Quantitative questions on Management Control Systems
University Question Paper May 2011: 1. A company is working at 50% of its capacity. It sells 20000 units at a price of Rs. 100 per unit. Cost per unit is Rs. 90, the breakup of which is as follows:
Material Rs. 40
Manufacturing Cost Rs. 30 ( 30% is fixed)
Selling Cost Rs. 10 ( 40% is fixed)
Administration Cost Rs. 10 ( 50 % is fixed)
When the company works @ 80% capacity, selling price will fall by 5% and material cost will rise by 5%. At full capacity selling price will fall by 8% and material cost will rise by 8%. Calculate Profit & Loss at each level of working. Should the company work at its full capacity?

Solution:
Working of the company at different capacities is as under Particulars | Capacity Utilisation | | 50%=20000 units | 80%=32000 units | 100%=40000 units | Sales | 20,00,000 | 30,40,000 | 36,80,000 | Less Variable costs | | | | Materials Cost | 8,00,000 | (42 x 32000) = 13,44,000 | (43.20 x 40000) =17,28,000 | Manufacturing Cost | (21 x 20000) =4,20,000 | (21 x 32000)= 6,72,000 | (21 x 40000)= 8,40,000 | Selling Cost | (6 x 20000)= 1,20,000 | (6 x 32000)= 1,92,000 | (6x 40000)=2,40,000 | Admin. Expenses | (5 x 2000)= 1,00,000 | (5 x 32000)= 1,60,000 | (5 x 40000)=2,00,000 | Total Variable Cost | 14,40,000 | 23,68,000 | 30,08,000 | Fixed Cost : | | | | Manufacturing cost | (9 x 20000) =1,80,000 | 1,80,000 | 1,80,000 | Selling Cost | (4 x 20000) =80000 | 80,000 | 80,000 | Admin. Expenses | (5 x 20000) =1,00,000 | 1,00,000 | 1,00,000 | Total Fixed Cost | 3,60,000 | 3,60,000 | 3,60,000 | Fixed + Variable Cost | 18,00,000 | 27,28,000 | 33,68,000 | Profit | 2,00,000 | 3,12,000 | 3,12,000 |
The unit should not go for 100% capacity utilization as it does not gain anything by doing so.

2. The