Costing Practice Manual Help

Final 839 views 2 replies

C.A Manish Arya

C.A M.B.A

408 Points Joined August 2009

Hello Friends.....!

If anyone among you guys have tried or thinking of trying the numericals of Practice Manual of icai (which is most expected qustion bank for the exams ) Then plz go through this for Mutual Help

Following are my queries on the topic "CVP analysis & Decision making" given under the Practice Manual of C.A final "Advanced Management Accounting" Study Material provided by ICAI...

1.In Ques no.6 the requiremnt of the question is to calculate the Operating profit and relative efects on it, Does considering Fixed Marketting cost for operating Profits justified?

2.In Question no.23 there is a confusion in understanding the Requiremrnt of the Question ,there can be two alternative possible as follows

(i) The Return on Investment of 21 % is to be acheived by Product Z exclusively----If this statement is considered then Why for the purpose of calculating the Contribution per hour the Return i.e 0.21*40 Lacs=840000 has been divided by 420000 hours (which represents total capacity incl. Other products as well)

(ii) The return on Investment of 21% is the total return to be acheived by Product Z ALONG WITH OTHER PRODUCTS------If this statement is considered then Why for the Purpose of calculating return from working capital to be acheived i.e 0.21*4 Lacs has been divided by only product Z units i.e 18000

I am getting confused since in the solution both of the above statements have been used

In waiting of ur Reply

Regards.....

Manish Arya

Replies (2)

preeti

trainee

28 Points Joined July 2010

Hi,

my understanding on the above questions is as follows:

Q6. Fixed marketing costs under both absorption costing and marginal costing are not to be considered while valuing stock. However, while computing profits all costs are to be considered. Operating profit, as required by the question, implies net profit and not gross profit/ trading profit as in the accounting parlance.

Q23. Return on investment is the return on fixed assets employed for producing product Z. Fixed assets once invested in the business will be used for the entire year for the particular product. Return on such fixed assets must be computed considering the full capacity of such assets.

Return on working capital implies the return on the working capital required for producing product Z. Accordingly, the total working capital has been divided by the total no. of units produced in the year.

Hope this is helpful.

Regards,

Preeti.

preeti

trainee

28 Points Joined July 2010

The question clearly mentions that the working capital is specifically for product Z. So return is computed specificaly with respect to product Z.

However in case of fixed assets, the question says other products are manufactured using same P&M and product z utilizes 30% capacity (which creates the confusion). but at same time, the question requires us to obtain 21% return on investment which i guess they have intrepreted as 21% ROI to be recovered through product Z while a different % will recovered from other products.