Saturday, July 6, 2013

MGT402 GDB Solution 2013

Total Marks
Starting Date
Friday, July 05, 2013
Closing Date
Tuesday, July 09, 2013
Learning Objectives: The students are expected to learn and apply the cost-volume-profit analysis.

              Aini & Alex (Pvt.) Limited launched its fashion accessories in ladies’ purses few years back in Karachi with the aim to let them handle their necessities with comfort. Now, its brands are famous for stylish and affordable accessories.   
At the start of new financial year, the sales manager of the Aini & Alex (Pvt) limited has to plan about future sales of its bags section, consisting of two product lines - leather handbags and clutch purses. To plan about future sales, the sales manager is in need of data about per unit cost and profit for each product line from the company’s accountant.
Accountant demonstrates the per unit data that shows currently the company is selling leather handbags at Rs. 300 per unit and clutch purse at Rs 190 per unit respectively. Other cost data is as follows:
    Leather Handbags
  Clutch Purses

Rs. P/U
Rs. P/U
Variable cost
Fixed cost

Considering the above mentioned information, answer the following:
a)   Determine per unit contribution margin, contribution margin ratio for each of the product.
b)   If the sales manager of Aini & Alex (Pvt.) Limited decides to increase production substantially any of the above two products (manufactured units are expected to be sold in the market), determine which product will be more profitable for the company to produce assuming that cost behavior pertains remain unchanged.
c)    Support your answer in part (b) based on logical reason.

            SOLUTION IDEA'S

Per unit contribution margin = selling price per unit - variable cost per unit 
Contribution margin ratio = contribution margin rs / sales in rs
Do not try to copy for any solution so  for better understanding listen the lecture no 29, 30 so you can understand it and will be helpful for final term.


Contribution Margin   =   Revenues   –   Variable Expenses  

The contribution margin for one unit of product or one unit of service is defined as:
  Contribution Margin per Unit   =   Revenues per Unit   –   Variable Expenses per Unit 


Contribution margin = Sales - Varible cost
Contribution margin = 300 - 130 = 170

Contribution margin Ratio with Sales = 170/300 = 0.56
Is it correct?




  1. Plz just imagine that there are 50 units of both product and then make a income statement and analyse from the CVP.
    then you will see clearly that Clutch purse is suitable for the company decision.
    So, make try and you will see that Clutch purse profit are more than leather hand bag.
    I have no idea am i wrong or right but something is in it which change my decision about the selection from both of this.

    Read more: MGT402 - Cost & Management Accounting GDB No. 01 Solution and Discussion Spring 2013 Due Date Jul 09, 2013 - Virtual University of Pakistan

  2. look... We are using CVP analysis technique... and CVP considers and prefers CM ratio instead of operating profit etc. CM ratio is quite higher of Leather bags so this in one point of justification.
    Other is Fixed cost. when you produce more n more units of output your total fixed will be apportioned to units produced... other way around, your total fixed will remain the same but your Fixed per unit will go down n down as you produce more n more units of output. so these are the two points that go in favour of Leather bags.
    one can more elaborate it but i dont have skills as such and lack in conveying my point...
    urdu mn puchty na to instructor ki b mutt mar deta mn...
    ab ap bataye ap k zehan mn is point of view se koi point hai ya if your favouring Clutch bags to mairy points ko daikhain, kuch google krn n then come up to the contrary... Maza aye ga...

    Read more: MGT402 - Cost & Management Accounting GDB No. 01 Solution and Discussion Spring 2013 Due Date Jul 09, 2013 - Virtual University of Pakistan

  3. contribution margin is the marginal profit per unit sale. or Leather handbags ka CM zyada hay. Clutch say.
    lakin VC jo hay wo Clutch ki zyada hay. VC zyada means us per direct material or direct labor cost zyada ai hay, or Leather handbags per km ai hay, so hence Leather bags.
    and fixed cost is just a fixed cost and nothing but fixed cost :)


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