QUESTIONS ON MANAGEMENT ACCOUTING1.Wildlife escapes generatesaverage revenue of Rs. 4000 per person on its five-day package tours towildlife parks in Kenya. The variable costs per person areAirfare Rs1500Hotel Accomodation Rs. 1000Meals Rs 300Ground Transportation Rs 600Park Tickets and othercosts Rs 200Total Rs3600
Annual Fixed cost total Rs480,000a)Calculate the no. of packagetours that must be sold to break evenb)Calculate the revenue needed toearn a target operating income of Rs 100,000c)If fixed costs increase by Rs24,000, what decrease in variable costs must be achieved to maintain thebreakeven point calculated in requirement (a)?2.Classification of cost intodirect and indirect is a matter of policy –Elucidate the statement?3.Use of Target Costing requiresdetailed marketing research much in advance of launching a production. Do youagree with this statement. Explain why?4.Explain the concept of sunkcost and opportunity cost with example?5.XYZ Co. Ltd has received anorder which will require use of materials i.e., already in stock. There is10,000 units in the stock which was purchased at a price of Rs 80 per unit. Thestock is not moving and the company has decided to dispose it off at Rs 60 perunit. The material available in the market at Rs 100 per unit.6.Illustration1The budgeted income statement by product lines ofMulti Products Ltd.,for 2003 is as follows:
Product A
Product B
Product C
Sales
Rs. 2,00,000
Rs. 5,00,000
Rs. 3,00,000
Variable expenses:
Cost of goods sold
90000.00
1,70,000
1,50,000
Selling expenses
30000.00
90,000
45,000
Overhead:
Fixed
36000.00
90,000
54,000
Administrative
16000.00
40,000
24,000
Income before tax
28000.00
10,000
27,000
Income tax @ 40%
11200.00
4,000
10,800
Net income
16800.00
6,000
60,200
Allproducts are manufactured in the same facilities under common administrativecontrol. Fixed expenses are allocated among the products in proportion to theirbudgeted sales volume:(a)Computer the budgeted break-even point of the company as a whole, from the dataprovided.
(b)What would be the effect on budgeted income if half of the budgeted salesvolume of Product B were shifted to Product A and C in equal rupee amounts, sothat the total budgeted sales in rupee remains the same?
(c)What could be the effect of the shift in the product-mix suggested in (b) aboveon the budgeted break-even point of the whole company?
7.Illustration 2ShiplonProduct Ltd., manufactures three different products. The relevant data of theseproducts are as under:
Name of the Product
Cream
Pomade
Jelly
Production capacity (unit)
5,000
7,000
8,100
Machine hours per unit
1
3
4
Variable cost per unit Rs
3
2.5
3.5
Selling price –Rs./unit Rs.
4
5.5
6
The total fixed overheads at current capacity levelare Rs. 40,000 per annum. The company has various alternatives for improvingprofitability as given below:(a) To stop the production of Jelly and use thereleased capacity for producing pomades. The machines for both the products arecommon. However, cream is produced on a special purpose machine.
(b) To export the total production of Jelly at currentprice. On export the following additional revenue is expected.(i)8% duly drawback on export price(ii)12% cash compensatory support against an export scheme of government.(iii)5% replenishment license which can be sold in market at a premium of 80%.
(c) To replace the conventional machine used for Jellyby a special purpose machine, which will reduce the production time from 4hours to 3 hours per unit. Due to this change the variable cost of Jelly willbe reduced by Re.0.50 per unit. The released machine will be used for producingpomade. This proposal will entail an additional burden of fixed cost to thetune of Rs. 32,000 per annum.
Please advise the management about the right choice ofan alternative so as to maximize profits.
8.Theoretical Question:-Write short notes on any of thefollowing:a) Target Costingb) Activity-based Costingc)Zero-based Budgeting