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Star company - a partnership firm of Mr. “A” and Mr. “B”, deals in ball points manufacturing business. Despite of using the traditional approach of costing, the company is earning handsome profits. One day Mr. C (son of partner A) visited the firm and got a chance to check some of the organization’s reports incidentally. He found that due to the lack of knowledge about costing techniques, the plant capacity is being incorrectly estimated and this has resulted in underutilization of the plant. He discussed this issue with his father on the dinner and suggested Mr. A to adopt some modern costing techniques so that the plant capacity can be fully utilized. Mr. A discussed this issue with his partner, Mr. B on the next day. But, both the partners were hesitant to adopt the suggestion because they thought that due to this, their cost of goods produced might gone up and hence their profit could be reduced. Later, Mr. C tried to convince them that the profit could not be reduced. He strongly recommended the proposal by saying that “Variable cost varies on per unit of output produced, whereas fixed cost remains constant on per unit of output produced”.


Required:

As a student of cost accounting, will you be agree with the statement given by Mr. C? Support your answer with logical reasons.

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Replies to This Discussion

Nice  sharing

Anwar Bhai, this is GDB.

aap bhi na bus............... 

plz  share  ur   remarks....is   sy 2 ko fida ho ga

agree with MR.C

Increasing production volume situation

                           per unit            total
Fixed Cost           Increase            Constant
Variable Cost       Constant          Increase
Total Cost            Decrease         Increase

bhae production volume increase krne ki bat ho rahi hai to According to this table variable cost will remain the same and the profit will be increase.

“Variable cost varies on per unit of output produced, whereas fixed cost remains constant on per unit of output produced”.

ye statement assignment mein just confuse krne k lye di hui hai yeh basic definition hain fixed and variable cost ki...scnerio mein just yeh pucha hai k agar production volume increase karein to?

just increasing production volume situation wala table dekhain and scnerio solve ker lein

mujhey to yehi lag raha hai im super confused too

kanwal Mr C is wrong.. scenario mein baat modern costing techniques apnane ki ho rae hai to fully utlize plant capacity... which means production vloume will increase...ye baat to Mr c ki thk hai k modern techniques adopt kiye jen butMr c ne last mein convince kerne k liye jo statment di hai k "Variable cost varies on per unit of output produced, whereas fixed cost remains constant on per unit of output produced”. wo wrong hai bcoz according to hand outs variable cost per unit remains constant and fixed cost per unit varies... so he is wrong....statement is very clear & simple... no confusion at all.. atleast thats wt i think & meine to GDB mein No likh ker hi bheja hai....:) 

Fixed cost in increasing production will decrease on per unit basis..

Mr c is wrong. DEAR read the handouts carefully.

Kanwal,

your table is wrong.

by increason production volume, fixed cost per unit decreases. not increases and others are also to be inverted.

Variable portion is ok in your table.

Mr. C is wrong in his statement but right for his intention to increase the production volume to utilize the capacity of plant.  

 

Agreed with M. Sameer Aslam!

 Because Mr. C ulta keh rha hai... variable cost per unit same ho ga or fix cost per unit decrease ho ga lekin total ma variable cost increase ho ga or fix cost constant rhe ga..

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