Materials 15000 Wages 11000 Variable Overheads 6000 Fixed Overheads 8000 171

Materials 15000 wages 11000 variable overheads 6000

This preview shows page 171 - 175 out of 203 pages.

Materials 15000 Wages 11000 Variable Overheads 6000 Fixed Overheads 8000 171
Image of page 171
PROBLEMS FOR EXERCISE It is further given that to meet the export order the company will have to spend additional Rs. 0.40 per unit on packing and Rs. 0.20 per unit on shipping. However, the export order also carries the following incentives: Cash incentive which works out to be Rs. 0.40 per unit and Duty drawback which works out to be Rs. 0.40 per unit The company has two options: 1. Sell 20000 units only in export market and do not sell anything in domestic market because of expected loss. 2. Produce and sell all 30000 units (10000 domestic and 20000 export) Which option the company should select? 4. Tiara Co. Ltd is marketing all its products through a network of dealers. All sales are on credit and dealers are given 1 month time to settle bills. The company is thinking of changing the credit period with a view to increase its over all profits. The Marketing department has prepared the following estimates for the different periods of credit. Table no: 11 The company has contribution/sales ratio of 40percent. Further it requires a return on investment at 20 percent before tax. Evaluate each of the above proposals and recommend the best Credit Period for the company. Present Policy Plan I Plan II Plan III Credit period (in months) 1 1.5 2 3 Sales (in Rs. lacs) 240 260 300 360 Fixed Costs (Rs. lacs) 60 60 70 80 Bad debts as percent of sales 0.5 0.8 1 2 172
Image of page 172
PROBLEMS FOR EXERCISE Solution: Table no: 12 apart from the profit angle where under plan I seems to be the best, one has also to consider credit risk factor too, as it increases with the credit period. Present Policy Plan I Plan II Plan III Credit period (in months) 1 1.5 2 3 Sales (in Rs. lacs) 240 260 300 360 Contribution to sales being 40percent the gross margins Rs. lacs: 96 104 120 144 Fixed Costs (Rs. lacs) 60 60 70 80 Gross margin post fixed cost Rs. lacs 36 44 50 64 Bad debts as percent of sales 0.5 0.8 1 2 Actual bad debts Rs. lacs 1.2 2.08 3 7.2 Market outstandings Rs. lacs 20 32.5 50 90 Return on investment @ 20 percent Rs. lacs 20 percent of 20 = 4 20percen t of 32.5 = 6.5 20percen t of 50 = 10 20 percen t of 90 = 18 Net margin after accounting for cost of investment in market out standings 36 – 1.2 – 4 = 30.8 44 – 2.08 – 6.5 = 35.42 50 – 3 – 10 = 37 64 – 7.2 – 18 = 38.8 Net margin as percentge of sales 12.8 percent 13.6 percent 12.3 percent 10.7 percen t 173
Image of page 173
PROBLEMS FOR EXERCISE 5. Wires India Ltd. makes 3 basic types of wire products. Production statistics for the past year is given below: Table no: 13 The Selling and Administrative costs for the year were as follows: Product 1 and Product 2 were sold at 40 percent above manufacturing cost while Product 3 was sold at 50 percent above its manufacturing cost. The company has devoted a great deal of time and effort in developing sales of product 3. The management is now questioning the wisdom of this policy and has initiated a study of selling and administrative cost by product lines: Product 1 Product 2 Product 3 No. of units manufactured 60000 40000 30000 Direct material cost Rs. 138000 68000 132000 Direct labour cost Rs. 48000 28000 30000 Manufacturing overheads Rs. 24000 14000 15000 Total Rs. 210000 110000 177000 Rs.
Image of page 174
Image of page 175

You've reached the end of your free preview.

Want to read all 203 pages?

What students are saying

  • Left Quote Icon

    As a current student on this bumpy collegiate pathway, I stumbled upon Course Hero, where I can find study resources for nearly all my courses, get online help from tutors 24/7, and even share my old projects, papers, and lecture notes with other students.

    Student Picture

    Kiran Temple University Fox School of Business ‘17, Course Hero Intern

  • Left Quote Icon

    I cannot even describe how much Course Hero helped me this summer. It’s truly become something I can always rely on and help me. In the end, I was not only able to survive summer classes, but I was able to thrive thanks to Course Hero.

    Student Picture

    Dana University of Pennsylvania ‘17, Course Hero Intern

  • Left Quote Icon

    The ability to access any university’s resources through Course Hero proved invaluable in my case. I was behind on Tulane coursework and actually used UCLA’s materials to help me move forward and get everything together on time.

    Student Picture

    Jill Tulane University ‘16, Course Hero Intern

Stuck? We have tutors online 24/7 who can help you get unstuck.
A+ icon
Ask Expert Tutors You can ask You can ask You can ask (will expire )
Answers in as fast as 15 minutes
A+ icon
Ask Expert Tutors