Applications of Marginal Costing in Short Term Decision Making - Management Accounting | CMA Inter Syllabus
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The price to be charged for a product or service is often one of the most important decisions made by manager. One of the most important decisions that the management has to take is about the price for its company’s product. In case of a new product, it is necessary to determine the price at which the product is to be sold. In the case of an existing product, it is necessary to determine the extent to which the price is to be revised in the light of cost hikes which the company has painfully be experiencing. Pricing is considered as both an important and difficult one. This is considered as an important one as this is one of a few determinants of profitability of the company. Pricing is a difficult task for two important reasons. Firstly, there are a large number of factors, both internal and external, which are to be taken into consideration before deciding the price for a product. Secondly, there is no ready formula which can be used to determine, and/or revise, the price of a product.
The price is determined by the market forces, viz. demand, Supply, etc. At the same time, our experience states that these two market forces are influenced even by the price. Further it is well known that the majority of the companies aim at earning reasonable to maximum rate of profit. If at all a company wants to earn profit, its price should be higher than its costs. This implies that the companies should base their prices on costs.
a) Pricing additional or special sales
In the case of the companies operating below their capacity, idle capacity exists. That means, the normal demand from their regular customer is for lower volume than what the companies are capable of producing and selling. For example, a company with an annual capacity of 10,000 units of a product may be producing and selling only 8,000 units due to the lack of demand. This type of companies also receives additional offer either from new customer or from their regular customer. Therefore, the companies have to take decision about accepting or rejecting the offer. For the purpose of taking proper decision in this regard, it is necessary to look into the impact of acceptance of the special offer on costs, revenue and profit. All the costs which are going to change due to the acceptance of the offer are relevant for the purpose of deciding whether to accept the offer or not. Usually, the acceptance of the offer increases the items of variable costs. The items of fixed costs may or may not register an increase. If these costs change, they are to be reckoned as relevant. Otherwise, they are irrelevant. So, the aggregate of changes in the items of costs is the incremental cost which is attributable to the additional sales or special offer.
As far as revenue is concerned, two types of special business can be found. One, in the form of asking for the price which the company wishes to quote for certain number of units of its product. In this case, the company has to consider the incremental cost. The price to be quoted should be at least equal to the incremental cost. Any price in excess of this incremental cost is a profitable price. The price should not be quoted on the basis of total costs, which includes even a share in the common and inescapable or unavoidable fixed costs, because, if the price is quoted on the basis of total costs, the quoted price may be at higher level resulting in the rejection of the offer of the company concerned by the customer. Further, a company receives an offer wherein the offer states that the prospective buyer is willing to buy certain quantity of the company’s product at a specific price. In this case, the company has to decide about the acceptance of the offer. In order to take decision, the price offered by the buyer is to be compared with the incremental cost. If the offered price exceeds the incremental cost, it is better to accept the offer. Otherwise, it is not a profitable proposition. Yet, there may be a third type of offer and this relates to the pricing of export business. In this case, some additional costs and benefit associate with the exports. Special care is to be given to the packing, insurance, transportation, quality of the product, etc. These are some of the aspects which cause an increase in the costs. Therefore, they fall into the category of relevant costs. Some additional benefits also accrue to export sales such as cash subsidy, duty drawback, etc. Hence, these are relevant items. The amount of these benefits may be used to reduce the total of incremental costs. The net incremental cost should be used to quote the price for international market or the net incremental cost may be compared with the price offered and on the basis of this comparison, the decision is to be taken.
b) Pricing under normal and favourable conditions:
When the conditions prevailed both internally and externally are favourable to the companies, they usually plan to earn some planned profit. Consequently, the companies wish to price their products on the basis of cost plus profit. The desired profit which the companies plan to earn may be expressed either as a percentage of sales revenue or as percentage on their investments.
c) Pricing under abnormal conditions:
As already stated, a large number of factor influence the pricing aspect and a number of changes take place in these influencing factor on a continual basis. Consequently, the conditions which were favourable to the companies start changing. The companies should have a vigilant eye on the market conditions. Hence, whenever the conditions start changing, the companies make some appropriate changes in their policies, programmes, etc. One of the variables wherein the companies make adjustments is the price. The extent to which the price is to be lowered depends upon the gravity of the problem and also the composition of price. In some cases, a 10% reduction in the price may be adequate and in some other cases, a 40% reduction in the price may be necessary. Further, a company may be willing to forego the entire profit in case the market demands such a drastic move. Another or the same company may be forced to sell at below the cost price. Otherwise, the company will be out of market. It is therefore necessary to decide whether to sell the product at reduced price or to suspend the activities temporarily.
Two alternatives are available to the companies in the above cases. One, continuing to produce and sell the goods and services at the reduced prices. Depending upon the quantum of reduction in the selling price, the company earns reduced amount of profit or incur loss. If the company is not ready to incur the loss or if it does not satisfy with the reduced profit or if it is not willing to operate at BEP, the company has to take the second alternative of suspending its sales activities till the conditions improve for the company. Here also, the company has to incur some loss equivalent to inescapable fixed costs. Hence, it is necessary to compute the loss under each of these two alternatives and whichever involves the minimum loss is to be preferred, if the company takes the decision purely on the basis of financial aspects.
Perhaps the most important criticism of full cost pricing is that it fails to recognize that since sales demand may be determined by the sales price; there will be a profit-maximizing combination of price and demand. A full cost based approach to pricing will be most unlikely, except by coincidence or ‘luck’, to arrive at the profit-maximizing price. In contrast, a marginal costing approach to looking at costs and prices would be more likely to help with identifying a profit-maximizing price.
Special order requires a relevant cost approach to the calculation of the price.
A special order is a one-off revenue earning opportunity. These may arise in the following situations:
a. When a business has a regular source of income but also has some spare capacity allowing it to take on extra work if demanded. For example, a brewery might have a capacity of 5,00,000 barrels per month but only be producing and selling 3,00,000 barrels per month. It could therefore consider special order to use up some of its spare capacity.
b. When a business has no regular source of income and relies exclusively on its ability to respond to demand. A building firm is a typical example as are many types of sub-contractor. In the service sector consultants often work on this basis. The reason for making the distinction is that in the case of (a) a firm would normally attempt to cover its longer-term running costs in its prices for its regular product. Pricing for special order need therefore take no account of unavoidable fixed costs. This is clearly not the case for a firm in (b)’s position, where special orders are the only source of income for the foreseeable future.
A Company is manufacturing a product marks an average net profit of ₹ 2.50 per piece on a selling price of ₹ 14.30 by producing and selling 6,000 pieces or 60% of the capacity. His cost of sales is as under:
| Particulars | ₹ |
| Direct material | 3.50 |
| Direct wages | 1.25 |
| Works overheads (50% fixed) | 6.25 |
| Sales overheads (25% variable) | 0.80 |
During the current year, he intends to produce the same number but anticipates that fixed charges will go up by 10%, with direct labour rate and material will increase by 8% and 6% respectively but he has no option of increasing the selling price. Under this situation, he obtains an offer for further 20% of the capacity. What minimum price you will recommend for acceptance to ensure the manufacturer an overall profit of ₹ 16,730.
This kind of decision typically arises when the product being manufactured has a component part that can either be made within the factory or brought from an outside supplier. On the face of it, since the only extra cost tomake the part is the marginal cost, the amount by which this falls below the supplier’s price is the saving that arises on making. However, this may not be so as it is also important to consider what work would otherwise be carried out using the relevant facilities if the part were not made. Clearly, if other work has to be displaced so as to make the part, the business will forego the contribution, this work would otherwise have earned. Such a contribution
loss must be added to the marginal cost of the part.
So, in a make-or-buy decision there are two factors which must be compared, namely:
a. The supplier’s price;
b. The marginal cost of making, plus the loss of contribution from displaced work.
This loss of contribution is usually best found by use of the contribution per unit of key factor. It should also be appreciated that this lost contribution is an opportunity cost.
An organisation might want to do more things than it has the resources for, and so its alternatives would be as follows:
a. Make the best use of the available resources and ignore the opportunities to buy help from outside.
b. Combine internal resources with buying externally so as to do more and increase profitability.
Buying help from outside is justifiable if it adds to profits. A further decision is then required on how to split the work between internal and external effort. What parts of the work should be given to supplies or sub-contractor so as to maximize profitability?
In a situation where a company must sub-contract work to make up a shortfall in its own in-house capabilities, its total costs will be minimized, if those units bought have the lowest extra variable cost of buying per unit of scarce resource saved by buying.
The decision about whether to produce parts and components in-house, or to sub-contract work to external supplies, is referred to as the ‘make-or-buy decision’. Making products in-house is often cheaper than buying them, because an external supplier will charge a price which must cover his fixed costs and give him a profit, but the direct comparison of in-house costs with supplies prices is only one factor in the make-or-buy equation. Other issues to consider are the following:
a. When a company makes products in-house it is tying up resources, management and labour, working capital, fixed assets, space in buildings etc., which could be used for other more profitable purposes. There is an opportunity cost which might make in-house production costlier than buying from outside e.g. in terms of lost opportunities for expansion into other product-market areas.
b. If a company cannot produce all the output it needs in-house, it will be forced to use external supplier to some extent. If it must do so, it will have to try to ensure that the sources of supply remain open, and that supply is
never in danger of ‘drying up’. This might oblige the company to offer a supply contract to a supplier which
guarantees a minimum supply quantity over a period of time, so as to:
(i) Help the supplier to make the profits he needs to stay in business; and
(ii) Receive ‘favoured customer’ treatment from the supplier; and perhaps
(iii) Persuade the supplier to make modifications to his own production methods so as to meet the company’srequirements more exactly.
c. In-house production should be easier to control in terms of product quality and the reliability of delivery, but if a company tries to do too much itself (e.g. forces employees to work overtime, introduces shift working, orimposes unrealistic production schedules) it might then suffer from employee unrest, and industrial relations difficulties.
d. External supplier need to be reliable in terms of product quality and reliability of delivery times, and alternative sources of supply should be sought, in case one supplier becomes too unreliable or too expensive.
Manufacturing ties up large quantities of capital, and so if a company’s strengths lie in marketing or development, then it might be advisable to concentrate on these areas and to subcontract the production work to other organisations.
In order to overcome problems of limited resources, a firm may buy in a product instead of making it itself. Where incremental costs of manufacture are less than those of buying in, the firm should make, assuming that there are
no limited resources.
Where resources are limited, the firm should concentrate on making those products which give the greatest saving (over buying in) per unit of the scarce resource.
To decide which products should be made and which should be bought, we calculate the saving per unit of scarce resource from making the product rather than buying it in.
Note: Make or buy decisions should nearly always be made from a strategic viewpoint and not from a short-term marginal cost point of view, but here it assumed that a short-term decision is needed and marginal costing is used, and that it suggests that the product under consideration should be made rather than bought in.
Various Non-costs Factors:
a. Possible use of released production capacity and facility as a result a buying instead of making.
b. Sources of supply should be reliable, and they are capable of meeting un-interruptedly the requirement of the concern.
c. Assurance about the quality of goods supplied by outside supplier.
d. Reasonable certainty from supplier’s side about meeting the target delivery dates.
e. The decision of buying the product / component from outside supplier should be discouraged, if the technical know-how used is highly secretive.
f. The decision of buying from outside sources should not result in the laying off the worker and create industrial relation problems. In fact, on buying from outside, the resources freed should be better utilized elsewhere in the concern.
g. The decision of manufacturing product / component should not adversely affect the concern’s relationship with the supplier.
h. To ensure that more than one supplier of the product / component is available to reduce the risk of outside buying.
i. In case, the necessary technical expertise is not available internally then it is better to buy the requirements from outside.
Prem Industry is considering making its own motor castings, which it currently purchases for ₹ 20.50 per unit. This purchase price does not include the ordering, receiving, and inspection costs, which Prem estimates to be ₹ 2 per unit. Prem feels that, it can manufacture the 6,500 required units at a lower cost than it pays by purchasing externally. The relevant costs for both the producing and buying alternatives are as follows:
Incremental Analysis for Motor Castings (6,500 Units)
| Particulars | Per Unit | Cost to Make | Cost to Buy |
| Direct Materials | 6.25 | 40,625 | |
| Direct Labour | 10.00 | 65,000 | |
| Variable Factory Overhead | 5.00 | 32,500 | |
| Purchase Price | 20.50 | 1,33,250 | |
| Ordering, Receiving and Inspection Costs | 2.00 | 13,000 | |
| Total Relevant Costs | 1,38,125 | 1,46,250 |
Frequently the management of a company is offered a special order for one of its products at a price lower than its customary selling price. When a business is operating at something lower than its normal value, such a special order can prove attractive depending on the effect of incremental revenues and costs on overall profits of the business. In this case differential cost system provides a useful means for appraising the economic benefits of such an opportunity.
A Co. currently operating at 80% capacity has the following; profitability particulars:
| Particulars | Amount (₹) | Amount (₹) |
| Sales | 12,80,000 | |
| Costs: | ||
| Direct Materials | 4,00,000 | |
| Direct labour | 1,60,000 | |
| Variable Overheads | 80,000 | |
| Fixed Overheads | 5,20,000 | 11,60,000 |
| Profit | 1,20,000 |
An export order has been received that would utilise half the capacity of the factory. The order has either to be taken in full and executed at 10% below the normal domestic prices, or rejected totally. The alternatives available
to the management are given below:
a) Reject order and Continue with the domestic sales only, as at present;
b) Accept; order, split capacity equally between overseas and domestic sales and turn away excess domestic demand;
c) Increase capacity so as to accept the export order and maintain the present domestic sales by:
(i) buying an equipment that will increase capacity by 10% and fixed cost by `40,000 and
(ii) Work overtime at one and a half the normal rate to meet balance of required capacity. Prepare comparative statements of profitability and suggest the best.
Key Factor/Limiting Factor
An organisation might be faced with just one limiting factor (other than maximum sales demand) but there might also be several scarce resources, with two or more of them putting an effective limit on the level of activity that can be achieved.
Examples of limiting factor include sales demand and production constraints.
(i) Labour: The limit may be either in terms of total quantity or of particular skills.
(ii) Materials: There may be insufficient available materials to produce enough units to satisfy sales demand.
(iii) Manufacturing capacity: There may not be sufficient machine capacity for the production required to meet sales demand.
It is assumed in limiting factor analysis that management would make a product mix decision or service mix decision based on the option that would maximize profit and that profit is maximized when contribution is maximized (given no change in fixed cost expenditure incurred). In other words, marginal costing ideas are applied.
Contribution will be maximized by earning the biggest possible contribution per unit of limiting factor. For example, if grade A labour is the limiting factor, contribution will be maximized by earning the biggest contribution per hour of grade A labour worked. The limiting factor decision therefore involves the determination of the contribution earned per unit of limiting factor by each different product. If the sales demand is limited, the profit-maximizing decision will be to produce the top ranked product(s) up to the sales demand limit. In limiting factor decisions, we generally assume that fixed costs are the same, whatever product or service mix is selected, so that the only relevant costs are variable costs.
When there is just one limiting factor, the technique for establishing the contribution-maximizing product mix or service mix is to rank the products or services in order of contribution-earning ability per unit of limiting factor.
A key factor is defined as the factor in the activities of an undertaking which, at a particular point of time or over a period, will limit the volume of output. Other variant terms are limiting factor, Principal Budget Factor & scarce factor. Limiting factors are governed by both internal & external facto₹. It may be actual or potential. If a factor of production is in short supply, then the best-paying product becomes that which yields the highest contribution per unit of limiting factor.
Profitability = Contribution ÷ Key Factor
Thus, Contribution per unit of key factor may be ascertained & maximized according to priority (ranking).
Some examples of key factors are:
(i) Materials - Scarce Raw Material; Restrictions by licenses, etc.
(ii) Labour - General Shortage; Shortage of a particular type of labour.
(iii) Plant - Imbalance; Insufficient capacity due to shortage of capital, supply, etc.
(iv) Management - Shortage of efficient staff; policy decisions.
(v) Capital - Shortage of capital; insufficient research activity
(vi) Sales - Market demand; insufficient advertisement.
Where there is a maximum potential sales demand for an organisation’s products or services, they should still be ranked in order of contribution-earning ability per unit of the limiting factor. The contribution-maximizing decision, however, will be to produce the top-ranked products (or to provide the top-ranked services) up to the sales demand limit.
A company is producing two products A and B. The particulars of the company are as follows:
| Particulars | Product A (₹ per unit) | Product B (₹ per unit) |
| Sales | 75 | 80 |
| Material Cost | 15 | 20 |
| Labour Cost | 20 | 15 |
| Direct Expense | 10 | 12 |
| Variable overheads | 10 | 15 |
| Machine Hours used | 3 hours | 2 hours |
| Consumption of material | 2 kgs | 2 kgs |
Comment on profitability of each product, if both use the same raw material, when:
(i) Total sales potential in units is key factor.
(ii) Total sales potential in values is key factor.
(iii) Raw material is in short supply.
(iv) Production Capacity (in terms of machine hr.) is the key factor.
One of the more important decisions involving alternative choices is whether or not to buy new capital equipment. Generally, the economic advantage offered by such an investment is the realization of operating cost savings which are translated into increased net profits. Therefore, some means of applying relevant cost to the measurement of such increased profit and, in turn, to the incremental capital investment is necessary.
Replacement of equipment is a capital investment or long-term decision but one aspect of asset replacement decisions that we will consider at this stage is how to deal with the book value (i.e. the written down value) of old equipment. This is a problem that has been known to cause difficulty, but the correct approach is to apply relevant cost principles (i.e. past or sunk costs are irrelevant for decision-making).
X Ltd. wants to replace one of its old machines. Three alternative machines namely X1, X2 and X3 are under its consideration. The costs associated with these machines are as under:
| Particulars | Amount (₹) | ||
| X1 | X2 | X3 | |
| Direct material cost p.a……………..... | 50 | 100 | 150 |
| Direct labour cost p.a…………………. | 40 | 70 | 200 |
| Variable overhead p.a………………… | 10 | 30 | 50 |
| Fixed cost p.a………………………….. | 2,50,000 | 1,50,000 | 70,000 |
(i) Compute the cost indifference points for these alternatives.
(ii) Based on these points suggest a most economical alternative machine to replace the old one when the expected level of annual production is 1,200 units.
Amajor part of decision making involves the analysis of a defined set of alternatives against selection criteria. These criteria usually include costs and benefits, advantages and disadvantages, and alignment with preferences.
For example, when choosing a place to establish a new business, the criteria might include rental costs, availability of skilled labour, access to transportation and means of distribution, and proximity to customer. Based on the relative importance of these factors, a business owner makes a decision that best meets the criteria.
Sometimes the management has to select a course of action from amongst various alternative courses. Each course of action has its own merits and limitations. The course of action to be selected should ensure maximum profit to the business concern. The appraisal of the various courses of action available is possible through the analysis of contribution. The course of action ensuring highest contribution is generally adopted by the management.
The decision maker may face a problem when trying to evaluate alternatives in terms of their strengths and weaknesses. This can be especially challenging when there are many factors to consider. Time limits and personal emotions also play a role in the process of choosing between alternatives. Greater deliberation and information gathering often takes additional time, and decision maker often must choose before they feel fully prepared. In addition, the more that is at stake the more emotions are likely to come into play, and this can distort one’s judgment. Sometimes a manufacturer is faced with the problem of the application of alternative methods of manufacture i.e., whether machine work or hand work, employment of hand-driven machine or power-driven machine or employment of one machine or another machine etc. For the purpose of selecting the method of production to be adopted, a comparison of the amount of contribution available under different methods of manufacture shall be made. The alternative providing the maximum contribution per unit shall be considered to be more profitable. However, the limiting factor, if any, involved in the method of production, must be given proper consideration.
The Management Accountant of X ltd., has prepared the following estimates of working results for the year ending 31st December, 2021 for the purpose of preparing the budgets for the year ending 31st December, 2022.
| Direct material | `/unit | 16.00 |
| Direct wages | ” | 40.00 |
| Variable overheads | ” | 12.00 |
| Selling price | ” | 125.00 |
| Fixed expenses | ₹ | 6,75,000 p.a. |
| Sales | ₹ | 25,00,000p.a. |
During the year 2022, it is expected that the material prices and variable overheads will go up by 10% and 5% respectively. As a result of re-organisation of production methods the overall direct labour efficiency will increase by 12% but the wage rate will go up by 5%. The fixed overheads are also expected to increase by `1,25,000. The technical director states that the same level of output as obtained in 2021 should be maintained in 2022 also and efforts should be made to maintain the same level of profit by suitably increasing the selling price. The marketing director states that the market will not absorb any increase in the selling price. On the other hand he proposes that publicity involving advertisement expenses in the proportions will increase the quantity of sales as under:
| Advertisement expenses (₹) | 80,000 | 1,94,000 | 3,20,000 | 4,60,000 |
| Additional units of sales | 2,000 | 4,000 | 6,000 | 8,000 |
Required:
(i) Present an income statement for the year 2022.
(ii) Find the revised price and the percentage of increase in the price for 2022 if the Technical Directors’ views are accepted
(iii) Evaluate the four alternative proposals put forth by the Marketing Director, determine the best output level to be budgeted and prepare an overall income statement for 2022 at that level of output.
Capacity planning is necessary when an organisation decides to increase its production or introduce new products into the market or to increase the volume of production to gain the advantages of economies of scale. Once the existing capacity is evaluated and a need for new or expanded facilities is determined, decisions regarding the facility location and process technology selection are undertaken. The variables of the production system are labour, materials and capital. More labour effort is required to generate higher volume of output. Hence, the employment and use of overtime (OT) are the two relevant variables.
Materials help to regulate output. The alternatives available to the company are inventories, back ordering or subcontracting of items.
These controllable variables constitute pure strategies by which fluctuations in demand and uncertainties in production activities can be accommodated.
Subcontracting refer to off- loading, some of the jobs to outside vendor thus hiring the capacity to meet the requirements of the organisation. A careful analysis as to whether to make or to buy should be done. An economic comparison between cost to make the component or buy the component is to be made to take the decision.
In subcontracting, a decision is taken by the management after consideration of relevant costs of subcontracting. The management should look, how the excess demand can be met by subcontracting some products to the subcontractor, by the application of relevant revenues and costs and after judging the cost and benefit analysis.
T.T.D Ltd., manufacturing a single product has normal working capacity of 8,000 units per annum. The sales manager has projected a sale of 10,000 units for the year 2021 - 22 at a price of `250 per unit.
The operating budget for 2021-22 as under:
| Particulars | ₹ in lakhs | ₹ in lakhs |
| Sales: 8,000 units @ `250 each | 20.00 | |
| Cost of production | ||
| Raw material | 12.00 | |
| Direct wages | 3.00 | |
| Works overhead (50% Fixed) | 1.40 | |
| Admn. overhead (all fixed) | 0.60 | |
| Selling & Distribution OH (80% fixed) | 1.00 | 18.00 |
| Profit | 2.00 |
In order to increase production to meet the sales demand, two proposals have been put forward as under:
1) Subcontracting the production of 2,000 units at `225 per unit.
2) Installing additional machine which will entail the following expenses :
(a) Cost of machine `2,00,000; Life 20 years
(b) Recruitment of 10 workers including direct workers to operate the machine at a wage rate of `500 each per month. Add 25% towards employee benefits. (None of the existing workers will be utilised for this purpose).
(c) Interest on capital required for the purchase of machine 15% p.a.
The following additional fixed expenses will be required in respect of both alternatives.
Administration expenses - `10,000 per year.
Selling & Distribution expenses - `20,000 per year.
You are required to prepare
(1) A statement showing respective profitability of the two methods of increasing the production.
(2) Comment upon the choice of one of the two proposals.
While considering a new plant design or the redesign or expansion of an existing system, a high level decision regarding the production capacity is called for. In order to determine future capacity of the plant adequate consideration should be given to certain factor such as sales forecasts of physical volume, policy decisions on what will be purchased instead of made, engineering estimates of machine productivity and production plans on how equipment will be used. Upon this must be super imposed central management policies regarding desired capacity including policies regarding provisions for peak versus normal requirements, backward taper of capacity provision for growth and balance of facilities.
One of the most vital decisions which have to be made regarding production capacity is whether the company should build so much capacity to satisfy all demands during peak periods or whether it should maintain a smaller capacity and hope that failure to render service during requirements will not have unbearable consequences. Generally, companies providing utilities have a policy of building capacity to cope with peak demands (during hot summer days), but the investment made for peak demands is tremendous.
In view of burgeoning amount of investment, the moot question that arises is whether capacity installed in order to meet the maximum expected demand should be maintained at all times. It may not be disadvantageous to maintain the excess capacity throughout the year if one is confident that excess capacity can be utilized by expanding exports or by accumulating stocks if the duration of the surplus capacity is expected to be limited.
There are some organisations that prefer to build smaller capacity to take care of normal requirements and meet peak demands by way of imports or subcontracting. Some organisations employ measures such as off-peak discounts, mail early campaign, etc. to induce customer to avoid peak periods.
Another way of meeting high peak demands is to switch over to two shifts from the single shift. Before making a final decision in this direction, cost-benefits analysis must be undertaken. With doubling of shifts, investment costs are not halved because increments of capacity are not equally expensive. Many other costs are also involved. Wage premiums say 10 to 15 per cent, are generally given for second shifts.
Multiple shifts also increase supervision costs. An analysis of building and equipment costs resulting from doubled shifts is necessary to determine the total additional cost. Additional cost should be matched with additional benefits. Where benefit exceeds costs it will be in the interest of the organisations to run double shifts to cope with peak demands.
Adequate provision for coping with growth requirements of the organisation must be mace while determining production capacity. For this, it is necessary for the top management to decide how much growth is expected and the extent to which investment will be made in anticipation of growth. This decision will have to be taken very carefully otherwise it may result in too much or too little capacity in serious consequences.
Nice and Warm Ltd. manufactures and markets hot plates. During the first five years of operations, the company has experienced a gradual increase in sales volume, and the current annual growth in sales of 5% is expected to continue in the foreseeable future. The plant is now producing at its full capacity of one lakh hot plates.
At the monthly Management Advisory committee meting, amongst other things, the plan of action for next year was discussed.
Managing Director proposed two alternatives. First, operations could be continued at full capacity and with the existing facilities, an output of one lakh hot plates at a selling price of `100 per plate per unit could be maintained. Secondly, production and sales could be increased by 5% to take advantage of the rate of expansion in demand for the product. But this could increase cost, as to achieve the output, the company will have to resort to weekend and over time workings. However, a policy of steady growth was preferable to maintaining status quo.
In view of the company’s competitors having a substantial share of the market, the Works Director was of the view that it was not enough for the company to maintain merely the present share of the total market. A large share of the total market should be obtained. For that, the company should increase production by 10% through a modest expansion of the plant capacity. In order to sell the output of 1,10,000 units the selling price could be reduced to `95 per unit.
Thinking on the same lines, the Marketing Director put forth a more radical proposal. The strategy should be to seize the competitive leadership in the market with regard to both price and volume. With this end in view, he suggested that the company should straightaway embark on an expensive modernisation programme, which will initially increase volume by 20%. The entire output of 1,20,000 hot plates could be easily sold at a price of `90 per unit.
At this juncture, the Managing Director expressed concern about the probable behavior of the company’s competitors. They might also expand in order to produce more and sell at lower prices. Suppose this happened, he wanted also the financial effects of the proposals of the Works Director and Marketing Director, if in these proposals, the expected increase in sales were to be only half of that predicted.
As a Cost Accountant of the company, you are required to critically evaluate the six alternatives along with your recommendations and circulate the same to the Directors. In this connection, you have gathered the following details:
(i) If next year’s production was maintained at the current year’s level, variable cost would remain at `50 per unit. Fixed cost would remain unchanged at `30 lakhs.
(ii) The week-end and overtime working would increase with the variable and fixed costs. Variable cost would rise to `55 per unit while fixed cost would increase to `30,25,000.
(iii) In the proposal of the Works Director, the ratio of variable costs to sales would continue to be 50%. Fixed costs would rise to `32,25,000.
(iv) In the proposal of Marketing Director, as a result of increased production, efficiency and some savings from purchase of materials, it is estimated that the ratio of variable cost of sales would decrease to 48% and the fixed costs would increase by `5,16,000.
Your answer should contain:
(a) A tabular statement of comparative figures pertaining to total turnover, total contribution, Percentage of Profit to Sales and Breakeven units as regard to each of the six proposals.
(b) Comments on the relative risk involved.
(c) Consideration of the short-term and long-term implications of the Managing Director’s proposals.
(d) Comment on the price elasticity of demand for the company’s products and your suggestions on the pricing policy and cost structure.
(e) Comment on financial implications of the expansion scheme.
Shutdown point is a point at which a businessman thinks that there is no benefit in continuing the business operations and decides to shut down the business either temporarily or permanently is called the shutdown point. This situation could be a result of output and price where the business earns just the revenue enough to cover the total variable costs. Shutdown point occurs exactly when the marginal profit of the business reaches a negative scale. At the shutdown point, no economic benefit is seen to continue production. If there is an additional loss—either a rise in variable costs or a drop in revenue, the cost of operations may outweigh the revenue. In this situation, shutting the business down is the better choice than to continue it. If the situation is reversed, then continuing the business would be a better option. Very often it becomes necessary for a firm to temporarily close
down the factory due to trade recession with a view to reopening it in the future. In such cases, the decision should be based on the marginal cost analysis. If the products are making a contribution towards fixed expenses or in other words if selling price is above the marginal cost, it is preferable to continue because the losses are minimized. By suspending the manufacture, certain fixed expenses can be avoided and certain extra fixed expenses may be incurred depending upon the nature of the industry, say, for example, extra cost incurred in protecting the machinery. So the decision is based on as to whether the contribution is more than the difference between the fixed expenses incurred in normal operation and the fixed expenses incurred when the plant is shut down.
Shut down costs are those costs which have to be incurred under all situations in the case of stopping manufacture of a product or closing down a department or division. Shut down costs are always fixed costs. If the manufacturing of a product is stopped, variable cost like direct materials, direct labour, direct expenses, and variable factory overhead will not be incurred. However, a part of fixed costs (if not total fixed costs) associated with the product will be incurred such as rent, watchman’s salary, property taxes etc. Such fixed costs are unavoidable. Some fixed costs associated with the product become avoidable and need not be incurred in case production is stopped such as supervisor’s salary, factory manager’s salary, lighting, etc. Shut down costs; thus, refer to minimum fixed costs which are incurred in the event of closure of a department or division.
For long-run pricing decisions, full costs of the product inform manager of the minimum costs they need to recover to continue in business rather than shut down. Using variable costs as a base does not give manager this
information. There is then a temptation to engage in excessive long-run price cutting as long as prices provide a positive contribution margin. Long-run price cutting, however, may result in losses if long-run revenues are less
than long run full costs of the product.
Cost is not only criterion for deciding in the favour of shut down. Non-cost factors worthy of consideration in this regard are as follows:
Thus, heavy capital expenditure may have to be incurred on re-opening.
Shut Down Point =Avoidable Fixed Cost÷ Contribution per Unit
Shut down point (in ₹) = Avoidable Fixed Cost ÷ P/V Ratio
Decision Making in the context of Shut Down Point:
(i) Level of sales below shut down point, to close down operations, because avoidable fixed costs itself are not fully recovered.
(ii) Equal to shut down point, to continue operation, since avoidable fixed costs are just recovered.
(iii) Above shut down point, to continue operation, since avoidable fixed costs are recovered and further contribution leads to recovery of balance fixed cost.
The Hope Company has three divisions. Each of which makes a different product. The budgeted data for the coming year are as follows:
| Particulars | A (₹) | B (₹) | C (₹) |
| Sales | 1,12,000 | 56,000 | 84,000 |
| Direct Material | 14,000 | 7,000 | 14,000 |
| Direct Labour | 5,600 | 7,000 | 22,400 |
| Direct Expenses | 14,000 | 7,000 | 28,000 |
| Fixed Cost | 28,000 | 14,000 | 28,000 |
The Management is considering closing down the division C. There is no possibility of reducing fixed cost. Advise whether or not division C should be closed down.
The Manager of Alpha Co. provides you with the following information:
| Particulars | ₹ |
| Sales: | 4,00,000 |
| Costs: Variable (60% of sales) | 2,40,000 |
| Fixed cost: | 80,000 |
| Profit before tax: | 80,000 |
| Income-tax (60%) | 48,000 |
| Net profit: | 32,000 |
The company is thinking of expanding the plant. The increased fixed cost with plant expansion will be ₹40,000. It is estimated that the maximum production in new plant will be worth ₹ 2,40,000. The company also wants to
earn additional income ₹3,200 on investment. On the basis of computations, give your opinion on plant expansion.
A particular electrical goods is sold for ₹ 1,009.99. The direct material cost per unit is ₹ 320, the direct labour cost per unit is ₹192 and the variable production overhead cost per unit is ₹132. Fixed overheads per annum are ₹1,00,000 and the budgeted production level is 1,000 units. What is the contribution per unit of the electrical goods?
Z Co. makes a product the Beauty, which has a variable production cost of ₹ 6 per unit and a sales price of ₹ 10 per unit. At the beginning of September 2022, there were no opening inventories and production during the month was 20,000 units. Fixed costs for the month were ₹ 45,000 (production, administration, sales and distribution). There were no variable marketing costs.
Calculate at each of the following sales levels, the total contribution and total profit for September 2022 and the contribution per unit and the profit/loss per unit, using marginal costing principles.
(a) 10,000 Beauties
(b) 15,000 Beauties
(c) 20,000 Beauties
Also calculate the expected profit from the sale of 17,000 Beauties and make your observations.
A company is manufacturing electronic equipments and is currently buying component ‘A’ from a local supplier at a cost of ₹ 30 each. The company has under its consideration a proposal to install a machine for the manufacture of the component. Two alternative proposals are available as under:
a. Installation of semi-automatic machine involving annual fixed expenses of ₹ 18 lakhs and a variable cost of ₹12 per component manufactured.
b. Installation of automatic machine involving an annual fixed cost of ₹ 30 lakhs and a variable cost of ₹ 10 per component manufactured.
(i) Find the annual requirement of components to justify a switch over from purchase of components to (a) manufacture of the same by installing semi-automatic machine and (b) manufacture of the same by installing automatic machine.
(ii) If the annual requirement of the components is 5,00,000 units, which machine would you advice the company to install?
(iii) At what annual volume would you advise the company to select automatic machine instead of semi-automatic machine.
Susma Products Co. Ltd. manufactured and sold in a year 15,000 units of a particular product fetching a sales value of ₹15 lakhs. After charging direct material @ 30% on sales value, direct labour 20% on sales value, variable
overheads ₹10 per unit, the company earned profit of ₹ 16 2 /3 per unit during the year. The existing equipment can produce a maximum of 20,000 units per annum. In case, the demand exceeds the maximum output, new equipment will be required which will cost ₹10 lakhs and it will have a life span of 10 years, with no residual value.
A prospective customer is willing to place an order on the company for 10,000 units per year regularly at 90% of the present selling price, which will be, if accepted, over and above the existing market for 15,000 units.
Irrespective of the fact whether or not the new order materializes, the cost increases with immediate effect are:
a. 10% in the Direct Materials.
b. 25% in the Direct Labour.
c. ₹50,000 in Fixed Overheads per year.
If the order of additional 10,000 units is accepted, the fixed overhead will increase by another ₹50,000 by way of increased administration expenses.
You are required to recommend whether the company should accept the new business at the stipulated price or decline the new offer and make a concerted sales drive to sell the present unused capacity at the present selling price? The sales drive will cost ₹ 60,000 per year.
Ignore the financial charges on the cost of the equipment and assume there is no opening and closing inventories. Variable costs will increase in direct proportion to the output.
Samsung Electric Ltd. furnishes the following information from its cost records for the first quarter of the current year.
Normal production (units) 1,000
Actual production (units) 1,100
Actual overheads per quarter at normal production ₹ 4,000
Other expenses per quarter ₹300
Standard fixed overhead rate per unit ₹ 4
Variable costs per unit ₹ 6
Sales volume (selling price is ₹14) Nil
Prepare the income statement under absorption and variable costing.
A company has a capacity of producing 1 lakh units of a certain product in a month. The sales department reports that the following schedule of sales prices is possible:
| Volume of Production | Selling Price per unit (₹) |
| (%) | |
| 60 | 0.90 |
| 70 | 0.80 |
| 80 | 0.75 |
| 90 | 0.67 |
| 100 | 0.61 |
The variable cost of manufacture between these levels is 15 paise per unit and fixed cost ₹ 40,000.
Prepare a statement showing incremental revenue and differential cost at each stage. At which volume of production will the profit be maximum?
A company can make any one of the 3 products X, Y or Z in a year. It can exercise its option only at the beginning of each year. Relevant information about the products for the next year is given below:
| Particulars | X | Y | Z |
| Selling Price (₹ / unit) | 10 | 12 | 12 |
| Variable Costs (₹ / unit) | 6 | 9 | 7 |
| Market Demand (units) | 3,000 | 2,000 | 1,000 |
| Production Capacity (units) | 2,000 | 3,000 | 900 |
| Fixed Costs (₹) | 30,000 | ||
Compute the opportunity costs for each of the products.
GL Company is attempting to decide sales prices for two products, L and T. The products are both made by the same workforce and in the same department. 30,000 direct labour hours are budgeted for the year. The budgeted fixed costs are ₹30,000 and it is expected that the department will operate at full capacity. Variable costs per unit are as follows:
| Particulars | L | T |
| Amount (₹) | Amount (₹) | |
| Materials | 4 | 4 |
| Labour (2 hours) | 6 | 9 (3 hours) |
| Expenses (1 machine hour) | 2 | 2 (1 machine hour) |
| 12 | 15 |
Expected demands are: 7,500 units of L and 5,000 units of T.
Calculate the unit prices which will give a profit of 20% on full cost, if overheads are absorbed on the following bases:
(a) On a direct labour hour basis
(b) On a machine hour basis
(c) Interpret the results.
A plant is running at present at 50% of its capacity. The following details are available:
| Particulars | Cost of production per unit (₹) |
| Direct materials | 2 |
| Direct Labour | 1 |
| Variable overhead | 3 |
| Fixed Overhead | 2 |
| Total Cost per unit | 8 |
| Production per month | 20,000 units |
| Total cost of production | ₹1,60,000 |
| Sales Price | ₹1,40,000 |
| Loss | ₹20,000 |
An exporter offers to buy 5,000 units per month at the rate of ₹6.50 per unit and the company hesitates to accept the offer for fear of increasing its operating losses. Advise whether the company should accept or decline this offer.
A company is engaged in three distinct lines of production. Their production cost per unit and selling prices are as under:
| Production (Units) | X | Y | Z |
| 3,000 | 2,000 | ,5,000 | |
| ₹ | ₹ | ₹ | |
| Material Cost | 18 | 26 | 30 |
| Wages | 7 | 9 | 10 |
| Variable overheads | 2 | 3 | 3 |
| Fixed Overheads | 5 | 8 | 9 |
| 32 | 46 | 52 | |
| Selling price | 40 | 60 | 61 |
| Profit | 8 | 14 | 9 |
The management wants to discontinue one line and gives you the assurance that production in two other lines shall be raised by 50%.
They intend to discontinue the line which produces Article X as it is less profitable.
(a) Do you agree to the scheme in principle?
(b) Offer your comments and show the necessary statements to support your decision.
M & Co. has a sale team with a salary based on a monthly fixed payroll. The management wants to increase sale incentive to promote sales, and proposes to change 30% of the fixed salary into a bonus based on sale amount, assuming that the current monthly sale is ₹ 2,50,000 and the sale can increase by 15% if the new salary structure is implemented. Total fixed cost is 40% of the current sale amount, and variable cost is 40%. Salary cost for the sale team is 20% of the total fixed cost.
What should be the proposed sale commission system to make benefits for both sale team and the firm from the scheme?
H Ltd. uses a scheme of pricing based on cost plus. All the overheads are charged, based on direct labour and based on the total cost arrived at the selling price is fixed.
The following figures are from the Annual Budget for 2022 prepared by the company:
| Particulars | (₹) |
| Sales | 10,00,000 |
| Direct materials | 1,80,000 |
| Direct labour | 3,20,000 |
| Factory superintendent’s salary | 30,000 |
| Commission paid on sales (5%) | 50,000 |
| Foreman’s salaries | 60,000 |
| Insurance | 10,000 |
| Advertisement | 0,000 |
| Depreciation on assets | 30,000 |
| Administrative expenses | 90,000 |
| Variable Factory Costs: | |
| Repair and Maintenance | 60,000 |
| Tools consumed | 40,000 |
| Miscellaneous supplies | 10,000 |
The company has submitted a tender quoting ₹ 10,000 on a large order with a cost of ₹ 1,800 Direct material and ₹3,200 Direct labour. The customer strikes the business ₹8,900 on a ‘take it or leave it’ basis. If the company accepts the order, the total sales for 2022 would be ₹10,08,900. The company is reluctant to accept the order, as it would be against its policy of accepting on order below cost.
Write a note to the Managing Director; recommending the acceptance of the order, substantiating your recommendation fully with supporting figures to explain that the price offered would not be below cost and a sizeable profit also would be made. Also comment on the pricing policy of the company
As a Management Accountant of Bush Radio Company you find that while it costs ₹12.50 to make a component X, the same is available in the market at ₹11.50 with an assurance of continued supply. The break-down of the cost is:
| Materials | ₹5.50 |
| Labour | ₹3.50 |
| Other variable overheads | ₹1.00 |
| Depreciation & other fixed cost | ₹2.50 |
| Total Cost | ₹12.50 |
a. Should you make or buy?
b. What would be your decision, if the supplier offered the component at ₹ 9.70 each?
The HUL Snow Company manufactures and sells direct to consumer’s 10,000 jars of ‘Everest Snow’ per month at ₹ 1.25 per jar. The company’s normal production capacity is 20,000 jars of snow per month. An analysis of cost for 10,000 jars is given below:
| Particulars | ₹ |
| Direct Materials | 1,000 |
| Direct Labour | 2,475 |
| Power | 140 |
| Jar | 600 |
| Misc. Supplies | 430 |
| Fixed Expenses of Manufacturing, Administration and Selling | 7,955 |
| Total | 12,600 |
The company has received an offer for the export under a different brand name of 1,20,000 jars of snow at 10,000 jars per month at 75 paise a jar.
As a Management Accountant, mention the brief points on the advisability or otherwise of accepting the offer.
T Limited manufactures 20,000 units of ‘X’ in a year at its normal production capacity. The unit cost as to variable costs and fixed costs at this level are ₹ 13 and ₹ 4 respectively. The selling price per unit of the units sold is ₹ 20 per unit. Due to trade depression, it is expected that only 2,000 units of ‘X’ can be sold during the next year. The Management of T Ltd is considering the shut-down of the plant. The fixed costs for the next year then are expected to be reduced to ₹ 33,000. Additional costs of plant shut-down are expected at ₹ 12,000. You have been recently appointed as a Management Accountant of the Company. Advise the management, whether the plant should beoperated or shut down
A firm’s operations are at present performed manually. It has a proposal to install a new machine which can produce at a faster rate. Following information is available. As a Management Accountant advise the management about the profitability of mechanization.
| Particulars | Manual Operations | Machine Operations |
| Selling price per unit (₹) | 28 | 28 |
| Variable costs per unit (₹) | 22 | 20 |
| Additional fixed cost per unit (₹) | - | 3 |
| Total cost per unit (₹) | 22 | 23 |
| Production in units per hour | 1 | 2 |
You are the Management Accountant of F & Company, which manufactures stoves, has an opportunity to buy the handles for its stoves for ₹8 per unit. The MD is not sure about, what should be done for the best interest of the Company and need your help, in arriving at a decision. This purchase would affect prices, volume, and costs as follows:
| Particulars | Buy | Make |
| ₹ | ₹ | |
| Unit Selling Price | 340 | 340 |
| Volume (per month) | 500 | 500 |
| Unit Variable Costs | 88 | 95 |
| Purchased Parts (per unit) | 8 | 0 |
| Fixed Costs | 4,700 | 5,500 |
You are to decide whether the part should be made or bought
Recently your Managing Director, who is an engineer, called a meeting of the Cost Department and in the meeting he has asked some explanations for certain items listed below, as relevant costs or not. He is not having clear ideas about relevant costs. You are heading the Cost Department and asked to clarify the same, highlighting the relevancy or irrelevancy of each item.
(a) The salary to be paid to a market researcher who will oversee the development of a new product. This is a new post to be created especially for the new product but ₹1,20,000 salary will be a fixed cost. Is this cost relevant to the decision to proceed with the development of the product?
(b) The ₹25,000 additional monthly running costs of a new machine to be purchased to manufacture an established product. Since the new machine will save on labour time, the fixed overhead to be absorbed by the product will reduce by ₹1,000 per month. Are these costs relevant to the decision to purchase the new machine?
(c) Office cleaning expenses of ₹1,250 for next month. The office is cleaned by contractors and the contract can be cancelled by giving one month’s notice. Is this cost relevant to a decision to close the office?
(d) Expenses of ₹ 7,500 paid to the marketing manager. This was to reimburse the manager for the cost of travelling to meet a client with whom the company is currently negotiating a major contract. Is this cost relevant to the decision to continue negotiations?
1. If the total cost of 1000 units is ₹ 60,000 and that of 1001 units is ₹60,400, then the increase of ₹400 in the total cost is:
A. Prime cost
B. All variable overheads
C. Marginal cost
D. None of the above
Answer:- C. Marginal cost
2. Which of the following statements are true about marginal costing?
A. In marginal costing, fixed costs are treated as product costs
B. Marginal costing is not an independent system of costing
C. The elements of cost in marginal costing are divided into fixed and variable components
D. Both b and c
Answer:- D. Both b and c
3. The costing method where fixed factory overheads are added to inventory is called:
A. Activity-based costing
B. Absorption costing
C. Marginal costing
D. All of the above
Answer:- B. Absorption costing
4. While computing profit in marginal costing:
A. The fixed cost gets added to the contribution
B. The total marginal cost gets deducted from total sales revenue
C. The total marginal cost gets added to total sales revenue
D. None of the above
Answer:- B. The total marginal cost gets deducted from total sales revenue
5. Which of the following assumptions are made while calculating marginal cost?
A. Total fixed cost is constant at all levels of output
B. Total variable cost varies according to the volume of output
C. All elements of cost can be divided into fixed and variable components
D. All of the above
Answer:- D. All of the above
6. Contribution margin in marginal costing is also known as:
A. Net income
B. Gross profit
C. Marginal income
D. None of the above
Answer:- C. Marginal income
7. The term ‘Contribution’ refers to the:
A. Excess of selling price over variable cost per unit
B. Difference between the selling price and total cost
C. Subscription towards raising capital
D. None of the above
Answer:- A. Excess of selling price over variable cost per unit
8. Which of the following techniques of costing differentiates between fixed and variable costs?
A. Marginal costing
B. Standard costing
C. Absorption costing
D. None of the above
Answer:- A. Marginal costing
9. Fixed cost is also referred to as in the marginal costing technique:
A. Total cost
B. Product cost
C. Period cost
D. None of the above
Answer:- C. Period cost
10. Variable cost is also referred to as in the marginal costing technique:
A. Total cost
B. Product cost
C. Period cost
D. None of the above
Answer:- B. Product cost
11. The margin of safety, which is the difference between actual sales and break-even point, can be improved by:
A. Lowering variable costs
B. Lowering fixed costs
C. Increasing sales volumes
D. All of the above
Answer:- D. All of the above
12. The profit/volume ratio in marginal costing can be improved by:
A. Lowering fixed cost
B. Increasing the selling price
C. Increasing variable cost
D. None of the above
Answer:- B. Increasing the selling price
13. Under marginal costing, the stock is valued at:
A. Total Cost
B. Fixed Cost
C. Variable Cost
D. None of the above
Answer:- C. Variable Cost
14. The profit at which total revenue is equal to the total cost is known as:
A. Margin of safety
B. Break-even point
C. Both a and b are incorrect
D. Both a and b are correct
Answer:- B. Break-even point
15. The cost that does not fluctuate based on the volume of the production is known as:
A. Variable cost
B. Fixed cost
C. Semi-variable cost
D. None of the above
Answer:- B. Fixed cost
16. Fixed cost includes:
A. Property taxes
B. Rent
C. Insurance premium
D. All of the above
Answer:- D. All of the above
17. Variable cost includes:
A. Cost of raw materials
B. Salaries and wages
C. Electricity bills
D. All of the above
Answer:- A. Cost of raw materials
18. Marginal cost is equal to:
A. Variable overheads
B. Prime cost plus variable overheads
C. Prime cost minus variable overheads
D. None of the above
Answer:- B. Prime cost plus variable overheads
19. Marginal costing is also called:
A. Variable costing
B. Total costing
C. Marginal costing
D. Activity based costing
Answer:- A. Variable costing
20. What is the opportunity cost of making a component part in a factory given no alternative use of the capacity?
A. The variable manufacturing cost of the component
B. The total manufacturing cost of the component
C. The total variable cost of the component
D. Zero
Answer:- D. Zero
21. The difference in total cost that results from two alternative courses of action is called:
A. Relevant Cost
B. Opportunity Cost
C. Differential Cost
D. Marginal Cost
Answer:- C. Differential Cost
22. Another name for ‘Contribution’ is:
A. Marginal Income
B. Gross Profit
C. Net Income
D. None of the above
Answer:- A. Marginal Income
23. Relevant costs are:
A. unavoidable, future and measured by cash
B. avoidable, future and measured by cash
C. avoidable, future and measured by profit
D. unavoidable, future and measured by profit
Answer:- C. avoidable, future and measured by profit
24. Which one of the following statements is true?
A. Non-cash costs are always relevant.
B. Opportunity costs are always relevant.
C. Sunk costs are always relevant.
D. Committed costs are always relevant.
Answer:- B. Opportunity costs are always relevant.
25. Which of the following costs would not be accounted for in a company’s recordkeeping system?
A. an unexpired cost
B. an expired cost
C. a product cost
D. an opportunity cost
Answer:- D. an opportunity cost
26. A fixed cost is relevant if it is:
A. uncontrollable.
B. avoidable
C. sunk.
D. a product cost.
Answer:- B. avoidable
1. Marginal costing is a system of costing Answer:- False
2. Key factor is important in ascertaining the profitability Answer:- True
3. Under marginal-costing technique, fixed costs are charged off to revenue fully during the period in which they are incurred but not taken into account for valuing inventories Answer:- True
4. Plant and machinery may depreciate more quickly when kept idle than when being used. Answer:- True
5. When a new product is introduced in the market, the selling price is fixed below the marginal cost in order to make the new product more popular. Answer:- True
6. Sometimes, the government allows import quota against foreign exchange earned. Profit t may be more in such cases. Answer:- True
7. Maximum use or absorption of fixed costs will be the ultimate aim of any business. Answer:- True
8. The problem whether to use a machine or produce by hand labour or use any combination of machine and labour can be best solved by the usage of marginal-costing technique. Answer:- True
9. The management is often confronted with the problem of product pricing. Answer:- True
10. Price under normal circumstances for a longer period should be based on the total costs. Answer:- True
11. The decision on the closure of a department or discontinuance of a product or a section of a business can be made by applying marginal-costing technique. Answer:- True
12. Marginal-costing technique is also used in planning the profit level of the business. Answer:- True
1. When there is no idle (unused) capacity and at the same time the component part is manufactured in (instead of buying) the factory by replacing the other work, the loss of contribution from the displaced work has to be considered along with the marginal cost of production.
2. Quite often the management of a manufacturing company will face the problem whether a component or a product should be Purchased from an outside source (suppliers) or manufactured by the company itself
3. If there is any limiting factor care should be taken before arriving at a decision.
4. “Contribution” is the main criteria to decide the profitability of any business concern.
5. Costs are classified into fixed and variable in marginal costing.
6. The income statement of each month will show the same amount of fixed costs irrespective of the volume of sales.
7. Differential Costing is also termed as Relevant Costing or Incremental Analysis.
8. Marginal Costing does not provide any standard for the evaluation of performance which is provided by standard costing and budgetary control.
9. Decision-making also known as decision model, is the process of evaluating two or more alternatives leading to a final choice, known as Alternative Choices Decisions.
10. Managerial decision making is a process of making choices.
11. Relevant (differential) revenue is the amount of increase or decrease in revenue expected from a particular course of action as compared with an alternative.
12. Qualitative factors are difficult to quantify in monetary terms.
13. Make or buy decision is also referred to as outsourcing decision.
14. The decision to eliminate an unprofitable product is a special case of product profitability evaluation.
15. The decision whether a product should be sold at the split-off point or processed further is faced by many manufacturers.
1. Provide examples of how Cost Volume Profit Analysis can be used for decision-making.
Answer:-
2. Explain what is meant by the term ‘Relevant Range’.
Answer:-
3. Define the term ‘Contribution Margin’.
Answer:-
4. Describe the assumptions underlying Cost–Volume–Profit Analysis.
Answer:-
5. How can sensitivity analysis be used in conjunction with Cost–Volume–Profit Analysis?
Answer:-
6. Write short notes on:
(a) Margin of safety
(b) Angle of incidence
(c) Cash break-even point
(d) CVP Analysis
Answer:-
1. Define the term ‘profit–volume ratio’ and explain how it can be used for cost–volume–profit analysis.
Answer:-
2. Describe and distinguish between the three different approaches to presenting cost–volume–profit relationships in graphical format.
Answer:-
3. How can a company with multiple products use cost–volume–profit analysis?
Answer:-
4. Explain why the break-even point changes when there is a change in sales mix.
Answer:-
1. PQR Ltd. manufactures a single product which it sells for ₹ 40 per unit. Fixed cost is ₹ 60,000 per year. The contribution to sales ratio is 40%. PQR Ltd.’s Break Even Point in units is
A. 3500
B. 3700
C. 3750
D. 4000
Answer:- C. 3750
2. The break-even point of a manufacturing company is ₹1,60,000. Fixed cost is ₹48,000. Variable cost is ₹12 per unit. The PV ratio will be:
A. 20%
B. 40%
C. 30%
D. 25%
Answer:- C. 30%
3. Product A generates a contribution to sales ratio of 40%. Fixed cost directly attributable to Product A amounted to ₹60,000. The sales revenue required to achieve a profit of ₹15,000 is
A. ₹ 2,00,000
B. ₹ 1,85,000
C. ₹1,87,500
D. ₹ 2,10,000
Answer:- C. ₹1,87,500
4. XYZ Ltd. makes a special gadget for the car it manufactures. The machine for the gadget works to full capacity and incur ₹15 Lakhs and ₹40 Lakhs respectively as Variable and Fixed Costs. If all the gadgets were purchased from an outside supplier, the machine could be used to produce other items, which would earn a total contribution of ₹ 25 Lakhs. What is the maximum price that XYZ Ltd. should be willing to pay to the outside supplier for the gadgets, assuming there is no change in Fixed Costs?
A. ₹40 Lakhs
B. ₹65 Lakhs
C. ₹25 Lakhs
D. ₹15 Lakhs
Answer:- A. ₹40 Lakhs
5. Zee Products Ltd. manufactures four products e.g. Product E, Product F, Product G and Product H using same raw materials. The input requirements for Products E, F, G and H are 1kg, 2kgs, 5kgs and 7kgs, respectively.
Product-wise Selling Price and Variable Cost data are given hereunder
| Products | E | F | G | H |
| Selling Price (₹) | 100 | 150 | 200 | 300 |
| Variable Cost (₹) | 50 | 70 | 100 | 125 |
Assuming raw material availability is a limiting factor, the correct ranking of the products would be:
A. E, F, G & H
B. E, F, H & G
C. F, E, G & H
D. F, E, H & G
Answer:- B. E, F, H & G
6. X Ltd. has 1000 units of an obsolete item which are carried in inventory at the original price of ₹ 50,000. If these items are reworked for ₹ 20,000, they can be sold for ₹ 36,000. Alternatively, they can be sold as a scrap for ₹6,000 in the market. In a decision model used to analyze the reworking proposal, the opportunity cost should be taken as
A. ₹16,000
B. ₹6,000
C. ₹30,000
D. ₹20,000
Answer:- B. ₹6,000
7. The sales and profit of a firm for the year 2021 are ₹1,50,000 and ₹20,000 and for the year 2022 are ₹1,70,000 and ₹ 25,000 respectively. The P/V Ratio of the firm is
A. 15%
B. 20%
C. 25%
D. 30%
Answer:- C. 25%
8. A company has a break-even point when sales are ₹ 3,20,000 and variable cost at that level of sales are ₹2,00,000. How much would contribution margin increase or decrease if variable expenses are dropped by ₹30,000?
A. Increase by 27.5%
B. Increase by 9.375%
C. Decrease by 9.375%
D. Increase by 37.5%
Answer:- B. Increase by 9.375%
9. A radio manufacturer finds that while it costs ₹16.25 per unit to make a component, the same is available in the market at ₹5.75 each. Continuous supply is also fully assured. The break-up of costs per unit is as follows: Materials: ₹ 2.75 Labour: ₹ 1.75 Other variable expenses: ₹ 0.50 Depreciation & other fixed costs: ₹ 1.25 The best option for the manufacturer will be
A. To make
B. To buy
C. To sell
D. None of the above
Answer:- A. To make
10. Dec 2021: In a purely competitive market, 10,000 pocket transistors can be manufactured and sold and certain profit is generated. It is estimated that 2.0 pocket transistors need to be manufactured and sold in a monopoly market to earn the same profit. Profit under both conditions is targeted at ₹ 2,00,000. The variable cost per transistor is ₹ 100 and total fixed costs are ₹ 37,000. Unit selling price per transistor under monopoly condition will be:
A. ₹ 218.50
B. ₹ 234.50
C. ₹ 267.25
D. ₹ 274.35
Answer:- A. ₹ 218.50
11. Mr. Mahesh has a sum of ₹ 3,00,000 which invested in a business. He wishes for a 15% return on his fund. It is revealed from the present cost data analysis that the variable cost of operation is 60% of sales and fixed costs are ₹ 1,50,000 p.a. On the basis of this information, you are required to find out the sales volume to earn a 15% return.
A. ₹ 4.875 Lakhs
B. ₹ 4.675 Lakhs
C. ₹ 4.775 Lakhs
D. ₹ 5.875 Lakhs
Answer:- A. ₹ 4.875 Lakhs
12. A radio manufacturer finds that it costs ₹ 6.25 per unit to make component M-140 and the same is available in the market at ₹ 5.75 each. Continuous supply is also fully assured. The break-down cost per unit as follows: Materials ₹ 2.75, Labour ₹ 1.75 other variable expenses ₹ 0.50, Depreciation and other fixed cost ₹ 1.25. What would be your decision, if the supplier offered the component at ₹ 4.85 per unit?
A. Make
B. Buy
C. Sell
D. None of the above
Answer:- B. Buy
13. A firm has given the following data:
Fixed expenses at 50% ₹ 15,000, Fixed expenses when factory is close down ₹ 10,000, Additional expenses in closing down ₹ 1,000, Production at 50% capacity 5,000 units, contribution per unit ₹ 1. Advise whether to run the factory or close it down:
A. Close
B. Run
C. Continue
D. None of the above
Answer:- B. Run
14. A company manufactures and sells three types of product namely A, B and C. Total sales per month is ₹ 80,000 in which the share of these three products are 50%, 30% and 20% respectively. The variable cost of these products is 60%, 50% and 40% respectively. The combined P/V Ratio will be:
A. 49%
B. 48%
C. 47%
D. 50%
Answer:- C. 47%
1. The following results of a company for the last two years are as follows:
| Year | Sales (₹) | Profit (₹) |
| 2021 | 1,50,000 | 1,70,000 |
| 2022 | 20,000 | 25,000 |
You are required to calculate:
(i) P/V Ratio
(ii) B.E.P
(iii) The sales required to earn a profit of ₹40,000
(iv) Profit when sales are ₹ 2,50,000
(v) Margin of safety at a profit of ₹50,000 and
(vi) Variable costs of the two periods.
2. B Ltd. has a factory which manufactures a product whose sales have declined to ₹ 40,000 per annum. Special purpose machinery is employed to make the product and there is no hope of using this for any other purpose, nor there do any hope of stimulating demand of the existing product.
The estimated life of the factory plant is 5 years and sales should continue at the same level for the whole period. Total variable costs per annum for the expected sales are ₹ 20,000. Fixed costs per annum ₹15,000 including ₹7,000 as depreciation.
All sales and expenses accrue at the end of the year.
If the factory is sold “lock, stock and barrel” immediately, ₹30,000 may be obtained. On the other hand, if it is operated for 5 years, ₹ 4,000 is the estimated residual value.
Presuming 10% as the cost of capital, you are required to advise whether it will be appropriate to operate the factory or close it down immediately. The present value of an annuity of ₹ 1 at 10% discount for 5 years may be taken as 3.791 and the present value of ₹1 received after 5 years at 10% discount is 0.62.
3. Present the following information to show to the management (a) the marginal product cost and the contribution per unit; (b) the contribution and profit resulting from each of the following sales mixtures:
| Particulars | Product | Per unit ₹ |
| Direct Materials | P | 10.00 |
| Q | 9.00 | |
| Direct Wages | P | 3.00 |
| Q | 3.00 | |
| Fixed Expenses: | P | 800 |
| Q | 2.00 | |
| Sales Price | P | 20.00 |
| Q | 15.00 |
(Variable expenses are allocated to products as 100% of direct wages)Sales Mix:
(i) 1,000 units of product P and 2,000 units of Q.
(ii) 1,500 units of product P and 1,500 units of Q.
(iii) 2,000 units of product P and 1,000 units of Q.
Recommend which of the sales mix should be adopted.
4. From the following data you are required to present to the management:
(i) The marginal cost of product A and B and the contribution per unit.
(ii) The total contribution and profit resulting from each of the suggested sales mix.
| Direct Materials per unit | ₹ |
| Product A | 10.50 |
| Product B | 8.50 |
| Direct Wages: per unit | ₹ |
| Product A | 3.00 |
| Product B | 2.00 |
| Variable Expense 100% of direct wages per product | |
| Fixed Expenses (Total) | ₹800 |
| Selling price: | per unit ₹ |
| Product A | 20.50 |
| Product B | 15.50 |
| Suggested Sales Mix No. of units | |
| Product A | Product B |
| (a) 100 | 200 |
| (b) 150 | 150 |
| (c) 200 | 100 |
5. If labour costs and material cost are likely to go up by 10% and 5% respectively per unit, what is the percentage increase necessary in selling price to keep the P/V of 20% as before, assuming that the ratio between material
and labour is 3:2, and variable overheads is nil.
6. The Strong co. owns and operates six outlets in and around Bangalore City.
| Particulars | ₹ |
| Revenue | 1,00,00,000 |
| Fixed Costs | 17,00,000 |
| Variable Costs | 82,00,000 |
Variable costs change with respect to the number of units sold
Required:
Compute the budget operating income for each of the following deviations from the original budget data. (Consider each case independently.)
i. A 10% increase in contribution margin, holding revenues constant.
ii. A 10% decrease in contribution margin, holding revenues constant.
iii. A 5% increase in fixed costs.
iv. A 5% decrease in fixed costs.
v. A 8% increase in units sold.
vi. A 8% decrease in units sold.
vi. A 10% increase in fixed costs and 10% increase in units sold.
viii. A 5% increase in fixed costs and 5% decrease in variable costs.
7. You are given the following corporate budget data for next year:
The projected capacity of a plant, when sold, would return ₹70,000 in sales income to the company. The variable costs for this production volume were determined to be ₹ 30,000. The fixed costs are ₹ 20,000. Determine the following:
(1) the break-even point of the business
(2) the profit or loss to the business on sales of ₹ 49,000; ₹28,000
(3) the amount of sales that will enable the business to earn a net profit of ₹28,000.
8. A company budgets for a production of 1,50,000 units. The variable cost per unit is ₹14 and fixed cost is ₹2 per unit. The company fixes its selling price to fetch a profit of 15% on cost.
(a) What is the break-even point?
(b) What is the profit-volume ratio?
(c) If it reduces its selling price by 5%, how the revised selling price affect the break-even point and the profit-volume ratio?
(d) If a profit increase of 10% is desired more than the budget, what should be the sales at the reduced prices?
9. A company is producing two products ‘A’ and ‘B’ from a joint manufacturing process. The joint costs are ₹2,00,000 and it has given a production of 1 lakh kilograms of ‘A’ having a selling price ₹1 per kilogram and 2 lakh kilograms of ‘B’ having a selling price of ₹1.50 per kilogram.
The company is considering a proposal to process product ‘A’ into a new product ‘Z’ which sells at ₹ 3 per kilogram. The processing cost would amount to ₹1,75,000 for converting one lakh kilograms of product ‘A’ to product ‘Z’.
You are required to advise the company about the acceptance or rejection of the above proposal.
10. The following information regarding the operations of 2022 has been made available from the records of the B & Company:
| Particulars | ₹ |
| Sales | 1,00,000 |
| Direct materials used | 40,000 |
| Direct labour | 15,000 |
| Fixed manufacturing overheads | 20,000 |
| Fixed selling and administrative expenses | 10,000 |
| Gross profit | 20,000 |
| Net loss | 5,000 |
There are no openings or closing inventories. It is required to calculate:
(1) Variable selling and administrative expenses
(2) Contribution Margin in rupees
(3) Variable factory overhead
(4) Breakeven point in rupee sales
(5) Factory cost of goods sold
11. A audio manufacturing company finds that while it costs ₹ 6.25 each to make component P 273 Q, the same is available in the market at ₹5.75 each, with an assurance of continued supply. The breakdown of costs is:
| Materials | ₹2.75 each |
| Labour | ₹1.75 each |
| Other variable costs | ₹0.50 each |
| Depreciation and other fixed cost | ₹1.25 each |
| ₹6.25 each |
(a) Should you make or buy?
(b) What would be your decision if the supplier offered the component at ₹4.85 each?
12. Auto Parts Ltd. has an annual production of 90,000 units for a motor component. The component’s cost structure is as given below:
| Particulars | ₹ per unit |
| Materials | 270 |
| Labour (25% fixed) | 180 |
| Expenses | |
| Variable | 90 |
| Fixed | 135 |
| Total | 675 |
(a) The Purchase Manager has an offer from a supplier who is willing to supply the component at ₹ 540. Should the component be purchased?
(b) Assume the resources now used for this component’s manufacture are to be used to produce another new product for which the selling price is ₹485.
In the latter case material price will be ₹ 200 per unit. 90,000 units of this product can be produced, at the same cost basis as above for labour and expenses. Discuss whether it would be advisable to divert the resources to manufacture that new product, on the footing that the component presently being produced would, instead of being produced, be purchased from the market.
13. Two businesses AA Ltd and AB Ltd sell the same type of product in the same market. Their budgeted profits and loss accounts for the year ending 30th June, 2022 are as follow:
| Particulars | AA Ltd (₹) | AB Ltd (₹) | ||
| Sales | 1,50,000 | 1,50,000 | ||
| Less: Variable costs | 1,20,000 | 1,00,000 | ||
| Fixed Cost | 15,000 | 1,35,000 | 35,000 | 1,35,000 |
| Profit | 15,000 | 15,000 |
You are required to calculate the B.E.P of each business and state which business is likely to earn greater profits in the following conditions:
(a) Heavy demand for the product
(b) Low demand for the product.
14. The availability of Material A is limited to 8,000 kgs.
| Product | P | Q | R |
| Demand (units) | 2,000 | 2,500 | 4,000 |
| Variable cost –making per unit (₹) | 10 | 12 | 14 |
| Purchase price per unit (₹) | 13 | 17 | 16 |
| Kgs per unit of Material A | 3 | 2 | 1 |
Determine which product the company should make or buy?
15. A company manufactures a product and sells it at ₹ 3,000 each. An increase of 17% in cost of materials and of 20% of labour cost is anticipated. The increased cost in relation to the present sales price would cause at 25% decrease in the amount of the present gross profit per unit. At present, material cost is 50%, wages 20% and overhead is 30% of cost of sales.You are required to:
(a) Prepare a statement of profit and loss per unit at present and;
(b) Compute the new selling price to produce the same percentage of profit to cost of sales as before.
1. Following data are in respect of a firm manufacturing a single product for a particular period:
₹
Sales (20000 units) 2,00,000
Cost of production (20000 units) 1,20,000
Selling and distribution expenses 30,000
Maximum capacity 25000 units
Fixed costs included in cost of production are ₹ 40,000 and only variable cost included in selling and distribution expenses are commission @ 10% on sales and packing expenses @ 20 p. per unit.
(1) An offer for purchase of 4000 units is received from outside India. No sales commission is payable on such foreign order but packing costs will be 80 p. per unit.
What minimum price may be quoted for the foreign offer?
(2) What should be the minimum price had the offer size been 8000 units instead of 4000 units?
2. A company has an installed production capacity of 1,00,000 units and presently it is working at 70% capacity utilisation. As production capacity utilisation increases, cost per unit decreases as follows:
Capacity utilisation Cost per unit
70% ₹97
80% ₹92
90% ₹87
100% ₹82
The company has received three export orders from different sources as under:
Source A 5000 units at ₹55 per unit
Source B 10000 units at ₹52 per unit
Source C 10000 units at ₹51 per unit
Advise the company whether any or all the export orders should be accepted or not.
3. A Company has the option to procure a particular material from two sources:
Source I assures that defectives will not be more than 2% of supplied quantity.
Source II does not give any assurance, but on the basis of past experience of supplies received from it, it is observed that defective percentage is 2.8%.
The material is supplied in lots of 1,000 units. Source II supplies the lot at a price, which is lower by ₹100 as compared to Source I. The defective units of material can be rectified for use at a cost of ₹5 per unit.
You are required to find out which of the two sources is more economical.
4. XYZ Company is considering hiring a machine at an annual charge of ₹12,000 to increase the output of a product from its present level of 6,000 units. It is anticipated that with the introduction of the machine the variable cost per unit will be reduced by ₹1.00 due to savings in labour cost. The new machine will not affect fixed cost in total, except for the hiring charges. The selling price of the product is ₹12 per unit. The present cost structure of the product is Variable cost ₹9 per unit and fixed cost ₹1.00 unit.
You are required to calculate the number of extra units, which must be produced and sold to justify hiring the machine, (that is the cost indifference point for the new machine).
5. A factory produces 24000 units. The cost sheet gives the following information:
Direct material ₹1,20,000
Direct wages 84,000
Variable overheads 48,000
Semi-variable overheads 28,000
Fixed overheads 80,000
Total Cost 3,60,000
The product is sold at ₹20 per unit. The management proposed to increase the production by 3000 units for sales in the foreign market. It is estimated that semi-variable overheads will increase by ₹1,000, but the product will be sold at ₹14 per unit in the foreign market. However, no additional capital expenditure will be incurred. The management seeks your advice as cost accountant.
What will you advise them?
6. AB & Co., a Cost firm, has been asked to bid on a contract to perform audits for three units in its home state. Should the firm be awarded the contract, it must hire one new staff member at a salary of ₹ 41,000 to handle the additional workload. (Existing staff are fully scheduled.) The managing partner is convinced that obtaining the contract will lead to additional new profit-oriented clients. Expected new work (excluding the three units) is 800 hours at an average billing rate of ₹ 60.00 per hour. Other information follows about the firm’s current annual revenues and costs:
Firm’s volume in hours (normal): 30,750
Fixed costs: ₹ 4,70,000
Variable costs ₹ 20.00/hr
Should the firm win the contract, these audits will require 900 hours of expected work.
Assume you are the managing partner of the firm.
If your expectations are correct, then what is the lowest bid that your firm can submit and still expect to increase annual net income?
If the contract is obtained at a price of ₹ 30,000, what is the minimum number of hours of new business in addition to the present work that must be obtained for the firm to break even on total new business?
Key Terms
Pricing Decision - The price to be charged for a product or service.
Make or Buy decisions - This kind of decision typically arises when the product being manufactured has a component part that can either be made within the factory or brought from an outside supplier.
Opportunity cost - Opportunity cost represents the lost contribution to profits arising from the best alternative foregone.
Accept an Order or Reject- When a business is operating at something lower than its normal value, such a special order can prove attractive depending on the effect of incremental revenues and costs on overall profits of the business.
Key Factor/Limiting Factor- The limiting factor decision therefore involves the determination of the contribution earned per unit of limiting factor by each different product.
Replacement Decision - One of the more important decisions involving alternative choices is whether or not to buy new capital equipment.
Alternative Choices- A major part of decision making involves the analysis of a defined set of alternatives against selection criteria.
Expansion of Business- While considering a new plant design or the redesign or expansion of an existing system, a high level decision regarding the production capacity is called for.
Shutdown point- Shutdown point occurs exactly when the marginal profit of the business reaches a negative scale.
Capacity Decisions: While considering a new plant design or the redesign or expansion of an existing system, a high level decision regarding the production capacity is called for.
Alternative Methods of production- The alternative which involves the minimum cost is to be selected as the most economical alternative.
Decision to Drop a Product Line- The firm can consider the economies of dropping the unprofitable products, and adding a more remunerative product(s).
Equipment Replacement - One of the more important decisions involving alternative choices is whether or not to buy new capital equipment.
Product Diversification- to find out whether it is economical and profitable to introduce a new product or not.
Sell or Further Process Decision- management has to decide whether to sell joint products at the split off point or to sell them after further processing.
Evaluation of Capital Expenditure Proposals- relevant cost and revenue is very much considered while making an evaluation of capital expenditure proposal.
Optimal Level of Activity- This deals with the economies of large-scale production and sales.
Temporary Shut Downs- Such a situation is forced on the business because it is expensive in many cases to shut down the business for a short time only.
Additional Shifts- the operation of one or more shifts by a business having only one shift.
Product Mix Decision- Produce the maximum of the item with the highest contribution margin per unit under a particular constraint.
Ruchika Saboo
An All India Ranker (AIR 7 - CA Finals, AIR 43 - CA Inter), she is one of those teachers who just loved studying as a student. Aims to bring the same drive in her students.
Ruchika Ma'am has been a meritorious student throughout her student life. She is one of those who did not study from exam point of view or out of fear but because of the fact that she JUST LOVED STUDYING. When she says - love what you study, it has a deeper meaning.
She believes - "When you study, you get wise, you obtain knowledge. A knowledge that helps you in real life, in solving problems, finding opportunities. Implement what you study". She has a huge affinity for the Law Subject in particular and always encourages student to - "STUDY FROM THE BARE ACT, MAKE YOUR OWN INTERPRETATIONS". A rare practice that you will find in her video lectures as well.
She specializes in theory subjects - Law and Auditing.
Yashvardhan Saboo
A Story teller, passionate for simplifying complexities, techie. Perfectionist by heart, he is the founder of - Konceptca.
Yash Sir (As students call him fondly) is not a teacher per se. He is a story teller who specializes in simplifying things, connecting the dots and building a story behind everything he teaches. A firm believer of Real Teaching, according to him - "Real Teaching is not teaching standard methods but giving the power to students to develop his own methods".
He cleared his CA Finals in May 2011 and has been into teaching since. He started teaching CA, CS, 11th, 12th, B.Com, M.Com students in an offline mode until 2016 when Konceptca was launched. One of the pioneers in Online Education, he believes in providing a learning experience which is NEAT, SMOOTH and AFFORDABLE.
He specializes in practical subjects – Accounting, Costing, Taxation, Financial Management. With over 12 years of teaching experience (Online as well as Offline), he SURELY KNOWS IT ALL.
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