XYZ. Ltd. Is currently working at 50oA capacity and produces 10,000 units. At 60% capacity raw material cost increased by 2% and selling price falls by 2 percent. At 80% capacity raw material cost increased by 5% and selling price falls by 5%. At 50% capacity the product costs Rs. 180 per unit and is sold at Rs. 200 per unit. The UIIIL itcost UUSof U Rs. 1 80 comprises the following P”.ti””1″t SgS g Rs. Material 100 Wages 30 Factory overheads 30 (40% fixed) Admini strative Overheads 20 (50% fixed) Prepare a marginal cost statement showing the estimated profit of the business when it is operating at60Yo and 80% ofcapacity

To prepare a marginal cost statement and estimate the profit of the business when operating at 60% and 80% of capacity, we need to calculate the variable cost per unit and the total contribution at each capacity level.

Given:

• At 50% capacity: Cost per unit = Rs. 180, Selling price per unit = Rs. 200
• Raw material cost = 100, Wages = 30, Factory overheads = 30 (40% fixed), Administrative overheads = 20 (50% fixed)
• Increase in raw material cost at 60% capacity = 2%, Increase in raw material cost at 80% capacity = 5%
• Selling price falls by 2% at 60% capacity and by 5% at 80% capacity
• Current production = 10,000 units

Let’s calculate the variable cost per unit at 50% capacity:

Variable cost per unit = Material cost + Wages + (Factory overheads – Fixed portion) + (Administrative Overheads – Fixed portion)
Variable cost per unit = 100 + 30 + (30 – 0.4 * 30) + (20 – 0.5 * 20)
Variable cost per unit = 100 + 30 + (30 – 12) + (20 – 10)
Variable cost per unit = 100 + 30 + 18 + 10
Variable cost per unit = Rs. 158

Now, let’s calculate the contribution per unit at 50% capacity:

Contribution per unit = Selling price per unit – Variable cost per unit
Contribution per unit = 200 – 158
Contribution per unit = Rs. 42

Now, let’s calculate the total contribution at 60% and 80% capacity:

• At 60% capacity:
• Selling price per unit = Rs. 200 * (1 – 0.02) = Rs. 196
• Variable cost per unit = Rs. 158 * (1 + 0.02) = Rs. 161.16
• Contribution per unit = Rs. 196 – Rs. 161.16 = Rs. 34.84
• Total contribution at 60% capacity = 10,000 units * Rs. 34.84
• At 80% capacity:
• Selling price per unit = Rs. 200 * (1 – 0.05) = Rs. 190
• Variable cost per unit = Rs. 158 * (1 + 0.05) = Rs. 165.9
• Contribution per unit = Rs. 190 – Rs. 165.9 = Rs. 24.1
• Total contribution at 80% capacity = 10,000 units * Rs. 24.1

Finally, let’s prepare the marginal cost statement and calculate the estimated profit:

Capacity Level	Sales (Rs.)	Variable Cost (Rs.)	Contribution (Rs.)
50%	2,000,000	1,580,000	420,000
60%	1,960,000	1,611,600	348,400
80%	1,900,000	1,659,000	241,000

Estimated profit at 60% capacity = Sales – Variable Cost = Rs. 1,960,000 – Rs. 1,611,600 = Rs. 348,400

Estimated profit at 80% capacity = Sales – Variable Cost = Rs. 1,900,000 – Rs. 1,659,000 = Rs. 241,000

Therefore, the estimated profit of the business when operating at 60% capacity is Rs. 348,400, and when operating at 80% capacity is Rs. 241,000.