CA Final Costing Problem

Final 249 views 6 replies

Ravi SADhiyan

Practice

4510 Points Joined July 2017

A company is producing two types of products Q and R simultaneously from input of raw material Z. Presently the company is producing 45,000 kgs of Q and 90,000 kgs of R from input of 1,35,000 kgs of raw material Z. The selling price of Q is Rs. 15 and that of R is Rs. 12 per unit. Processing cost per month is as follows:

Rs.
Raw Material (1,35,000 kgs @ Rs. 6 per Kg)	8,10,000
Variable Processing Cost	5,40,000
Fixed Processing Cost	3,50,000
Total	17,00,000

A company has given an offer of purchase of 40,000 kgs of R additionally at a price of Rs. 9 per unit. Raw material is easily available in the market. The existing market of R will not be affected by accepting the offer, but price of Q is likely to be decreased uniformly on all sales.

Required
Calculate minimum reduced average price of Q to sustain the increased sales.

Replies (6)

yasaswi gomes

My grammar is 💯 good I

7296 Points Joined March 2019

Per unit raw material cost=6₹

Variable absorption rate= 4₹

Fixed absorption rate= 12.60₹

Total costs= 22.60₹

Now that you have per unit data, include new input of 40,000 into raw material, variable and fixed overheads.

Per unit raw material= 175000*6₹= 10,50,000₹/175000= 6₹

Variable absorption rate= 175000*4₹= 7,00,000/175000= 4₹

Fixed overhead absorption rate= 175000*12.60₹= 2203704175000=1 2.60₹

Total production cost/unit= 22.60₹

Lets see for R= 90,000*12.60= 11,34,000₹ and it is the same cost of production before additional units were included.

R sales= 90,000*12= 10,80,000₹ This is a LOSS in absorption costing. With additional units, it is still a loss.

Considering Q production cost 22.60*45000= 1016667₹

Selling price= 15*45000= 6,75,000₹ and this is selling at LOSS despite additional units being manufactured.

Please paste your answer when you have it. Thanks.

Ravi SADhiyan

Practice

4510 Points Joined July 2017

Originally posted by : yasaswi gomes
	Per unit raw material cost=6₹ Variable absorption rate= 4₹ Fixed absorption rate= 2.60₹ Total costs= 12.60₹ Now that you have per unit data, include new input of 40,000 into raw material, variable and fixed overheads. Per unit raw material= 1750006₹= 10,50,000₹/175000= 6₹ Variable absorption rate= 1750004₹= 7,00,000/175000= 4₹ Fixed overhead absorption rate= 1750002.60₹= 455000/175000= 2.60₹ Total production cost/unit= 12.60₹ Lets see for R= 90,00012.60= 11,34,000₹ and it is the same cost of production before additional units were included. R sales= 90,00012= 10,80,000₹ This is a LOSS in absorption costing. But it will make a difference to R after new order 400009= 3,60,000. With additional units, you are getting a Profit. Considering Q production cost 12.6045000= 5,67,000₹ Selling price= 1545000= 6,75,000₹ and this is selling at profit despite additional units being manufactured. Please paste your answer when you have it. Thanks.

Dear Yasaswi

I am really appreciate your working but final answer pending

Calculate minimum reduced average price of Q to sustain the increased sales.

Ravi SADhiyan

Practice

4510 Points Joined July 2017

Originally posted by : yasaswi gomes
	Per unit raw material cost=6₹ Variable absorption rate= 4₹ Fixed absorption rate= 2.60₹ Total costs= 12.60₹ Now that you have per unit data, include new input of 40,000 into raw material, variable and fixed overheads. Per unit raw material= 1750006₹= 10,50,000₹/175000= 6₹ Variable absorption rate= 1750004₹= 7,00,000/175000= 4₹ Fixed overhead absorption rate= 1750002.60₹= 455000/175000= 2.60₹ Total production cost/unit= 12.60₹ Lets see for R= 90,00012.60= 11,34,000₹ and it is the same cost of production before additional units were included. R sales= 90,00012= 10,80,000₹ This is a LOSS in absorption costing. But it will make a difference to R after new order 400009= 3,60,000. With additional units, you are getting a Profit. Considering Q production cost 12.6045000= 5,67,000₹ Selling price= 1545000= 6,75,000₹ and this is selling at profit despite additional units being manufactured. Please paste your answer when you have it. Thanks.

Dear Yasaswi

I am really appreciate your working but final answer pending

Calculate minimum reduced average price of Q to sustain the increased sales.

yasaswi gomes

My grammar is 💯 good I

7296 Points Joined March 2019

@ Mr. Ravi

I have some Costing material. So tell me what chapter this problem relates to. I’ll try and fix it.

Ravi SADhiyan

Practice

4510 Points Joined July 2017

Products are produced simultaneously therefore when additional 40,000 Kgs of R will produced then 20,000 Kgs of Q will also produced. The input of Z required for these additional 40,000 Kgs of R and 20,000 Kgs of Q will 60,000 Kgs of material Z. Hence, the cost of processing of 60,000 Kg of material Z.

Particulars Rs. Cost of Raw Material (60,000 Kgs × Rs. 6 per Kg) 3,60,000

Variable Processing Cost (60,000 × Rs. 4 per Kg) 2,40,000

Total Processing Cost 6,00,000

Sales Revenue (from 40,000 units × Rs. 9 per Kg of R) 3,60,000

Balance Cost (to be recovered) 2,40,000

Current Sales (45,000 Kg of Q × Rs. 15) 6,75,000

Total Sales Revenue to be earned from Sales of Q (45,000 + 20,000 = 65,000 Kgs) 9,15,000

Minimum Price per Kg of Q to be recovered Rs. 14.08 (Rs. 9,15,000/ 65,000 Kgs)

yasaswi gomes

My grammar is 💯 good I

7296 Points Joined March 2019

Hi, thanks for sharing your answer. I got your logic apart from increased production of 20,000 additional units of Q.

Then, I also read your cost simulation problem and found a video: https://youtu.be/xKhbIVbAeHU

The solution starts from 34:25 minutes. I’m sure you will find answer for rate of arrivals or number of arrivals per day. Once you have that, I’m sure logic can be applied to separate 60% self service and 40% attended customers from the total arrivals.