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# MGT402 Assignment#02 Solution & Discussion Due Date:13-01-2011

Semester “FALL 2010”

“ Cost & Management Accounting (MGT402) ”

Assignment No. 02                                   Marks: 20
PROBLEM:
Mirza & Co manufactures and sells 3,500 units of product “A” at a selling price of Rs.
30 per unit. Fixed Cost Rs. 45,000 and variable cost Rs 10 per unit incurred to
manufacture the product A.
Management of Mirza & Co. is anxious to improve the company’s profit performance
and has asked for analysis of a number of items.

Required:

  Scenario 1: Calculate contribution margin and net profit with the help of given data.
  Scenario 2: Refer to original data; the management feels that due to increase of
advertising budget by Rs. 30,000 (this cost is considered as fixed cost) would increase
sales volume of product “A” by 20%. Should the advertisement budget be increased and
show complete calculation of contribution margin and net profit with these changes?
Also compare the findings of scenario 2 with scenario 1 and suggest which scenario
is more profitable.
  Scenario 3: Refer to original data the management decided to improve the quality of its
product “A” by increasing the variable cost by 40%. Due to improvement in quality of
product the sales volume also  increased by 20%. What effects should be seen on its
Contribution margin and net profit with new these changes.
Also compare the findings of scenario 3 with scenario 1 and suggest which scenario
will more profitable.
  Scenario 4: Refer to original data; management has a plan to increase the sale price of
the product “A” by 25%. Due to this, they expect that their sales volume decreased by
30%. Analyze the all changes by preparing income statement.
Also compare the findings of scenario 4 with scenario 1 and suggest which scenario
is more profitable.
Important Tips
1.  This Assignment can be best attempted from the knowledge acquired after
watching video Lecture # 01 to Lecture # 31 and reading handouts as well as
recommended text book).
Schedule Opening Date and Time    January 10, 2011 At 12:00 A.M. (Mid-Night)
Due Date and Time    January 13, 2011 At 11:59 P.M. (Mid-Night)
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### Replies to This Discussion

Please See the attached file for Idea Solution

Attachments:
in scenario 2 units of firm are increased to 4200 .therefore in scenario 3 we will use 4200 units and take 20% of 4200 and add 20% sales increase..we shoul not take 3500 units in every scenario.coz we r talking abt 1 firm and they r increasing and decreasing there sales volume in every next scenario.i think so..plz anyone has idea about it?
treat them separately.
saima, every requirement asking different answer and depends on given information. it is not a yearly depreciation method.
treat them separately.
danish.ahmed42@yahoo.com
thxxx..but i think iam right..but m not sure also :(
ager total cost main varation ati hai tu vo effect kary ge every coming next year ku. price is changeable value. aurr question main bar bar explanation ka refrence diya jaraha hai.

20% increase if advertising budgets goes up to highe. have to take 3500 and increase its price. 20% which would be i think 7.5.  got it.

scenario ka matlab hai  IN CASE.

Please provide solution for this assignment..
Please tell me the solution from Mr. Tariq Malik is correct or not. Pleaseeeeeeeeeeeeeee
first  solution by mr tarik is correct mr tom cruz

Idea solution mgt402

Scenario 1:

Sales = 3500*30 = 10500

VC = 3500*10 = 35000

Contribution margin = 70000

Fixed cost = 45000

Net profit = 25000

Scenario 2:

Sales = 4200*30 = 12600

VC = 4200*10 = 42000

Contribution margin = 84000

Fixed cost = 75000

Net profit = 9000

Scenario 3:

Sales = 4200*30 = 126000

VC = 4200*14 = 58800

Contribution margin = 67200

Fixed cost = 45000

Net profit = 22000

Scenario 4:

Sales = 2450*37.50 = 91875

VC = 2450*10 = 24500

Contribution margin = 67375

Net profit = 22375

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