Master of Commerce (M.COM) First (1st) Semester (MCO-05) Solved Assignments for January 2022 and July 2022 Admission Cycle
MCOM First (1st) Semester (MCO-05) Tutor Marked Solved Assignment
Course Code : MCO – 05
Course Title : Accounting of Managerial Decisions
Assignment Code : MCO-05/TMA/2022
Coverage : All Blocks
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MCO – 05 Accounting of Managerial Decisions – Semester 1 Solved Assignment for 2022
Practical Problem on Project Feasibility – Adding or Dropping a Product Line
Question 5.
A factory manager seeks your advice whether he should drop one item from his product line and replace it with another. Present cost and production data per unit are as follows:
| Product | Price (Rs.) | Variable Costs (Rs.) | % Sales in Total Sale |
| Tables | 60 | 40 | 50 |
| Chairs | 100 | 60 | 10 |
| Book Stands | 200 | 120 | 40 |
| Total Fixed cost per annum | Rs. 7,500 | ||
| Current Sales of the Year | Rs. 25,000 | ||
The change under consideration consists of dropping the line of chairs and replacing it with a line of Sofa. If this drop and add change is made, the manager forecasts the following data regarding cost and output:
| Product | Price (Rs.) | Variable Costs (Rs.) | % Sales in Total Sales |
| Tables | 60 | 40 | 30 |
| Sofa | 160 | 60 | 20 |
| Book Stands | 200 | 120 | 50 |
| Total Fixed cost per annum | Rs. 7,500 | ||
| Projected Sales of the Year | Rs. 26,500 | ||
Is this proposal feasible? Advise the management.
ANSWER:
Statement of profitability for Existing Production
| Particulars | Tables | Chairs | Book Stands | Total |
| Selling Price per unit | 60 | 100 | 200 | – |
| Less: Variable Cost per unit | (40) | (60) | (120) | – |
| Contribution per unit | 20 | 40 | 80 | – |
| P/V Ratio
(Contribution p.u. / Sales p.u. x 100) |
33.33% | 40.00% | 40.00% | – |
| Sales
(Rs. 25,000 in the ratio of 50% : 10% : 40%) |
12,500 | 2,500 | 10,000 | 25,000 |
| Contribution (P/V Ratio x Sales) | 4,167 | 1,000 | 4,000 | 9,167 |
| Less: Fixed Costs | – | – | – | (7,500) |
| Profit | – | – | – | 1,667 |
Statement of profitability for Proposed Production
| Particulars | Tables | Chairs | Book Stands | Total |
| Selling Price per unit | 60 | 160 | 200 | – |
| Less: Variable Cost per unit | (40) | (60) | (120) | – |
| Contribution per unit | 20 | 100 | 80 | – |
| P/V Ratio
(Contribution p.u. / Sales p.u. x 100) |
33.33% | 62.50% | 40.00% | – |
| Sales
(Rs. 26,500 in the ratio of 30% : 20% : 50%) |
7,950 | 5,300 | 13,250 | 26,500 |
| Contribution (P/V Ratio x Sales) | 2,650 | 3,313 | 5,300 | 11,263 |
| Less: Fixed Costs | – | – | – | (7,500) |
| Profit | – | – | – | 3,763 |
Decision: After analyzing the above statements it is observed that if the proposal is accepted then the profit will increase by Rs. 2,096 (i.e., Rs. 3,763 – Rs. 1,667). It is presumed that the demand of the proposed products will remain in the market. Therefore, the proposed is to be accepted.