CMA (March 2025) Revision plan CAF-03

REVISION PLAN CMA Mar - 2025

Important points to remember:
1. Try to attempt all question of a topic in single sitting.
2. Try to solve every question in given time (calculate time by multiplying 1.8 with marks for total time in
minutes.
3. Never refer a solution unless you have completely solved a question.
4. You are advised to refer your class register for complete coverage of concepts.
Grid A (Cost associated with production) [Weightage 35 – 45]
ICAP ST Topic name Important question
chapter
1. Spring 2021, Q-4 (Standard Limited)
2. Autumn 2010, Q-2 (Quality Limited)
1 Inventory valuation 3. Spring 2010, Q-1 (XYZ Limited)
4. Autumn 2021, Q-6 (Oranges Limited)
5. Spring 2023, Q-7 (Asghar Ali Associates) (Q-1 of this handout page 4)
6. Autumn 2012, Q-4 (Mehanti Limited)
1. Spring 2008, Q-2 (Zia Textile)
2. Autumn 2022, Q-4 (Venus Limited)
3. Spring 2014, Q-2 (Alpha Limited)
4. Autumn 2014, Q-7b (Salman Limited)
3 Overheads 5. Autumn 2013, Q-7 (Zaiqa Limited)
6. Spring 2022, Q-5 (California Limited)
7. Spring 2023, Q-9 (Faisal Enterprises) (Q-2 of this handout page 5)
8. Autumn 2024, Q-1 (A factory has three machines) (Recent attempt)
8. Spring 2021, Q-5 (Bright Limited)
9. Spring 2016, Q-5 (Omega Limited)
1. Question-1 (Illustration)
2. Question-3 (ICAP ST example: Rajput Enterprises)
4 Activity based 3. Question-6 (ICAP ST example: Rizwan Industries)
costing 4. Question-7 (ICAP ST example: JAM Enterprises)
1. Autumn 2012, Q-2 (Jadeed Limited)
2. Spring 2009, Q-2 (The following information …)
3. Autumn 2009, Q-6 (Toy Limited)
4. Spring 2022, Q-3 (Argentina Limited)
5 Labour costing 5. Autumn 2022, Q-1 (Centaurus Limited)
6. Spring 2017, Q-1 (Smart Processing) (Q-41 in Chapter 15 notes handout)
7. Spring 2019, Q-8 (Jasmine Limited) (Q-42 in Chapter 15 notes handout)
8. Autumn 2024, Q-5 (Ahmed Manufacturing Company) (Recent attempt)
8. Spring 2023, Q-1 (Ace Contractor Limited) (Q-3 of this handout page 6)

Cost flow in 1. Spring 2018, Q-4 (RI Limited)

6 production and 2. Autumn 2014, Q-6 (Modern Engineering)
And Job and service 3. Autumn 2023, Q-7 (Gulshan Enterprises)
7 costing 4. Spring 2011, Q-6b (Sapphire Limited)
1. Spring 2014, Q-4 (XY Limited)
Marginal costing 2. Spring 2022, Q-8 (Kenya Limited)
10 andabsorption 3. Spring 2015, Q-3 (Sigma Limited)
costing
4. Autumn 2020, Q-3 (Francisco Limited)
5. Autumn 2024, Q-7 (Waheed Industries Limited) (Recent attempt)

1
CMA (March 2025) Revision plan CAF-03
Grid B (Cost Flow) [Weightage 20 – 30]
ICAP ST Topic name Important question
chapter
1. Autumn 2003, Q-5 (Tata Cools)
2. Spring 2007, Q-3 (Star Chemicals)
3. Spring 2017, Q-3 (Ravi Limited)
4. Autumn 2014, Q-1 (Ababeel Limited)
5. Spring 2021, Q-1 (Mehnat Limited)
6. Spring 2019, Q-1 (Tulip Enterprises)
Process costing 7. Spring 2015, Q-4 (KS Limited)
8
And 8. Spring 2022, Q-9 (Beijing Limited)
And
Joint and by - 9. Autumn 2021, Q-4 (Green Limited)
9
productcosting 10. Spring 2024, Q-8 (Cruise Manufacturing) (Q-4 of this handout page 7)
11. Spring 2020, Q-5 (Scents Limited)
12. Autumn 2017, Q-1 (Platinum Chemicals)
13. Autumn 2018, Q-1 (Cricket Chemicals)
14. Autumn 2022, Q-7 (Mars Limited)
15. Autumn 2023, Q-9 (Hercules Chemical)
16. Autumn 2024, Q-9 (Epsilon Limited) (Recent attempt)

1. Autumn 2022, Q-8 (Neptune Limited)

2. Autumn 2017, Q-7 (Silver Industries Limited)
3. Spring 2016, Q-3 (Seema Enterprises)
4. Spring 2017, Q-6 (Hexa Limited) (Provided separately in lecture 105)
11 Standard costing 4. Spring 2022, Q-6 (Spain Limited)
And And 5. Spring 2010, Q-4 (Watool Limited)
12 Variance analysis 6. Autumn 2008, Q-3 (Hexa Limited)
7. Autumn 2015, Q-4 (Jack and Jill)
8. Autumn 2020, Q-5 (Siyara Pakistan)
9. Autumn 2011, Q-3a (Pelican Limited)
10. Autumn 2016, Q-7 (Zamil Industries)
11. Autumn 2023, Q-6 (Zahid Enterprises)
11.Spring 2023, Q-3 (Faiza Company Limited) (Q-5 of this handout page 9)

1. Spring 2022, Q-3 (Denmark Ice Cream)

2. Spring 2015, Q-6 (Hi-tech Limited)
13 Target costing
3. Autumn 2024, Q-4 (HG Enterprises) (Recent attempt)
4. Question-11 (ICAP ST example: Fintech company)

2
CMA (March 2025) Revision plan CAF-03
Grid C (Cost Management Planning and Decisions) [Weightage 30 – 40]
ICAP ST Topic name Important question
chapter
1. Spring 2010, Q-2 (Modern Distributors Limited)
2. Spring 2014, Q-1b (A Company…)
3. Autumn 2018, Q-4 (Hockey Pakistan)
4. Autumn 2015, Q-7 (Choco-king Limited)
5. Spring 2017, Q-2 (Aroma Herbs)
6. Autumn 2023, Q-3 (Shahab Industries)
2 Inventory 7. Autumn 2022, Q-5 (Galaxy Limited)
management 8. Autumn 2022, Q-2 (Saturn Limited)
9. Spring 2022, Q-1 (Nigeria Limited)
10. Spring 2018, Q-6 (Khan Limited)
11. Spring 2023, Q-2 (Masroor Limited)
1. Spring 2016, Q-8 (Himalayan River)
2. Spring 2017, Q-9 (Sword Leather)
3. Spring 2021, Q-7 (Fine Limited)
4. Spring 2014, Q-2 (Auto Industries)
5. Autumn 2017, Q-8 (Digital Industries)
Cost-volume-
14 6. Spring 2015, Q-1 (KPK Dairies)
profit(CVP)
analysis 7. Spring 2022, Q-4 (Rio Limited)
8. Spring 2014, Q-6 (Orient Limited)
9. Autumn 2022, Q-6 (Uranus Limited) (Q-6 of this handout page 10)
10.Autumn 2023, Q-5 (Khan Corporation)

1. Autumn 2018, Q-6 (Rugby Limited)

2. Autumn 2012, Q-8 (Tychy Limited)
3. Spring 2011, Q-4 (Topaz Limited)
15 Relevant costs 4. Spring 2016, Q-7 (Global Pvt. Limited)
5. Spring 2002, Q-4 (Malaika Industries)
6. Spring 2020, Q-4 (Ring Limited) (Q-1 in revision lecture 117 handout)
5. Autumn 2017, Q-6 (DEL Limited) (Q-7 of this handout page 11)

1. Spring 2018, Q-1 (Sarwar Limited)

2. Spring 2017, Q-8 (NK Enterprises)
3. Spring 2019, Q-2 (Lily Private)
4. Autumn 2016, Q-6 (Galaxy Engineers)
5. Autumn 2021, Q-2 (Yellow Limited)
6. Spring 2012, Q-5 (Artery Limited)
7. Autumn 2022, Q-9 (Jupiter Limited) (Q-8 of this handout page 12)
Decision 8. Autumn 2018, Q-3 (Snooker Private Limited)
16
making 9. Spring 2006, Q-4 (AG Electronics)
techniques 10.Spring 2015, Q-5 (Zee Chemicals)
11.Autumn 2019, Q-7b (Cappuccino Limited)
12.Autumn 2023, Q-8 (Habib Industries)
13.Autumn 2015, Q-9 (Sahil Limited)
14. Autumn 2020, Q-4 (Siyab Limited)
15. Spring 2022, Q-7 (Zimbabwe Limited)
16. Spring 2024, Q-7 (Sultan Industries Limited)

BEST OF LUCK

3
CMA (March 2025) Revision plan CAF-03
Additional questions in revision plan not provided in class notes are annexed on page 4 onwards.
Q.1 Inventory valuation (Spring 2023, Q-7)
Asghar Ali Associates (AAA) commenced business on 1 January 2023. It manufactures two products X and Y. Following
information pertains to its activities during the month of January 2023.
(i) During the month, sales of X and Y were 11,600 units and 9,400 units respectively. Throughout the month, AAA
sold these products at 25% above cost.
(ii) Product X requires 6 kg of raw material A and product Y requires 5 kg and 3 kg of raw materials B and C
respectively.
(iii) Data relating to raw materials are as fellows:
Description A B C Total
Purchases during the period (kg) 132,000 90,000 50,000
Invoice value (Rs. in '000) 52,800 43,200 30,000 126,000
Freight-in (Rs. in '000) - - - 21,760
Transit insurance (Rs. in '000) - - - 3,780
Closing inventory (kg) 36,000 20,000 8,000 -
(iv) Product X requires 5 labour hours per unit and product Y requires 3 labour hours per unit. The cost of labour is Rs.
300 per hour.
(v) Factory overheads during the period were Rs. 13,320,000.
(vi) Sales includes 200 units of X and 400 units of Y which were returned by the customers because of being damaged.
These are with AAA. The defective units need to be reworked by incurring a per unit cost of Rs. 1,500 and Rs. 800
on products X and Y respectively, so they can fetch the current selling price? "
Required:
Determine the value of closing finished goods as at 31 January 2023. (15)
Solution-1 (Spring 2023, Q-7)
Manufacturing cost per unit
X Y Total
---------- Rs. in ‘000 ----------
Cost of raw material per unit -
A [6  0.492 (W-1)] 2.95 - -
B [5  0.574 (W-1)] - 2.87 -
C [3  0.698 (W-1)] - 2.09 -
Cost of labour per unit [X: 300  5  1,000]: [Y: 300  3  1,000] 1.50 0.90 -
Factory overhead per unit [X: 5  0.109 (W-2)]: [Y: 3  0.109 (W-2)] 0.55 0.33 -
Cost per unit 5.00 6.19 -
Closing inventory (goods units) - value [X: 4,400(W-3)  5(W-4)]: [Y: 4,600(W-3)  6.19(W-4)] 22,000 28,474 50,474
Closing inventory (defective units) - value [X: 200  4.75(W-4)]: [Y: 400  6.19 (W-4)] 950 2,476 3,426
Total value of closing stocks - - 53,900
(W-1) Cost of raw material per kg
A B C Total
----------------------- Kg -----------------------
Raw material purchased (a) 132,000 90,000 50,000 272,000
------------------- Rs. in '000 ------------------
Invoice value 52,800 43,200 30,000 126,000
Freight (allocated in the ratio of quantity purchased) 10,560 7,200 4,000 21,760
Insurance in transit (allocated in the ratio of invoice value) 1,584 1,296 900 3,780
Total cost (b) 64,944 51,696 34,900 151,540
Purchase cost per kg (b  a) 0.492 0.574 0.698 -
(W-2) Computation of factory overhead per labour hour
X Y Total
Units produced (W-3) 16,000 14,000 -
Labour hours used [X: 16,000  5]: [Y: 14,000  3] 80,000 42,000 122,000
Total overheads (Rs. in '000) 13,320

Overhead per labour hour (Rs. in '000) (13,320,000  122,000) 0.109

4
CMA (March 2025) Revision plan CAF-03
(W-2.1) Computation of raw material consumed
A B C
-------------------- Kg --------------------
Raw material purchased 132,000 90,000 50,000
Less: Closing inventory (36,000) (20,000) (8,000)
RM consumed 96,000 70,000 42,000
(W-3) Closing finished goods units
X Y
----------- Units -----------
Produced [X: 96,000 (W-2.1)6]: [Y:70,000 (W-2.1)5 OR 42,000 (W-2.1)3] 16,000 14,000
Gross sales (11,600) (9,400)
Closing - good units 4,400 4,600
(W-4) Per unit value of defective units
X Y
---------- Rs. in ’000 ----------
Normal selling price (5  1.25): (6.19  1.25) 6.25 7.74
Less: Rework cost (1.50) (0.80)
NRV 4.75 6.94
Cost 5.00 6.19
Lower of cost or NRV 4.75 6.19

Q.2 Overheads (Spring 2023, Q-9)

Faisal Enterprises Limited (FEL) produces three products A, B and C. Each product is produced in a separate
department. There are two service departments i.e. Repair & Maintenance (R&M) and Stores.
Following data is available for the month of February 2023:
Production Departments Service Departments
Total
A B C R&M Stores
-------------------- Rs. in '000 --------------------
Indirect material cost 180 240 120 930 30 1,500
Indirect labour cost 160 210 150 60 20 600
Fuel and electricity 1,520
Air-conditioning and lighting 150
Depreciation & insurance – Machines 665
Depreciation & insurance – Building 50
Other insurance 270
Other information:
Raw material cost (Rs. in ‘000) 60,000 45,000 30,000 - - 135,000
Labour hours (no. of hours) 2,000 3,000 4,000 - - 9,000
Machine hours (no. of hours) 5,000 6,000 8,000 - - 19,000
Area (in square meters) 200 300 400 60 40 1,000
% of apportionment of service
department’s cost:
▪ R&M 25% 30% 35% - 10%
▪ Stores 30% 25% 25% 20% -
Equivalent units in process – opening 2,000 2,000 2,500 - -
Equivalent units in process – closing 1,500 3,000 2,000 - -
Units transferred to finished goods 5,500 5,000 4,500 - -
Additional information:
(i) Raw material and labour are consumed evenly during the production process.
(ii) Direct labour is paid @ Rs. 300 per hour.
(iii) FEL uses simultaneous equation method for apportioning service departments’ cost to production departments.
Required:
Allocate the factory overheads to the departments, clearly displaying the basis of allocation, and determine the cost of production
of each unit. (16)

5
CMA (March 2025) Revision plan CAF-03
Solution-2 (Spring 2023, Q-9)
Faisal Enterprises Limited
Total Production Services Basis
A B C R&M Stores
----------------------- Rs. in '000 ---------------------
Indirect material 1,500 180 240 120 930 30
Indirect labour 600 160 210 150 60 20
Fuel and electricity 1,520 400 480 640 - - Machine hours
Air conditioning 150 30 45 60 9 6 Area
and lighting
Depreciation and 665 175 210 280 - - Machine hours
insurance – machine
Depreciation and 50 10 15 20 3 2 Area
insurance – building
Other insurance 270 120 90 60 - - Raw material cost
4,755 1,075 1,290 1,330 1,002 58
M = 1,002 + 0.2S -------- (i)
S = 58 + 0.1M ------------ (ii)
Putting equation of ‘S’ in (i)
M = 1,002 + 0.2 × (58 + 0.1M)
M = 1,034
Putting value of ‘M’ in (ii)
S = 58 + 0.1 × 1,034 = 161
Total A B C R&M Stores
------------------------------- Rs. in '000 -------------------------------
Cost as above 4,755 1,075 1,290 1,330 1,002 58
Maintenance - 259 310 362 (1,034) 103
Store - 49 40 40 32 (161)
1,383 1,640 1,732 0 0
Computation of cost per unit:
Total A B C
---------------------------------- Rs. in '000 ---------------------------------
Raw material cost 135,000 60,000 45,000 30,000
Labour cost 2,700 600 900 1,200
(2,000×300) (3,000×300) (4,000×300)
Factory overheads (as above) 4,755 1,383 1,640 1,732
Total production cost 61,983 47,540 32,932
Units produced 5,000 6,000 4,000
(5,500+1,500–2,000) (5,000+3,000–2,000) (4,500+2,000–2,500)
Cost per unit (in Rs.) 12,397 7,923 8,233

Q.3 (Spring 2023, Q-1)

Ace Contractors Limited (ACL) supplies customized components to various industrial customers. It is considering to bid for a
contract for supply of 100,000 units of LM3, to Sarmad Industries. Its technical department has provided the following estimates
regarding the production cost of the first batch consisting of 25,000 units of LM3:
Total costs
(Rs. in '000)
Raw material (63,000 kg @ Rs. 600 per kg) 37,800
Labour (4 hours per unit @ Rs. 300 per hour) 30,000
Overheads (Rs. 400 per labour hour) 40,000
Following additional information has also been made available:
(i) LM3’s production will be carried out in four batches of 25,000 units each.
(ii) Raw material consumption includes wastage which is estimated at 5% of the actual raw material to form part of the
product. However, the wastage is expected to reduceby 10% in each new batch as the production process improves with
experience.

6
CMA (March 2025) Revision plan CAF-03
(iii) Learning curve effect for labour is estimated at 90%. It is expected to remain effective for the first three batches only.
Index of 90% learning curve is –0.152.
(iv) 20% of the overheads are fixed and mostly represent the maintenance and depreciation of factory building and machines.
Required:
Calculate the minimum bid price which ACL should quote to earn a profit of 35% on the quoted price. (10)
Solution-3 (Spring 2023, Q-1)
Ace Contractors Limited
Computation of minimum bid price Rs. in '000
Raw material consumption (250,317(W-1)×600) 150,190.20
Total labour cost (327,726(W-2)×300) 98,317.80
Overheads [131,090,400(327,726 (W-2)×400)×80%] 104,872.32
Total cost of contract 353,380.32
Add: Margin (353,380.32÷0.65×0.35) 190,281.71
Minimum bid price 543,662.03
W-1: Raw material quantity consumption (in kg)
Batch Numbers Total
1 2 3 4
Quantity forming part of the product
(63,000×100÷105) 60,000 60,000 60,000 60,000 240,000
Wastage 3,000 2,700 2,430 2,187 10,317
Total quantity of raw material 63,000 62,700 62,430 62,187 250,317
Consumed
W-2: Labour hours used
Hours for first 3 batches [300,000{3×(25,000×4)}×3−0.152] 253,863
Hours for first 2 batches [200,000{2×(25,000×4)}×2−0.152] 180,000
For the 4th batch 73,863

Total labour hours (253,863+73,863) 327,726

Q.4 (Spring 2024, Q-8)

Cruise Manufacturing Limited (CML) produces a product that passes through two processes. The details of processing during
the month of February 2024 are as follows:

Process A Process B
Cost of material Conversion costs Cost of material Conversion costs
Costs of production ------------------- Rs. in ‘000 -------------------
Opening work in process 16,000 6,000 30,000 10,000
Cost incurred during the month 110,000 40,000 225,000 70,000
Units Process completion Units Process completion
Quantitative analysis
Opening work in process 8,000 60% 5,000 30%
Units started in/transferred from Process A 50,000 - 45,000 -
Units rejected on inspection 2,500 - 3,000 -
Units transferred to Process B/Warehouse 45,000 - 40,000 -
Closing work in process 10,500 80% 7,000 50%
Additional information:
(i) CML uses weightage average method for inventory valuation.
(ii) Material G36 is added at the start of the Process A, and another material, H148, is added at the start of the Process
B.
(iii) Inspection occurs when Process A is 70% complete and again when Process B is 80% complete. Units rejected in
Process A are disposed of at a cost of Rs. 500 per unit whereas, units rejected in Process B can be sold for Rs. 2,000 per
unit. 5% of units are normally rejected at each stage of inspection.
(iv) Units rejected during Process B were sold during the month but units rejected during Process A were still in the factory
at the month’s end.
Required:
(a) Compute equivalent production units. (07)
(b) Compute the cost of finished goods produced, closing inventory and abnormal gains/losses, if any. (08)

7
CMA (March 2025) Revision plan CAF-03
Solution-4 (Spring 2023, Q-1)
(a) Compute equivalent production units
Equivalent Production Units (Process-A) % of completion Material Conversion
Actual output 100% 45,000 4,5000
Closing WIP (100%,80%) 10,500 8,400
Abnormal gain (100%,70%) (400) (280)
55,100 53,120
(W-1)
Quantity ledger Process-A A/C
Units Units
Opening WIP 8,000 Actual Output 45,000
Transfer In 50,000 NL (58,000 (50,000+8000) x 5%) 2,900
Abnormal gain (bal.) 400 Closing Wip 10,500
58,400 58,400
Equivalent Production Units (Process-B) % of completion Material Conversion
Actual output 100% 40,000 40,000
Closing WIP (100%,50%) 7,000 3,500
Abnormal Loss (100%,80%) 850 680
47,850 44,180
(W-2)
Quantity ledger Process-B A/C
Units Units
Opening WIP 5,000 Actual Output 40,000
Transfer In 45,000 NL (43,000(5,000+45,000–7000) x 5%) 2,150
Abnormal Loss (bal.) 850
Closing Wip 7,000
50,000 50,000
(b) Cost of finished goods, closing WIP and abnormal gain/loss:
Material Conversion Total
Cost of units transferred to process B 104,088,150 38,968,200 143,056,350
(45,000 x 2,313.047) (45,000 x 865.96)
Cost of closing WIP 24,287,235 7,274,064 31,561,299
(10,500 x 2,313.07) (8,400 x 865.96)
Abnormal gain 925,228 242,469 1,167,697
(400 x 2,313.07) (280 x 865.96)
(W-3) Cost per Unit
Process A
Material Conversion
---------- Rupees ---------
Opening WIP 16,000,000 6,000,000
Cost incurred during the month 110,000,000 40,000,000
Provision for cost of disposal of normal loss (2,900×500) 1,450,000 -
127,450,000 46,000,000
Equivalent units 55,100 53,120
Cost per unit 2,313.07 865.96
Material Conversion Total
Cost of units transferred to finished goods 329,158,800 72,430,800 401,589,600
(40,000 x 8,228.97) (40,000 x 1,810.77)
Closing inventory 57,602,790 6,337,695 63,940,485
(7,000 x 8,228.97) (3,500 x 1,810.77)
Abnormal loss 6,994,625 1,231,324 8,225,949
(850 x 8,228.97) (680 x 1,810.77)

8
CMA (March 2025) Revision plan CAF-03
(W-4) Cost per Unit Process B
Material Conversion
---------------- Rupees ----------------
Opening WIP 30,000,000 10,000,000
Cost transferred from Process A 143,056,350 -
Cost incurred during the month 225,000,000 70,000,000
Sale of rejected units of normal loss(2,150×2,000) (4,300,000)
393,756,350 80,000,000
Equivalent units 47,850 44,180
Cost per unit 8,228.97 1810.77

Q.5 Standard costing and variance analysis (Spring 2023, Q-3)

Faiza Company Limited (FCL) produces office furniture. FCL recently established a management accounting department
and hired Salman to lead it. Salman has evaluated the performance of the production department for the last quarter and made his
presentation to the Board. Some of the information extracted from his presentation are given below:
Description Rs. in '000 Effect of variance
Purchase of direct material 22,000
Direct labour cost 5,000
Material price variance 2,600 Favourable
Material yield variance 360 Unfavourable
Material mix variance 80 Favourable
Labour rate variance 350 Favourable
Opening and closing inventory of direct material 14,000
Due to overall favourable variance, Salman has praised the performance of production department. However, FCL’s CFO is
of the view that the matter needs more analysis to determine the real reasons for the variances, before making a final
conclusion with regard to the performance of the production department.
Required:
Briefly discuss the possible reasons because of which the CFO does not seem to agree with Salman and has suggested
carrying out of further analysis. (08)
Solution-5 (Spring 2023, Q-3)
Faiza Company Limited
• Variance analysis can only be relied upon if the system of setting the standards and budgets is reasonably accurate. The
existence of high variances on either side creates doubt about the accuracy of the budgeting and the standard setting
process.
• The purchase price variance shows that purchases were made at around 12% (2,600/22,000) below the standard, which
seems unrealistic. It is necessary to ensure that quality was not compromised, as this may lead to lower quality of the finished
product.
• The unfavorable yield variance is indicative of compromise in either the quality of material or the quality of labour,
which can result in more wastages.
• The favourable material mix variance mostly requires careful analysis because it indicates that some relatively lower
value or quality material was used in place of some relatively higher value or quality material.
• The favourable labour rate variance could be due to the hiring of relatively cheaper labour which could lead to quality
issues reflected in the final product’s quality or higher wastage.
• Level of inventory is quite high which could lead to higher holding costs.

9
CMA (March 2025) Revision plan CAF-03
Q.6 (Autumn 2022, Q-6)
Uranus Limited (UL) manufactures and sells two products, XI and Yl. Following is the latest information
pertaining to XI and Yl:

XI Yl
Units
Sales volume 5،000 2،500
Rupees
Selling price per unit 4,400 2,200
Variable cost per unit 3,000 1,500
Fixed factory overheads 5,400,000
Fixed selling and distribution overheads 4,500,000
UL’s finance director has suggested that sales of XI can be increased by spending Rs. 300,000 on
advertisement and reducing selling price by 5%. Sales volume of XI is expected to increase by 20% as a
result of adopting his suggestions.
Required:
(a) Compute the existing overall break-even sales revenue and margin of safety units. (05)
(b) Advise UL whether it should go ahead with his suggestions or not. (02)

Solution-6 (Autumn 2022, Q-6)

(a) Uranus Limited
X1 Y2 Total
Rupees
Sale revenue (5000 x 4400) ; (2500 x 2200) 22,000,000 5,500,000 27,500,000
Variable cost (5000 x 3000); (2500 x 1500) (15,000,000) (3,750,000) (18,750,000)
Total contribution 7,000,000 1,750,000 8,750,000
CM ratio 8750 / 27500 31.82%
Fixed costs 5400 + 4500 9,900,000
Break even sales revenue 9900 / 31.82% 31,112,508

Sales mix 1 2 3
Weighted average selling price 8,800 2,200 11,000
Break even units A 5,656 2,828 2,828
(2,828 x 2) (2,828 x 1) (31,112,508/11,000)
Sales units B 5,000 2,500 -
Margin of safety units C=B-A (656) (328) -
(b)
X1 Y1 Total
------------------------- Rupees -------------------------
Reduced selling price 4400 x 95% 4,180
Les: variable cost (3,000)
Contribution per unit 1,180
Total contribution 7,080,000 1,750,000 8,830,000
1,180 x 5000 x 1.2
Incremental contribution 8,830,000 - 8,750,000 80,000
Incremental cost – advertising (300,000)
Net incremental cost (220,000)
UL should not incur the additional advertisement cost as the incremental contribution is not sufficient
to cover the incremental cost.

10
CMA (March 2025) Revision plan CAF-03
Q.7 (Autumn 2017, Q-6)
DEL Limited manufactures radiators for car manufacturers. In normal operations, about 200,000 units are sold per annum at an
average selling price of Rs. 15,000 per unit. Manufacturing process is carried out by 500 highly skilled labour who work
an average of180 hours per month at Rs. 250 per hour. Raw material cost is Rs. 3,000 per unit. Annual factory overheads are
estimated at Rs. 540 million. Variable overheads are 150% of labour cost.
DEL had received an offer from TRU Limited to manufacture 4,000 units of radiators of trucks, at Rs. 50,000 per unit. DEL
had expected to earn significantly high margin on thisorder and had planned to stop normal production for this purpose. It
had already procured the raw material for Rs. 60 million but before the start of manufacturing it came to knowthat TRU
has gone into liquidation.
To deal with the situation, DEL’s marketing department has negotiated with another truck manufacturer, NTR Limited. NTR’s
specifications are slightly different and the price offered by NTR is Rs. 40,000 per unit.
The costs to be incurred on the new order and other relevant details are as follows:
(i) Additional raw material of Rs. 12 million would have to be purchased for NTR’s order.
(ii) DEL expects that first unit would take 10 hours. The labour time would be subject to a 95% learning rate up to1,000 units.
Thereafter, the learning rate would stop. The index of 95% learning curve is -0.074.
(iii) Variable overheads would be 240% of the cost of labour.
(iv) Fixed overheads are to be applied at Rs. 400 per labour hour.
(v) Total cost of preparing the plant for NTR’s order and resetting it to the normal production would be Rs. 4million.
If the order from NTR is not accepted, raw materials of Rs. 60 million already procured would have to be sold at 70% of
their cost. However, raw material worth Rs. 10 million can be utilized in the car’s radiators after slight alteration at a cost of
Rs. 1 million. The altered raw material can produce 30% components of 10,000 car radiators.
Required:
Determine whether DEL may accept the order from NTR. (12)
Solution-7 (Autumn 2017, Q-6)
DEL Limited
Acceptance of order from NTR Limited for truck radiators
Rs. in million
Revenue from NTR Limited 40,000×4,000 160.00
Additional raw material (12.00)
Raw material already procured – sales value (60-10) × 70% (35.00)
– use value for truck radiators (10,000×3,000×30%) – 1 (8.00)
Labour cost [22,647.91 (W-1) × 250] (5.66)
Variable overheads (5.66 × 240%) (13.58)
Preparation and resetting cost of the plant (4.00)
Fixed overheads applied To be ignored -
81.76
Loss of CM for not producing car radiators 4,194 (W-2) ×8,625 (W-3) (36.17)
Profit on acceptance of the order from NTR 45.59
Conclusion:
DEL should accept the order from NTR Limited
W-1: Direct labour hours for production of truck radiators Hours
Direct labour hours for 1,000 units [1,000×10 × (1,000)-0.074] 5,997.91
Direct labour hours for 999 units [999 × 10 × (999)-0.074] (5,992.36)
Hours per unit for 1,001 and onward 5.55
Direct labour hours for first 1,000 units 5,997.91
Direct labour hours for next 3,000 units (5.55 × 3,000) 16,650.00
22,647.91
W-2: No. of Car radiators to be produced if NTR's order is not accepted.
Labour hours per unit of car radiator (500×180×12) ÷ 200,000 Hrs. 5.40
No. of car radiators to be produced 22,647.91 (W-1) ÷ 5.40 Nos. 4,194
W-3: Contribution margin per unit/hour for car radiators Rupees
Selling price 15,000
Raw material cost (3,000)
Labour cost (500×180×250×12) ÷ 200,000 (1,350)
Variable overheads 150% × 1,350 (2,025)
Contribution margin per unit 8,625

11
CMA (March 2025) Revision plan CAF-03
Q.8 (Autumn 2022, Q-9)
(a) Jupiter Limited (JL) is engaged in the production of three products L1, L2 and L3 which it sells in the local market.
Presently, JL’s manufacturing plant is operating at 80% of its capacity. Following information has been extracted from JL’s
records for the year ended 31 August 2022:
L1 L2 L3
Production/sales (units) 3,500 6,000 7,000
Machine hours per unit (hours) 8 5 6
------------- Rupees -------------
Selling price per unit 6,200 5,000 7,000
Variable cost per unit
Direct material 900 600 1,000
Direct labour 800 750 1400
Variable overheads 600 700 600
Fixed overheads 8,250,000
In order to enter into the international market, on 1 August, 2022, JL hires the servicesof an export house to market its
products, at a monthly payment of Rs. 100,000. JLresultantly receives first export order from a USA based company,
Asteroid Limited.Details of the export order are as follows:
Product Units Selling price per unit
PKR equivalent
L1 1,200 6,500
L2 1,500 5,200
L3 1,800 7,400
It is estimated that due to additional packaging, the direct material cost will increase by10% and due to quality control, other
variable overheads will increase by 15%.
A toll manufacturer offers JL to produce L1, L2 and L3 at Rs. 1,800, Rs. 1,600 and Rs. 2,500 respectively subject to
provision of material by JL.
The management has decided to produce local orders on priority.
Required:
Prepare a product wise plan for in-house production and outsourcing to maximize JL's profitability for the upcoming
year. (10)
(b) Briefly discuss any four non-financial considerations that are often relevant to an outsourcing decision. (04)

Solution-8 (Autumn 2022, Q-9)

(b) Non-financial considerations that will often be relevant to an outsourcing decisioninclude the following:
(i) When work is outsourced, the entity loses some control over the work. It will rely on the external supplier to
produce and supply the outsourced items. Theremay be some risk that the external supplier will produce the
outsourced items to a lower standard of quality.
(ii) There may be some risk that the external supplier will fail to meet delivery dateson schedule, so that production
of the end-product may be held up by a lack of components.
(iii) The entity will also lose some flexibility. If it needs to increase or reduce supplyof the outsourced item at short
notice, it may be unable to do so because of the terms of the agreement with the external supplier. For example,
the terms of theagreement may provide for the supply of a fixed quantity of the outsourced item each month.
(iv) A decision to outsource work may have implications for employment within theentity, and it may be necessary
to make some employees redundant. This will have cost implications, and could also adversely affect relations
between management and other employees.
(v) It might be appropriate to think about the longer-term consequences of a decision to outsource work. Whatmight
happen if the entity changes its mind atsome time in the future and decides either to bring the work back in-
house or togive the work to a different external supplier? The problem might be that takingthe work from the
initial external provider and placing it somewhere else mightnot be easy in practice, since the external supplier
might not be co-operative in helping with the removal of its work.
(vi) The company cannot hope to maintain any competitive advantage from the workof the external supplier, since the
competitors can hire the same supplier.
(vii) If the work that is outsourced is not specialized, or is outside the entity’s main area of expertise, outsourcing work
will enable management to focus their efforts on those aspects of operations that the entity does best. For
example, it could be argued that activities such as the management of an entity’s fleet of delivery vehicles, or
the monthly payroll work, should be outsourced becausethe entity itself has no special expertise on these areas.

12
CMA (March 2025) Revision plan CAF-03
(a) Jupiter Limited
Hours
Normal capacity [(3500×8) + (6000×5) + (7000×6)] 100,000
Full capacity (100,000/0.8) 125,000
Available capacity 25,000
Machine hours required for exportorder [(1200×8) + (1500×5) + (1800×6)] 27,900
Shortfall 2,900
EXPORT ORDER L1 L2 L3
Contribution per unit - in house production ---------------- Rupees ----------------
Sales price per unit 6,500 5,200 7,400
Direct material - increased by 10% 990 660 1,100
Direct labour 800 750 1,400
Variable overheads - increased by 15% 690 805 690
Fixed overheads Irrelevant cost
Export house services Irrelevant cost
Total variable cost 2,480 2,215 3,190
Contribution per unit A 4,020 2,985 4,210
Contribution per unit – outsource
Sales price per unit 6,500 5,200 7,400
Direct material 990 660 1,100
Cost charged by AL 1,800 1,600 2,500
Total variable cost 2,790 2,260 3,600
Contribution per unit B 3,710 2,940 3,800
Incremental CM on in-house production C=A–B 310 45 410
Machine hours per unit D 8 5 6
Incremental CM on in-house productionper hour E=C÷D 39 9 68
In-house production ranking 2 3 1
Production: ------------------ Units ------------------
For local supply 3,500 6,000 7,000
For exports – in-house production 1,200 (W-1) 920 1,800
Outsourcing:
For exports (1500 – 920) - 580 -
Total units 4,700 7,500 8,800
W-1:
Available hours 25,000
Hours for production of:
- L3 (1800×6) (10,800)
- L1 (1200×8) (9,600)
Remaining hours 4,600

Production of L2 (4,600/5) 920

13