Q-1(A)

Particulars 2015 2016 Difference

Actual Sales 18,000 21,000 3,000
Less : Variable Cost ? ? ?
= Contribution ? ? 600
Less : Fixed Cost ? ? 0
= Profit 1,200 1,800 600
Note : Fixed Cost remains same in both the years. Increase in profit Rs. 600 in 2016 is due to increase in contribution.
Basic Formula Workings
PVR = ∆ in Contribution x 100 PVR = 600 x 100 = 20%
∆ in Sales 3000
YEAR 2015
Additional Formulas Workings
Contribution = Sales x PVR Contribution = 18,000 x .20 = 3,600

Fixed Cost = Contribution – Profit Fixed Cost = 3,600 – 1,200 = 2,400

Variable Cost = Sales ( 1 – PVR) Variable Cost = 18,000 ( 1 – .20 ) = 14,400

Basic Formula Workings

B.E.P. = Fixed Cost B.E.P. = 2,400 = 12,000
PVR .20
YEAR 2016
Additional Formulas Workings
Contribution = Sales x PVR Contribution = 21,000 x .20 = 4,200

Fixed Cost = Contribution – Profit Fixed Cost = 4,200 – 1,800 = 2,400

Variable Cost = Sales ( 1 – PVR) Variable Cost = 21,000 ( 1 – .20 ) = 16,800

Basic Formula Workings

B.E.P. = Fixed Cost B.E.P. = 2,400 = 12,000
PVR .20
Verification :
Particulars 2015 2016 Difference
Actual Sales 18,000 21,000 3,000
Less : Variable Cost 14,400 16,800 2,400
= Contribution 3,600 4,200 600
Less : Fixed Cost 2,400 2,400 0
= Profit 1,200 1,800 600
Q-1(B) Theory Cost Control Vs Cost Reduction
OR
Q-1. Calculation of Contribution and profit:
Particulars Product A Product B
Selling price p.u. 1000 1100
Less: Variable cost:
Direct material p.u. 240 140
Direct labour p.u. 60 90
Variable overhead p.u. 80 120
Total variable cost p.u. 380 350
Contribution p.u. 620 750
No. of units produced 1500 1200
Total contribution 9,30,000 9,00,000
Less: Fixed cost 6,00,000 6,00,000
Profit 3,30,000 3,00,000
2. Sales to earn desired profit:
Sales to earn desired profit (units) = Fixed cost + Profit / Contribution p.u.
PVR (A) = 62%
Product A = 6,00,000 + 6,60,026 / 620
= 2032.3 ~ 2033 units
Sales in terms of value = Fixed cost + Profit / PVR = 600000 + 660026 / 62% = Rs. 20,32,300
PVR (B) = 68.18%
Product B = 6,00,000 + 6,00,000 / 750
= 1600 units
Sales in terms of value = Fixed cost + Profit / PVR = 600000 + 600000 / 68.18% = Rs. 1760046 ~ 1760000
3. Recommendation when labour hour is a key factor:
Particulars Product A Product B
Contribution p.u. 620 750
Labour hour p.u. (labour hours used / no. of units) 2 3
Contribution per labour hour 310 250
Ranking i ii
When labour hour is a key factor, it is recommended to produce Product A as it gives higher contribution per labour
hour.
4. Recommendation when Sales value is a key factor:
Particulars Product A Product B
PVR = C/S*100 620/1000*100 750/1100*100
= 62% = 68.18%
Ranking ii i
When sales value is a key factor, it is recommended to produce Product B as it has higher PVR.

Q-2 Calculation of number of patient days

25Beds × 120 days 3000

20 Beds × 80 days 1600
Extra beds 900
Total 5500
Hospital Operating Cost Statement for the year .......................... No. of Patient days: 5500
Particulars (₹) (₹)
Variable Costs:
Doctor Fees (₹ 300000 per month × 12 months) 3600000
Food to Patients (variable) 1000000
Other services to patients (variable) 400000
Laundry charges (variable) 800000
Medicines (variable) 900000
Bed Hire Charges (₹150 × 900 beds) 135000
Total variable costs 6835000
Fixed Costs:
Rent (₹80000 per month × 12 months) 960000
Supervisor (3 persons × ₹30000 × 12 months) 1080000
Nurses (5 persons × ₹25000 × 12 months) 1500000
Ward Boys (5 persons × ₹6000 × 12 months) 360000
Repairs (fixed) 120000
Other fixed expenses 1440000
Administration expenses allocated 1200000
Total Fixed Costs 6660000
Total Cost 13495000
Add Profit 255000
Income for the year (₹ 2500 per patient per day × 5500 patient days) 13750000
Calculations:
• Profit per patient day: 255000/5500 = ₹46.36
• Contribution = Income Received – Variable Cost = 13750000-6835000 = 6915000
• Contribution per Patient Day = ₹6915000/5500 = 1257.27
• Break-even Point in Revenue:
Fixed cost/ (Contribution/ Gross income) = 6660000/(6915000/13750000) = ₹13242950
• Break-even Point in Patient-days: 13242950/2500 = 5297 patient-days

OR Q-2 Statement of Cost Under Traditional Costing System (based on Direct Labour hours.)

Particulars P Q
Direct Material Cost 1,15,200 76,800
Direct Labour Cost 76,800 51,200
Prime Cost 1,92,000 1,28,000
ADD: Overhead (At Rs. 300) 720000 480000
(300*2400) (300*1600)
Total Cost 912000 608000
No. of units produces 800 400
Total Cost per unit 1140 1520
Working Note. Cost (Amt.Rs.)
Total Overheads 12,00,000
Total Labour hours 4000
P: 76800 / 32 Per hour = 2400
Q: 51200 / 32 Per hour = 1600
Overhead absorption rate Rs. 300 per Labour hour

Under Activity Based costing system

Activity Cost Driver Rate/Ratio Cost (Amt. P Q
Rs.)
Direct Material 1,15,200 76,800
Direct Labour Cost 76,800 51,200
Prime Cost 1,92,000 1,28,000
Running and Maintenance Machine Hours 2400:1600 4,00,000 240000 160000
Quality Inspection No. of units 8:4 6,00,000 4,00,000 2,00,000
Material procurement Value of material 1152:768 2,00,000 1,20,000 80,000
12,00,000 760000 440000
Total 952000 568000
No. of units produces 800 400
Total Cost per unit 1190 1420
Working Note: Activity Cost Driver Rate = Total Cost OF Activity / Total Quantity of Cost Driver or resource driver

Cost Pool OR Activity Budgeted Cost Budgeted Volume Cost Driver Rate
Overhead (Rs.) Driver (Rs.)
P Q Total
Running and 4,00,000 Machine 3 hr p.u. 4 hr pu 6,400 4,00,000/4000 = 100
Maintenance Hours X800= X 400= per Machine hour
2400 1600
Quality Inspection 6,00,000 No of 800 400 1200 600000/1200= 500
units per unit
Material 2,00,000 Value of 115200 76800 192000 2,00,000/192000 =
procurement material 1.042