Cost Accounting Analysis: Evaluating Product Mix and Profit

This assignment analyzes a cost accounting problem involving product mix decisions and profitability. The student first calculates the total processing hours and determines if the company can produce both gloss and emulsion within the given time constraint. The assignment then calculates the profit for each product, considering selling price, variable costs, and fixed costs. Next, it determines the optimal product mix to maximize profit, considering the contribution per hour for each product. The analysis includes calculations for processing time, profit, and the contribution margin for each product under the chosen product mix, taking into account the limited processing hours available. The assignment demonstrates the application of cost accounting principles to make informed business decisions, supported by references to relevant accounting textbooks.

COST ACCOUNTING

1. It is mentioned in the question that due to machine breakdown the processing hours will be
limited to 30000 hours. So, first we need to check that is the processing hours falling within
30000 hours in the case when the company has decided to process gloss and emulsion only
(Shukla, Grewal and Gupta, 2006).
Particulars Hours
Processing hours of Gloss 15000
Processing hours of
Emulsion 12500
Total time taken 27500
The company can produce emulsion and gloss as the processing time is not exceeding 30,000
hours.
Now, let us calculate the expected profits on producing these two types of white paints based
on their demand.
Particulars Gloss
Emulsio
n
Number of
units 3000 5000
Selling price 825000 1125000
Less: Variable
cost 555000 825000
Contribution 270000 300000
Less: Fixed
cost 165000 225000
Profit 105000 75000
2. As we have to select a product mix that gives Even ltd. The maximum profit is shown
below based on the contribution per hour per unit. So the following table shows the
contribution per hour per unit:
Contribution per hour
Particulars
Glos
s
Emulsio
n
Undercoa
t
Selling price per unit 275 225 150
Variable price per unit 185 165 100
Contribution per unit 90 60 50
Processing hours per
unit 5 2.5 2
Contribution per
hour 18 24 25

So, full demand of undercoat should be produced (4000 units), 5000 units of Emulsion should
be produced and 1900 units of Gloss should be produced(Arora, 2012).
The following tables shows the processing time as it is limited to 30,000 hours, the profit on
choosing this product mix and and the contribution
Processing time
Particulars
Processing hours of Gloss 9500
Processing hours of Emulsion 12500
Processing hours of Undercoat 8000
Total processing time 30000
Calculation of profit:
Particulars Gloss
Emulsio
n
Underco
at
Number of
units 1900 5000 4000
Selling price
52250
0 1125000 600000
Less: Variable
cost
35150
0 825000 400000
Contribution
17100
0 300000 200000
Less: Fixed
cost
16500
0 225000 120000
Profit 6000 75000 80000

References:
Arora, M. (2012). A textbook of cost and management accounting. New Delhi: Vikas
Publishing House PVT LTD.
Shukla, M., Grewal, T. and Gupta, M. (2006). Cost accounting. New Delhi: Chand.