PROBLEM: 02-02-ASSIGNMENT PROBLEM (SC)

M/s HDD Enterprise began operations at the beginning of the year 2017-18. One of the company’s products,
sells for Rs. 400 per unit. Information related to the current year’s activities follows.

Variable costs per unit: (Rs.)

Direct material ............................................................................................................................... 50
Direct labor .................................................................................................................................. 75
Manufacturing overhead................................................................................................................. 100

Annual fixed costs: (Rs.)

Manufacturing overhead.............................................................................................................. 1,125,000
Selling and administrative ............................................................................................................... 2,000,000

Sales and production activity:

Sales (units) .................................................................................................................................. 22,000
Production (units) ............................................................................................................................ 25,000

M/S HDD Enterprise carries its finished-goods inventory at the average unit cost of production and is
subject to a 35% income tax rate. There was no work in process at 31st March, 2018,

You are required to do the followings:

1. Determine the cost of the March 31 finished-goods inventory. (6 Marks)

2. Compute M/S HDD Enterprise’s net income for the year ended March 31.(6 Marks)
3. If next year’s production decreases to 23,000 units and general cost behavior patterns do not change,
what is the likely effect on:

a. The direct-labor cost of Rs. 75 per unit? Why? (2 Marks)

b. The fixed manufacturing overhead cost of Rs. 1,125,000? Why? (2 Marks)
c. The fixed selling and administrative cost of Rs, 2,000,000? Why? (2 Marks)
d. The average unit cost of production? Why? (2 Marks)