INDIAN INSTITUE OF TECHNOLOGY KHARAGPUR MID-TERM EXAMINATION Session: 201 !

201" Se#es$e%: A&$&#n S&'(e)$: En*inee%in* E)ono#+, Cos$in*, -n. A))o&n$in*/ S&'(e)$ No: IM 20011 F&00 M-%1s: 0 Ti#e: T2o 3o&%s 444444444444444444444444444444444444444444444444444444444444444444444444 Ans2e% -00 5&es$ions6 M-%1s -%e in.i)-$e. -*-ins$ $3e 5&es$ions6 444444444444444444444444444444444444444444444444444444444444444444444444 Question 1

A utensil-manufacturing firm produced and sold 500 utensils in the month of September 2013. The cost and revenue figures for the month for the month of September 2013 are given belo ! "irect material &ndirect material "irect labour &ndirect labour 'i(ed ')* ,ariable ')* $evenue # $s. 10%00%000 # $s. 30%000 # $s. 5%00%000 # $s. 30%000 # $s. +0%000 # $s. 5%00%000 # $s. 25%00%000 . . . /50

'ind the contribution margin and the brea-even monthl. number of utensils. So0&$ion $o 7&es$ion 1 "irect material # $s. 10%00%000 "irect labour # $s. 5%00%000 ,ariable ')* # $s. 5%00%000 Total ,ariable 1osts # $s. 20%00%000 2umber of units produced in September # 500 3nit ,ariable 1ost /v0 # $s. 20%00%0004500 # +%000 $s4unit $evenue 3nit 5rice /p0 # $s. 25%00%000 # 25%00%0004500 # 5%000 $s4unit

3nit 1ontribution 6argin # p v # 5%000 7 +%000 # 1%000 $s4unit &ndirect material &ndirect labour 'i(ed ')* Total 'i(ed 1osts # $s. 30%000 # $s. 30%000 # $s. +0%000 # $s. 1%00%000

8rea--even production volume # 1%00%00041%000 # 100 units.

Question 2

The A81 1ompan.9s old e:uipment for ma-ing subassemblies is orn out. The compan. is considering t o courses of action! /10 8u.ing subassemblies from outside /:uoted unit price of $e. 1 for a minimum of 50%000 units per .ear% and /20 replacing the old e:uipment ith ne e:uipment. The compan. has been producing ;0%000 units per .ear% and the forecast of re:uirements during the ne(t seven .ears is bet een 50%000 and <0%000 units per .ear. 3nit costs of manufacturing the subassemblies ith the old and the ne e:uipment are as follo s! "irect 6aterial "irect >abour ,ariable ')* 'i(ed ')* /inc. m4c depreciation0 )ld =:pt $e. 0.30 0.35 0.10 0.25 $e. 1.00 2e =:pt $e. 0.30 0.05 0.05 0.+0 $e. 0.?0

The ne e:uipment ill cost $s. 1??%000 cash% ill last seven .ears% and ill have a disposal value of $s. 20%000. The current disposal value of the old e:uipment is $s.10%000. Assume that $s. 3%000 of presentl. incurred fi(ed ')* ill remain unaffected b. an. decision that the management ill ta-e and that the idle facilities cannot be put to an. alternative use. Suggest the decision that the compan. should ta-e. So0&$ion $o 7&es$ion 2 The unit variable costs of manufacturing ith old and ne machines are! 0.<5 and 0.+ $e4unit respectivel.. @e assume that the unit costs given in the :uestion for the ne e:uipment are calculated for a production level of ;0%000 units4.ear /same as that ith the old e:uipment0. Thus the annual fi(ed costs ith the old and the ne e:uipment are! 15%000 A# /0.250/;0%0000B and 2+%000 A# /0.+0/;0%0000B $s. per .ear respectivel.. The costs for each alternative for producing x number of units annuall. for seven .ears are sho n belo ! . . . /50

)ld =:uipment 6anufacturing 1ost! /0.<5x C15%0000/<0 # 5.25x C 105%000 $s.

8u. Subassemblies "isposal of )ld =:pt! $s. 10%000 1ost of 8u.ing Subassemblies /1 D x D < # <x $s.0 'i(ed ')*! /$s.3%000 D <0 //x C 3%0000/<0 7 10%000 # <x C11%000 $s.0

/5.25x C 105%000 $s.0

2e =:uipment "isposal of )ld =:pt! $s. 10%000 6anufacturing 1ost! /0.+x C2+%0000/<0 # 2.?x C 1;?%000 $s. 'i(ed ')*! /$s. 3%000 D <0 /2.?x C1<E%000 $s.0

@e compare pairs of alternatives! 8u. subassemblies in preference to ma-ing them in-house ith the old e:uipment! if that is if <x C11%000 F 5.25x C 105%000 ( F53% <1+

8u. ne e:uipment in preference to or-ing ith the old e:uipment! if that is if 2.?x C1<E%000 F 5.25x C 105%000 ( G 30%20+

8u. ne e:uipment in preference to bu.ing subassemblies! if that is if 2.?x C1<E%000 F <x C11%000 ( G +0%000

De)ision: 8&+ ne2 e5&i9#en$ 'e)-&se x : "0,0006 2ote! &n the above-made calculations% e have assumed that the unit costs given in the :uestion for the ne e:uipment are estimated for a production level of ;0%000 units4.ear. &f% ho ever% the production level is different% then the decision ill be different.
Question 3 Selected data concerning the past fiscal .ear9s operations of the HIJ 6anufacturing 1ompan. are /in thousands0 given belo !

$a materials @&5 'inished goods )ther data $a materials used Total manufacturing costs charged to production during the .ear /inc. ra materials% ">% and ')* applied at a rate of ?0K of "> 1ost0 1ost of goods available for sale

8eginning $s. <0 <5 100

=nding $s. E0 35 120 $s. +;? ?;+ 1%02;

a. 1ompute the cost of ra materials purchased during the .ear. b. 1ompute the "> costs charged to production during the .ear. c. 1ompute the cost of goods manufactured during the .ear. So0&$ion $o 7&es$ion

. . . /E0

"irect material purchased # +;? 7 <0 C E0 # +?? thousand rupees 1ost of goods manufactured and transferred to finished goods inventor. # 1%02; 7 100 C 120 # 1%0+; thousand rupees +;? C 1.? D "> used # 35 C ?;+ "> used # 220 thousand rupees. ')* Applied # /0.?0/2200 # 1<; thousand rupees. >et x be the under-applied ')* finall. applied to @&5 @&5 balance e:uation! <5 C ?;+ C x 7 1%0+; # 35 /Since 1)L manufactured and transferred to finished goods inventor. # 1%0+;0 @&5 balance e:uation gives! x # 1%0+; C 35 7 <5 7 ?;+ # 1+2. Question + Three college classmates started a store near their college to sell ireless e:uipment to students. 1. )n 6arch 1% the. invested $s. 100%000 in cash for 1%000 shares of stoc- each. 2. The corporation :uic-l. ac:uired $s. +00%000 in inventor.% half of hich had to be paid for in cash% and the other half ac:uired on open accounts that ere pa.able after ;0 da.s. 3. A store as rented for $s. 5%000 monthl.. The first t o months9 rent as paid in advance. )ther pa.ments ere to be made on the second da. of each month. +. Advertising during 6arch cost them $s. 20%000 on open account and $s. 10%000 in cash. 5. Sales ere $s. ;00%000. 6erchandise as sold for t ice its purchase cost. Sevent.-five percent of the sales ere on open account. ;. @ages and salaries incurred in 6arch amounted to $s. 110%000 of hich $s. 50%000 as paid. <. 6iscellaneous services paid for in cash ere $s. 15%000. ?. )n 6arch 1% fi(tures and e:uipment ere purchased for $s. ;0%000 ith a do n-pa.ment of $s. 10%000 plus a $s. 50%000 note pa.able in one .ear. E. See Transaction ? and ma-e the 6arch 31 adMustment for interest e(pense accrued at 10K. /The interest is not due until the note matures.0 10. See Transaction ? and ma-e the 6arch 31 adMustment for depreciation e(pense on a straight-line basis. The estimated life of the fi(tures and e:uipment is 10 .ears ith no e(pected terminal scrap value. 11. 1ash dividends of $s. +0%000 ere declared and disbursed to stoc-holders on 6arch 30. 5repare the T-accounts% the balance sheet% and the income statement at the end of the first month of operation. . . . /110

So0&$ion $o 7&es$ion "

INVENTOR Y Dr. 2. 400,000 100,000 C ASH Dr. 1. 300,000 5. 150,000

C r.

PAID-IN C A PITA L Dr. C r. 1. 300,000 300,000 PAYAB LE Dr. C r. 2. 200,000 4. 20,000 220,000 R ETAINED E AR NING S Dr. C r. 104,500 104,500

5. 300,000

C r. 2. 200,000 3. 10,000 4. 10,000 6. 50,000 7. 15,000 ". 10,000 11. 40,000

115,000

FIXTUR ES& EQPT Dr. ". 60,000 59,500 10.

C r. 500

PREP AID RENT Dr. 3. 10,000 5,000

Cr.

ACCRUED WAGESP A Y ABL E Dr. Cr. 6. 60,000 60,000

3a. 5,000

ACCOUNTSRECEIVABL ES Dr. Cr. 5. 450,000

ACCRUED INTERES T PA Y ABLE Dr. Cr. 9. 417 417

450,000

NOTESP A Y ABL E Cr. Dr. ". 50,000 50,000

EXPENS ES& REVENUE Dr. Cr. 3. Rent: 5,000 4. Advt.: 20,000 5. DM: 300,000 6. Wages: 110,000 7. Misc.: 15,000 9. Int. Ex : 417 10. De !.: 500 11. Dividends:40,000 5. # a$es: 600,000

139,0"3

Balance Sheet

Assets /$s0 'i(tures N =:pt! 5E%500 1ash! 115%000 &nventor.! 100%000 A41 $eceivables! +50%000 5re-paid $ent! 5%000 Total! <2E%500
Income Statement $evenue! "6! $s.300%000 @ages! 110%000 $ent! 5%000 "epreciation! 500 6isc! 15%000 Lross 5rofit! Advt! 5rofit 8efore &nterest! &nterests! 2et 5rofit! "ividends! $etained =arnings!

>iabilities and ) ners9 =:uit. /$s0 5aid-in 1apital! 300%000 $etained =arnings! EE%0?3 A41s 5a.able! 220%000 Accrued @ages 5a.able! ;0%000 Accrued &nt 5a.able! +1< 2otes 5a.able! 50%000 Total! <2E%500

$s. ;00%000

+30%500 1;E%500 20%000 1+E%500 +1< 1+E%0?3 +0%000 10E%0?3

2ote! A fe students have ta-en &nterests as $s. 5%000 /of course% 10K monthl. interest rate is ver. unrealistic0. *o ever% if this amount is ta-en as correct% then the corresponding changes have to be made in the entries.