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CA Final SCMPE - Nov 2020 exam solution

bijay (student) (3 Points)

07 December 2020

Can somebody please provide solutions for CA Final - SCMPE Paper Nov 2020 Exam?

Q.no. 4(c) and 5(a) .

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bijay (student) (3 Points)
Replied 09 December 2020

Is the following solutions correct for Q. No. 4(c)?

SCMPE - Nov 2020 - Q. 4(c)

Computation of Contribution Per Unit
Particulars	X			Y		Z
Particulars	To Outside	To Y	To Z	Purchase from Outside	Transfer from X	Purchase from Outside	Transfer from X
Selling Price	30	-	-	83	83	90	90
Transfer Price	-	27	27	-	-	-	-
	30	27	27	83	83	90	90
Direct Material (Except Material 'X')	10	10	10	25	25	35	35
Direct Labour	6	6	6	8	8	10	10
Variable Overhead	2	2	2	3	3	4	4
Purchase Price- Outside (Material 'X')	-	-	-	30	-	30	-
Transfer Price- From X (Material 'X')	-	-	-	-	27	-	27
Alteration Cost	-	-	-	-	-	-	3
Inspection Cost	-	-	-	2	-	-	-
Contribution [Per Unit]	12	9	9	15	20	11	11

NOTE:
1) Z will pay Rs. 30 if purchased Material 'X' from Outside. If purchased from X, Z will have to incur Rs. 3 towards modification. In such
a case, Z will pay maximum Rs. 27 if purchased from X.

2) Since X will keep uniform price for Material 'X' for both Y and Z, if Z will pay Rs. 27, then for Y also it is Rs. 27.


Computation of Additional Production
Particulars	X		Y	Z
Total Capacity (Units)	15,000		5,000	2,500
Current Capacity	60%		80%	100%
Current Production	9,000		4,000	2,500
Additional Production (Units) [If 100% Capacity Used]	6,000		1,000	-

External Demand	7,500		5,000	3,000
External Demand Met	7,500		5,000	2,500
Balance Units	7,500		-	-

Transfer to Y and Z (Units)	5,000 to Y 2,500 to Z		-	-
Transfer from X (Units)	-		5,000	2,500



Net Benefits of Using Idle Capacity
Particulars	X		Y	Z
Additional Fixed Cost Incurred [A]	36,000		18,000	-
	(Rs.9000 x 4)		(Rs.9000 x 2)	-

Contribution earned after selling
Additional Production [B]	54,000		20,000	-
	(5000Rs.9+1000Rs.9)		(1000*Rs.20)

Net Benefit [B-A]	18,000		2,000	-

Since Additiional Fixed Cost result in Net Benefits for the Company, it is advisable to go for Expansion/
Additional Production.

Net Additional Revenue
Particulars	X		Y	Z
Contribution from External Sales	90,000		100,000	27,500
	(7500 x Rs.12)		(5000 x Rs.20)	(2500 x Rs.11)

Add: Contribution from Internal Transfer	67,500		-	-
	(5000Rs.9+2500Rs.9)

Less: Additional Fixed Cost Incurred	36,000		18,000	-
				-

Net Additional Revenue	121,500		82,000	27,500

TOTAL ADDITIONAL REVENUE = 1,21,500 + 82,000 + 27,500
	= Rs. 2,31,000


HENCE, IT IS BENEFICIAL TO FIX TRANSFER PRICE AT RS. 27 PER UNIT FOR BOTH Y & Z.
ALL DIVISIONS WILL EARN ADDITIONAL PROFIT AND THE COMPANY AS A WHOLE ALSO.

sa d (2 Points)
Replied 18 June 2021

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