Management accounting

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Lakshmi Priya M C (Querist)
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01 October 2011 There is problem in the question paper of MBA.
Variable cost per unit is given as 12
Sales in units is given as 50,000 units
Return on capital employed is 20%
Capital employed is 12 lakh on fixed assets and 50% on sales value.Fixed cost is given as Rs.5,10,000
Has been asked to determine the selling price per unit for a desired profit of 20% on capital employed?
Would i have the solution please?

CA Pushpendra Gaur

CA Pushpendra Gaur (Expert)
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01 October 2011 well
let the sales price be x
Capital employed = 12,00,000 + 50 % of (50,000*x)

CA Pushpendra Gaur

CA Pushpendra Gaur (Expert)
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01 October 2011 Return on capital employed = 20 % of {12,00,000 + 25,000 x)

CA Pushpendra Gaur

CA Pushpendra Gaur (Expert)
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01 October 2011 well the profit must be equal to return on capital employed
profit = 2,40,000 + 5,000 x

CA Pushpendra Gaur

CA Pushpendra Gaur (Expert)
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01 October 2011 there fore
the price of one unit = (variable cost + fixed cost + profit)/50,000

CA Pushpendra Gaur

CA Pushpendra Gaur (Expert)
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01 October 2011 price per unit = [{12*50000units} + 12,00,000+2,40,000+ 5,000 x]/50,000

price per unit = [6,00,000+12,00,000+2,40,000+ 5,000x]/50,000
=[20,40,000 + 5,000 x]/50,000

x = 40.80 + .1 x
.9 x =40.8

x = 45.33

CA Pushpendra Gaur

CA Pushpendra Gaur (Expert)
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01 October 2011 The correcttion of the solution is justified as

The Sales value will be

50,000 units * 45.33 = 22,66,500

CA Pushpendra Gaur

CA Pushpendra Gaur (Expert)
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01 October 2011 the capital employed will be = Rs 12,00,000 + 50 % of sales value i.e. 22,66,500

= 12,00,000+ 11,33,250
=23,33,250

CA Pushpendra Gaur

CA Pushpendra Gaur (Expert)
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01 October 2011 the desired return in this case will be

= 20 % of 23,33,250
i.e. 4,66,650

CA Pushpendra Gaur

CA Pushpendra Gaur (Expert)
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01 October 2011 so lets check the profit
profit = sales value -variable cost - fixed cost

=22,66,500- (12* 50,000) - 12,00,000
= 4,66,500

hence checked any doubt plzz aSK

Lakshmi Priya M C

Lakshmi Priya M C (Querist)
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01 October 2011 thank you very much really it was very much useful

CA Pushpendra Gaur

CA Pushpendra Gaur (Expert)
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01 October 2011 it's my pleasure dear, post any other doubt relating to studies, you will get an early response

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