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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

agree krne k number b nai milte :p
and whether we agree or dont, we need to give an explanation of why. 

yup I know but I just gave an idea but we have to write the explanation ourselves...

ggfgdfgsdfg

mr c is wrong becoze he tell about per unit cost not total cost

according to my findings. i agree with MR.C because in this Scenario MR.A and MR.B are Hesitate due to reduction in profit and Cost of Goods produced may be increased. 

now this table give you full idea...

Increasing Production Volume Situation

 

 

per Unit

Total

Fixed Cost

Decrease

Constant

Variable Cost

Constant

Increase

Total Cost

Decrease

Increase

 

From the above tables you can easily understand that, in case of production volume increased the fixed cost remains same in total and decreased in per unit basis, while variable cost is remains same on per unit basis and increased in total

every one again focus on this statement again...

 

(From the above tables you can easily understand that, in case of production volume increased the fixed cost remains same in total and decreased in per unit basis, while variable cost is remains same on per unit basis and increased in total)

 

plz discussed with me

Masood we hve to just agre or disagre with the statment of mr C by givng sme logical resons..as u said in ur abve statment urz>(in case of production volume increased the fixed cost remains same in total and decreased in per unit basis, while variable cost is remains same on per unit basis and increased in total)
fixed cost remains same in total and increas or decreas by the change of production volum in per unit...But Mr. C is saying that fixed cost per unit remains same?how is it posible...compare ur statment wid mr C statment

plzzzzzz friends sahi answer kia ho ga agree with c or not :( 

not

can u tell me the reason 

kia confusion ha?

i don't know how to i solve this question .. plz share the right solution 

eska kya solution hai samjh he nai aa rai???? plz guide me

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