ICMA ADVANCE MANAGEMENT ACCOUNTING

Volume AnD CosT

CBQ#1
Budgeted Fixed Cost for the year Rs.3,000,000
Variable Cost Rs.200 per unit.

Production 10,000 20,000 25,000 30,000

Variable Costs
Fixed Costs
Total Costs

CBQ#2A
Variable Factory Costs 5000,000
Fixed Factory Costs 3000,000
Variable Operating Expenses 1500,000
Fixed Operating Expenses 2500,000

Gross Profit 7000,000 Contribution Margin 8500,000

Net Proft ________? Net Profit _________?

CBQ#2B
Direct Material Rs. 4000,000
Direct Labour 1600,000
Variable Factory Overheads 1800,000
Fixed Overheads 2000,000
Variable Selling and Distribution Expenses 800,000
Fixed Selling and Distribution Expenses 1100,000
Fixed Administrative Expenses 750,000

Gross Profit 5,600,000 Contribution Margin 6,800,000

Net Proft ___________? Net Profit __________?

From The Desk oF: kAshIF ZIA (A.C.m.A) 20-24 CVP Page 1
ICMA ADVANCE MANAGEMENT ACCOUNTING

CBQ#3A
The income statement of MOCK COMPANY is shown below:
TOTAL PER UNIT
Sales Revenue (3,000 Units) Rs 1500,000 Rs 500
Variable Costs 900,000 300 {60%}
Contribution Margin 600,000 200 {40%}
Fixed Expenses 500,000 ---
Net Operating Income 100,000 ---

REQUIRED:
Prepare a new INCOME STATEMENT under each of the following conditions (consider each case
separately):
i. The selling price increases by Rs 100 per unit, and the sales volume decreases by 10%, and
Fixed expenses increases by Rs 100,000
ii. Variable expenses increases by Rs25 per unit, and increase in Fixed Costs by Rs
60,000 and C/M per unit will remain same. Sales volume will remain same.
iii. Variable expenses increases by Rs24 per unit, and increase in Fixed Costs by
Rs75,000 and C/M ratio to sales will remain same. Sales volume will remain same.
iv. There is a plan to spend on advertisement Rs.250,000. Sales price to be increased by Rs50 per
unit, expected demand 3,600 units, no change in variable costs. SHOULD THE
ADVERTISEMENT CAMPAIGN BE UNDERTAKEN? (Compare with original situation)
v. To proceed with an enquiry that the marketing director has had from a mail order
company about the possibility of purchasing 1,500 units annually if the selling price is
Rs350.. The mail order company would transport the units from the company to its
own warehouse , and no sales commission would be paid on these sales by the
company (assume sales commission was Rs25 per unit and delivery cost Rs10 per
unit). The company would be expected to contribute Rs.60,000 per annum towards
the cost of producing the mail order catalogue. It would also be necessary for the
company to provide special additional packaging at a cost of Rs8 per unit. The
marketing director considers that the sales from existing business would remain
unchanged at 3,000 units, based on a selling price of Rs500 if the mail order contract
is undertaken. Should the order be undertaken ? (Compare with original situation).

From The Desk oF: kAshIF ZIA (A.C.m.A) 20-24 CVP Page 2
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CBQ#3B { Activity }

Volume 50,000 units 60,000 units 30,000 units

(120%) (60%)
Revenue 8000,000
Direct Material 1800,000
Direct Labour 1300,000
Variable Factory Overheads 1100,000
Variable Selling & Distribution Expenses 800,000

Fixed Factory Overheads 1300,000

Fixed Admin Expenses 500,000
Fixed Selling and Distribution Expenses 800,000
Financial Charges 200,000

Contribution Margin {C/M}

Contribution Margin% {C/M%}
Net Profit

CBQ#4A
One-way Limited is engaged in manufacturing and sale of socks. The sales of the company are
mostly to USA and European Countries. At the end of the first quarter, the results of operations
of the company are as follows:
Sales (Rs. 40 per unit) 5,300,000
Less: Material 1,987,500
Wages 795,000
Variable overhead 397,500
Fixed overhead 848,000
The factory was working at 40% capacity in the first quarter. Management of the company has
estimated that the quantity sold last quarter can be increased by 25%. The expects to achieve a
profit of Rs. 2,000,000. Material prices increase by 12%, wage rates increased by 15%,
variable overheads are higher by 10% and fixed overheads increase by 18%.

Required: Calculate the selling price.

CBQ#4B
The factory was working at 80% capacity. Management of the company has estimated that to
meet the increasing demand next year, 100% CAPACITY will be utilized.
The company expects to achieve a profit of Rs. 3,000,000.
 Material prices increase by 12%,
 Wage rates increased by 15%,
 Overheads are higher by 10%.

From The Desk oF: kAshIF ZIA (A.C.m.A) 20-24 CVP Page 3
ICMA ADVANCE MANAGEMENT ACCOUNTING

Actual data for the lates year:

Packets

Production (No. of packets) 64,000

Sales (No. of packets) 70,000
Production cost per packet:
Direct material 88
Direct labour 15
Variable overheads 23
Fixed overheads 18
Selling and distribution cost per packet:
Variable overheads 12
Fixed overheads 10
Total cost per packet 180

Required: Compute the selling price per unit for the next year.

CBQ#4C
Basketball (Private) Limited (BPL) is in the process of planning for the next year. BPL is
currently operating at 70% of the production capacity. The management wants to achieve
an increase in SLAES VOLUME by 25%.

The summarized statement of profit or loss for the latest year is as follows:
Rs. in million
Sales 567
Cost of sales (60% variable) (400)
Gross profit 167
Operating expenses (40% variable) (47)
Profit before tax 120
Tax (25%) (30)
Profit after tax 90
Following are the major assumptions/projections for the next year’s budget:
(i) Selling price of all products would be increased by 8%. However, to avoid any
adverse impact of price increase, 10% discount would be offered to the large
customers who purchase about 30% of the total sales. Additionally, distributor
commission would be increased from 2% to 3% of net selling price.
(ii) Average variable costs are projected to increase by 4% while fixed costs other
than depreciation are projected to increase by 5%.
(iii) Depreciation for the latest year was Rs. 90 million and would remain constant.
Required:
Compute the amount of Contribution Margin (C/M) and profit.

From The Desk oF: kAshIF ZIA (A.C.m.A) 20-24 CVP Page 4
ICMA ADVANCE MANAGEMENT ACCOUNTING

CBQ#5A { Activity }
Sales Volume 50,000 units 100% 120% 60%
Inflation for Sales -- 15% 15% 12%
Inflation for Costs -- 12% 12% 15%

Revenue 8000,000
Direct Material 1800,000
Direct Labour 1300,000
Variable FOH 1100,000
Variable Selling and Distribution 800,000

Contribution Margin
Contribution Margin %

Fixed Cost (Depreciation Rs.800,000) 2800,000

Net Profit

CBQ#5B
CASE I II III IV

Sales for 2023 3,564,000 3360,000 4,441,250 3836,800

Sales for 2022 3,000,000 2,500,000 5500,000 4,000,000
Inflation 10% _________? (5%) _________?
% Change due to volume _________? 20.00% _________? (12%)
Overall % change in Revenue _________? _________? _________? _________?

CBQ#5C
CASE I II III IV

Sales for 2023 _________? _________? 6,000,000 3584,000

Sales for 2022 3,000,000 2,500,000 _________? _________?
Inflation 6% _________? (5%) _________?
% Change due to volume _________? 20.00% _________? (20%)
Overall % change in Revenue 22.96% 25.40% (16.4%) (10.4%)

From The Desk oF: kAshIF ZIA (A.C.m.A) 20-24 CVP Page 5
ICMA ADVANCE MANAGEMENT ACCOUNTING

VOLUMINOUS CHANGE { ‘V’ Change} :

 Proportionate change in REVENUE and all VARIABLE COSTS.

 VARIABLE COSTS means all variable costs i.e D/M, D/L, Variable FOH , Variable
S&D, Variable ADMIN etc.
 No effect on any FIXED COSTS in case of silence.
 Costs * (1+/- V)
 Voluminous change preferably applied to units, if not available, then on
absolute amount. But it cannot be applied to the rate/unit cost.

INFLATIONARY CHANGE { ‘I’ Change}

 It is for ALL (for revenues, variable costs and as well as for FIXED COSTS).
 It is SPECIFIC
 Not for PAST/COMMITTED COSTS
 Costs * (1+/- i)
 In case of VARIABLE COSTS AND REVENUE, Inflationary change is applied to
rate/price per input, if not available, then on the absolute amount.
 In case of FIXED COSTS, Inflationary change MUST be applied to the ABSOLUTE
amount { NOT on rate/price per unit }.

From The Desk oF: kAshIF ZIA (A.C.m.A) 20-24 CVP Page 6
ICMA ADVANCE MANAGEMENT ACCOUNTING
CBQ#6A
Budgeted Fixed FOH per period:
0 to 50,000 units Rs.750,000
Above 50,000 units 900,000
Variable FOH Rate Rs.15
Production 42,000 38,000 62,000 76,000
Variable Costs
Fixed Costs
Total Costs

CBQ#6B Adapted from COLIN DRURY (Modified)

Z plc operates a single retail outlet selling direct to the public. Profit statement for August and September
are as follows:
August September
Sales 80,000 90,000
Cost of Sales 50,000 55,000
Gross Profit 30,000 35,000
Less:
Selling and distribution 8,000 9,000
Administration 15,000 15,000
Net profit 7,000 11,000
Required:
(a) Use high- and low-points technique to identify the behaviors of:
(i) Cost of sales;
(ii) Selling and distribution costs;
(iii) Administration costs.
(b) Compute Net Profit assuming ANNUAL SALES $1200,000

CBQ#6C
Data for the year 2023:
Each unit requires : Annual Fixed Operating Expenses Rs.800,000
Direct Material Cost Rs.18 Machine Hours per unit 2 hours
Direct Labour Cost Rs. 10
Selling and Distribution Expenses Rs.6
Quarter #3 Quarter #4
Total Factory Overheads Rs.800,000 Rs.980,000
Machine Hours 50,000 80,000
Budgeted Sales Volume for the next year {2024} is 160,000 units. Contribution Margin 20%..
Expected Inflation 12%.
REQUIRED: Calculate CONTRIBUTION MARGIN and Net Profit for the next year.

From The Desk oF: kAshIF ZIA (A.C.m.A) 20-24 CVP Page 7
ICMA ADVANCE MANAGEMENT ACCOUNTING

CBQ#7A
The production and cost data of Planet Manufacturing (Pvt) Limited for the year 2021 and projections
for the year 2022, 2023 and 2024 are as follows:
2021 2022 2023 2024

Production (Units) 100,000 120,000 138,000 172,500

Variable Costs (@ Rs.40) 4000,000 ? ? ?

Fixed Costs (Rs.) 5000,000 ? ? ?

Inflation 8% 12% 10%

REQUIRED: Calculate the fixed and variable costs for in monetary terms.

CBQ#7B ICAP Module ‘D’ Spring 2007

The production and cost data of Planet Manufacturing (Pvt) Limited for the year 2006 and projections
for the year 2007 are as follows:
2006 2007
Production (units) 175,000 225,000
Total Costs (Rs.) 11,900,000 16,518,600

The rate of inflation in 2007 has been estimated at 15%.

REQUIRED: Calculate the fixed and variable costs for 2007 in ‘real’ terms.

CBQ#7C
Following data have been taken from Naseem & Sons’ records:
YEAR PRODUCTION TOTAL COSTS PRICE LEVEL INDEX
(UNITS) (Rs.) (Average)
0 65,600 145,000 100
1 79,800 179,200 112
2 90,000 213,000 125
3 60,000 196,560 140
4 75,400 244,900 157
5 91,200 ? 175
REQUIRED: Workout the following:
(i) Variable cost per unit at 100 average price level index.
(ii) Fixed costs per annum at 100 average price level index
(iii) Total costs for year 5

From The Desk oF: kAshIF ZIA (A.C.m.A) 20-24 CVP Page 8