MGT402 Assignment # 2

Solution Question No. 1 
Part-1 
Delta Corporation 
Income Statement (Under Absorption Costing System) 
For the Quarter Ending ------------- 
(Rupees) 
Sales (20,000 * 30) 600,000 
Less: Cost of Goods Sold 
Opening Stock 0 
Add: Production Cost (15.50 * 24,000) 372,000 
Less: Closing Stock (15.50 * 4,000) (62,000) 310,000
Gross Profit 290,000 
Less: Operating Expenses 
Selling & Administrative Expenses (Fixed) 60,000
Net Profit 230,000 

Working: 
Production Cost (Total) = 80,000+100,000+120,000+72,000 = 372,000 
Per Unit Production Cost = 372,000/24,000 = 15.50 



Part-2Delta Corporation 
Income Statement (Under Direct Costing System) 
For the Quarter Ending ------------- 
(Rupees) 
Sales (20,000 * 30) 600,000 
Less: Variable Cost of Goods Sold 
Opening Stock 0 
Add: Variable Production Cost (12.50 * 24,000) 300,000 
Less: Closing Stock (12.50 * 4,000) (50,000) 250,000 
Gross Profit 350,000 Less: Fixed Expenses 
Factory Over Heads (Fixed) 72,000 
Selling & Administrative (Fixed) 60,000 132,000 
Net Profit 218,000 

Working: 
Total Variable Cost = 80,000+100,000+120,000 = 300,000 
Per Unit Cost (Variable) = 300,000/24,000 = 12.50 
Solution Question No. 2 

Net Profit Calculation (Contribution Margin Approach) 

a) Existing Plan 
(Rupees) 
Sales (100 * 100) 10,000 
Less: Variable Cost (70 * 100) (7,000) 
Contribution Margin 3,000 
Less: Fixed Cost (2,000) 
Net Profit 1,000 



b) New Plan (Increase Sales by 10 Units) 
(Rupees) 
Sales (90 * 110) 9,900 
Less: Variable Cost (70 * 110) (7,700) 
Contribution Margin 2,200 
Less: Fixed Cost (2,350) 
Net Profit / (Loss) (150) 

Working: 
10% of 100 Units = 100 * 10% = 10 
Per Unit Existing Sales Price = 100 
Per Unit Sales Price after 10% Decreased Sales Price = 100 – 10 = 90 

Advice by Management Accountant: 
In this case, the new plan will not be feasible for the company to adopt as if the company adopts the new plan, it will suffer the loss instead of making any profit.