Skip to content

CMA Intermediate · Management Accounting · Applications of Marginal Costing in Short Term Decision Making

Gupta Foods Ltd normally sells 20,000 units at Rs 80 each with variable cost Rs 50 per unit and fixed costs Rs 4,00,000. An export order of 5,000 units at Rs 62 per unit is received; it needs extra packing costing Rs 4 per unit and a one-time special licence fee of Rs 25,000. Spare capacity exists. Increase in profit on accepting is:

Profit rises by Rs 15,000. Unit contribution on the export order is Rs 62 less Rs 50 variable cost and Rs 4 packing, i.e. Rs 8; on 5,000 units that is Rs 40,000, and deducting the Rs 25,000 licence fee leaves Rs 15,000.

  1. ARs 15,000Correct
  2. BRs 40,000
  3. CRs 1,15,000
  4. DRs 65,000

Explanation

Contribution per unit = 62 - 50 - 4 = Rs 8. For 5,000 units = Rs 40,000. Less licence fee Rs 25,000 gives Rs 15,000. Rs 40,000 omits the fee.

Did you get it right without looking?

One question tells you little. A timed set on Applications of Marginal Costing in Short Term Decision Making shows your real accuracy, how long you take and where you lose marks.

Practise Applications of Marginal Costing in Short Term Decision MakingFree diagnostic mock

More Applications of Marginal Costing in Short Term Decision Making questions