Consider the following sales revenue and total cost of a company for two periods.

| Sales revenue (Rs.) | Year I | Year II |
|---|---|---|
| Total cost (Rs.) | 200000 | 250000 |
| | 180000 | 210000 |

Required: Contribution margin ratio.

Calculate material price variance from the following information.

Actual quantity used: 12000 kg
Standard quantity: 14500kg
Standard price: Rs. 2 per kg
Actual price: Rs. 3 per kg

A manufacturing company manufactured 12000 units of output incurring total cost of production Rs. 20000 out of which 45% variable.

Required: Total cost for 18000 units.

The following information taken from the books of XYZ company.

Normal Capacity per year: 5000 units
Actual production unit: 7000 units
Fixed factory overhead: Rs. 40000
Fixed Administrative overhead: Rs. 20000

Required: Over/Under absorption of fixed manufacturing cost.

Section "B"

Descriptive Answer Questions

Attempt any six questions. [6×10]

1. "Management accounting is a tool for management planning and control" discuss with examples.

2. What is responsibility accounting? Explain the major types of responsibility.

Contribution Margin Ratio:
Contribution Margin (CM) is calculated as Sales Revenue minus Total Cost.
For Year I:
- Sales Revenue = Rs. 200,000
- Total Cost = Rs. 180,000
Contribution Margin for Year I = Sales Revenue - Total Cost = Rs. 200,000 - Rs. 180,000 = Rs. 20,000
Contribution Margin Ratio for Year I = (Contribution Margin / Sales Revenue) × 100 = (Rs. 20,000 / Rs. 200,000) × 100 = 10%
For Year II:
- Sales Revenue = Rs. 250,000
- Total Cost = Rs. 210,000
Contribution Margin for Year II = Sales Revenue - Total Cost = Rs. 250,000 - Rs. 210,000 = Rs. 40,000
Contribution Margin Ratio for Year II = (Contribution Margin / Sales Revenue) × 100 = (Rs. 40,000 / Rs. 250,000) × 100 = 16%
Material Price Variance:
Material Price Variance (MPV) = (Actual Price - Standard Price) × Actual Quantity Used
MPV = (Rs. 3 - Rs. 2) × 12,000 kg = Rs. 1 × 12,000 kg = Rs. 12,000 adverse
Total Cost for 18,000 Units:
Total cost consists of fixed and variable components. Variable cost is 45% of the total production cost for 12,000 units.
Total cost for 12,000 units = Rs. 20,000
Variable Cost (VC) = 45% of Rs. 20,000 = Rs. 9,000
To find the variable cost per unit: VC per unit = Rs. 9,000 / 12,000 units = Rs. 0.75 per unit
For 18,000 units, the variable cost will be: 18,000 units × Rs. 0.75 per unit = Rs. 13,500
Fixed cost does not change with the level of production.
Fixed Cost (FC) = Total Cost - Variable Cost = Rs. 20,000 - Rs. 9,000 = Rs. 11,000
Therefore, Total Cost for 18,000 units = FC + Variable Cost for 18,000 units = Rs. 11,000 + Rs. 13,500 = Rs. 24,500
Over/Under Absorption of Fixed Manufacturing Cost:
Fixed costs are spread over the normal capacity. If actual production exceeds normal capacity, it can lead to over-absorption.
Normal capacity = 5,000 units
Fixed factory overhead = Rs. 40,000
Fixed cost allocation per unit at normal capacity = Rs. 40,000 / 5,000 units = Rs. 8 per unit
With actual production of 7,000 units, total absorbed overhead would be: 7,000 units × Rs. 8 per unit = Rs. 56,000
Actual fixed factory overhead = Rs. 40,000
Over absorption of fixed manufacturing costs = Rs. 56,000 - Rs. 40,000 = Rs. 16,000
In summary, we have calculated the relevant financial variances and costs based on the given data.