Fixed administrative overhead 900 4176 Profit 3168 ii Export order Rs per Unit

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Fixed administrative overhead 900 4,176 Profit 3,168 (ii) Export order Rs per Unit Rs per Unit Direct material 56 Direct labour (10 hours × Rs 7 per hour) 70 Variable factory overhead ( Rs 3 × 10 labour hours) 30 Selling and distribution overheads 14 Total variable cost 170 Selling price (export) 175 Contribution 5 Since the product earns contribution of Rs.5 per unit, it should be accepted. Total units 500(per month) = 6000 units(per annum) Therefore additional contribution (6000 units × Rs 5) = Rs.30,000 Total hours on product ‘43 grade’ (1,80,000 units × 4) = 7,20,000 Hrs Total hours on component ‘EH’ (1,80,000 units × 0.5*) = 90,000 Hrs * hour per rate Labour produced units of No cost Labour Direct × = hour per 7 Rs units 15,000 52,500 Rs × = 0.5 Hrs Total hours utilised at 90% capacity = 7,20,000 hours + 90,000 hours = 8,10,000 hours 100% capacity hours = 90 100 hours 8,10,000 × = 9,00,000 Hrs PAPER – 5 : COST MANAGEMENT 7 Balance hours available = 90,000 hours p.a Hours required for export order 60,000 hours. Both contribution per unit of export order and availability of capacity confirm its acceptance. (iii) Component ‘EH’ make or buy (Per 15,000 units) Make (Rs.) Buy (Rs.) Direct material 30,000 Direct labour 52,500 Variable factory overhead 25,500 Total 1,08,000 1,18,500 Per unit 7.20 7.90 If the company makes the component the out of pocket cost is Rs.7.20 per unit whereas if the component is bought , the out of pocket cost is Rs.7.90. Decision : If the capacity remains idle it is profitable to make. (iv) Alternative use of the spare capacity Units required = 1,80,000 units and hours required = 1,80,000 × 0 .5 = 90,000 Hrs Cost of buying component ‘EH’ = (1,80,000 units × Rs 7.90) =Rs 14,22,000 Cost of making component ‘EH’ = (1,80,000 units × Rs 7.20) = Rs 12,96,000 Hence , excess cost of buying = Rs.1,26,000 Rent income (90,000 hours × Re1)= Rs.90,000 Contribution per unit from making component ‘GYP’ = Rs 8 - Units 15,000 1,12,500 Rs = Rs 0.5 per unit. Direct labour cost per unit of ‘GYP’ = Units 15,000 31,500 Rs = Rs. 2.10 per unit. No. of labour hours required for one unit of ‘GYP’ = 7 Rs 2.10 Rs = 0.3 Hrs No. of units of ‘GYP’ in 90,000 hours = hours 0.3 hours 90,000 =3,00,000 Contribution from component ‘GYP’ = 3,00,000 × Rs 0.50 = Rs 1,50,000 Since the contribution from ‘GYP’ is greater than the extra variable cost of buying component ‘EH’ , component ‘GYP’ should be manufactured and component ‘EH’ should be purchased. FINAL EXAMINATION : NOVEMBER, 2004 8 Question 2 (a) What are the advantages and limitations of Zero base Budgeting ? (4 marks) (b) What are benchmarking code of conduct? (3 marks) (c) Explain briefly the main features of ERP. (4 marks) (d) A Company manufactures two Products A and B by making use of two types of materials, viz., X and Y. Product A requires 10 units of X and 3 units of Y. Product B requires 5 units of X and 2 units of Y. The price of X is Rs. 2 per unit and that of Y is Rs. 3 per unit. Standard hours allowed per product are 4 and 3, respectively. Budgeted wages rate is Rs. 8 per hour. Overtime premium is 50% and is payable, if a worker works for more than 40 hours a week. There are 150 workers.  #### You've reached the end of your free preview.

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