The practical question answers for the M.COM December 2023 term-end examination of IGNOU of SEMESTER 1

MASTER OF COMMERCE

(M. COM.)

Term-End Examination

 December, 2023

MCO-05: ACCOUNTING FOR MANAGERIAL  DECISIONS

QUESTION NO 4 (a) and (b)

           

      Ashok Manufacturing Company Ltd. manufactures two products X and Y. In making both these products, same material is used. The supply of material is limited. The data corresponding to these two products are as follows:

 

Products	X	Y
Selling Price/unit Variable Cost/unit Per unit material consumption (in kg)	300 200 8	200 120 5

Assign profitability ranks to the product X and Y keeping in view the limited availability of raw material.

(b) Given:

Particular	Amount(₹)
Selling Price Variable Cost/unit Fixed cost	15 9 60,000

Find out: (i) P/V (Profit and Volume Ratio) and BEP (Break-Even Point)

(ii) If the company sells 12000 units, then its profit and margin of safety.

 

 

Solution   To compute the profitability ranks to products X and Y considering the limited availability of raw material

Compare the contribution margins.

The contribution margin per unit for each product is calculated as follows:

Contribution Margin = Selling Price − Variable Cost

For product X: Contribution Margin X=300−200=100

For product Y: Contribution Margin Y=200−120=80

Since product X has a higher contribution per kg of material (100 > 80), it should be ranked as more profitable than product Y.

 

Now, for part (b):

Given:

·         Selling Price: ₹15

·         Variable Cost per unit: ₹9

·         Fixed Cost: ₹60,000

·         Number of units sold: 12,000

(b) (i) P/V (Profit and Volume Ratio) and BEP (Break-Even Point):

P/V Ratio = (Selling Price - Variable Cost) / Selling Price

= (15 - 9) / 15

= 6 / 15

= 0.4 or 40%

BEP (in units) = Fixed Cost / (Selling Price - Variable Cost)

= 60,000 / (15 - 9)

= 60,000 / 6

= 10,000 units

 

(ii) If the company sells 12,000 units:

Profit = (Selling Price - Variable Cost) x Number of units sold

= (15 - 9) x 12,000

= 6 x 12,000

= 72,000

Margin of Safety = Number of units sold – BEP

= 12,000 - 10,000

= 2,000 units

 

As a percentage of sales:

Margin of Safety = (2,000 / 12,000) x 100%

= 16.67%