Cost and Management Accounting

27 Jun


J P Ltd manufacturers of a special product, follows the policy of EOQ for one of its components. The components’s details are as follows.

Purchase price per component, Rs 200

Cost of an order Rs 100

Annual cost of carrying one unit in inventory,

10 per cent of purchase price

Annual usage of components, 4000

The company has been offered a discount of 2 per cent on the price of the component provided the lot size is 2000 components at a time.

Q1) You are required to compute the EOQ?

Q2) Advise whether the quantity discount offer can be accepted (assume that the inventory carrying cost does not vary according to discount policy).

Q3) Would your advise differ if the company is offered 5 per cent discount on a single order?

Q4) Explain the term EOQ?



In an engineering concern, the employees are paid incentive bonus in addition to their normal wages at hourly rates. Incentive bonus is calculated in proportion of time taken to time allowed, of the time saved. The following details are made available in respect of employees X, Y & Z for a particular week.

  X Y Z
Normal Wages (Per hour) (Rs) 4 5 6
Completed units of Production 6000 3000 4800
Time allowed per 100 Units 0.8 1.5 1.0
Actual time taken (hours) 42 40 48


Q1) You are required to work out for each employee the amount of bonus earned?

Q2) Explain the term incentive?

Q3) You are required to work out for each employee the total amount of wages received?

Q4) You are required to work out for each employee the total wages cost per 100 units of output?



Following particulars have been extracted from the books of Supreme Engineers Ltd.

Time allowed for the job (hours) 15 15 15
Time take (hours) 15 12 9
Bonus ratio for Halsey (per cent)   50  
Rate per Hour   Rs. 2  

Q1) You are required to compute the quantum of wages under Halsey Scheme and Rowon Scheme?

Q2) Which of these schemes would you like to introduce in this company if the time taken to complete the job is likely to reduce to 6 hours after three months.

Q3) An alternative method of payment by results by a straight piece work rate for completion of the job in 7 hours is feasible. Would you like to switch over to this method of payment given further that hourly rate would be reckoned at Rs 1.50 for fixation of the price rate?

Q4) Give reasons for your advice?



The soft flow Ink Ltd’s income statement for the preceding year is presented below. Expect as noted the cost / revenue relationship for the coming year is expected to follow the same pattern as in the preceding year. Income statement for the year ending March 31 is as follows.

  Rs. Rs.
Sales (2,00,000 bottles @ Rs 2.5   5,00,000
paise each)    
Variable Costs 3,00,000  
Fixed Costs 1,00,000 4,00,000
Pre-Tax Profit   1,00,000
Less : Taxes   35,000
Profit After Tax   65,000


Q1) What is the break-even point in account and units?

Q2) Suppose that a plant expansion will add Rs 50,000 to fixed costs and increase capacity by 60 per cent. How many bottles would have to be sold after the addition to break even?

Q3) At what level of sales will the company be able to maintain its present pre-tax profit provision even after expansion?

Q4) Suppose the plant operates at full capacity after the expansion, what profit will be earned?

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