
Variable Selling Overheads 4 40,000.00 2 30,000.00
Total Variable Cost 60 600,000.00 44 660,000.00
Contribution 20 200,000.00 16 240,000.00
Fixed Factory Overheads 8 80,000.00 6 90,000.00
Fixed Selling Overheads 4 40,000.00 6 90,000.00
Total Fixed Overheads 12 120,000.00 12 180,000.00
Profit 8 80,000.00 4 60,000.00
Product C Total
Per unit Total
15,000.00 40,000.00
36 540,000.00 2,240,000.00
16 240,000.00 880,000.00
12 180,000.00 560,000.00
4 60,000.00 230,000.00
2 30,000.00 100,000.00
34 510,000.00 1,770,000.00
2 30,000.00 470,000.00
1.28 19,200.00 189,200.00
1.52 22,800.00 152,800.00
2.8 42,000.00 342,000.00
-0.8 (12,000.00) 128,000.00
-
Solution: XYZ Ltd

i (a) If Alternative use for facilities of department Y exists

Purchase price from Market


Less: Annual saving by deppt Y by utilising the facilities to alternative
use
Net Cost
Cost of Manufacture
Net loss to the company as a whole if Deptt X purchases component C
from market

(b) If Alternative use for facilities of department Y does not exist


Purchase price from Market
Cost of Manufacture
Net loss to the company as a whole if component C is purchased from
market

ii If Alternative open to deptt X


(a) Purchase from market

(b) Purchase from deptt Y

Note: Sufficient information is not available in respect of fixed cost


appropriated to component C. It is therefore assumed that the fixed
cost remains unabsorbed and there is a saving of variable cost only to
Deptt Y
1,050,000.00

125,000.00
925,000.00
900,000.00

25,000.00

1,050,000.00
900,000.00

150,000.00

Consequences to Deptt X
150,000.00 Profit

(150,000.00) loss

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