Role of the Management Accountant

1
Cost Accounting
2
Definition Chartered Institute Of Management
Accountants ( CIMA London ) Costing is
the technique and process of ascertaining cost
3
Cost Accounting

• Cost accounting measures and reports information
  relating to the cost of acquiring and utilizing
  resources
• Cost accounting provides information for
  management and financial accounting
• Cost management describes the approaches and
  activities of managers in short-run and long-run
  planning and control decisions
• These decisions increase value of customers and
  lower costs of products and services
• Cost management is an integral part of a
  companys strategy

4
Cost Accounting
It provides information for both management
accounting and financial accounting.
It measures and reports from financial and non
financial data.
5
Financial Accounting

• Financial accounting measures and records
  business transactions and provides financial
  statements that are based on generally accepted
  accounting principles (GAAP)
• Managers are responsible for the financial
  statements issued to investors, government
  regulators, and other parties outside the
  organization
• Financial accounting focuses on external parties
• Financial accounting reports on what happened in
  the past

6
An Introduction to Cost Terms
7
Costs and Cost Objects

• Cost
• a resource sacrificed or foregone to achieve a
  specific objective
• Cost Object
• any product, machine, service or process for
  which cost information is accumulated
• cost objects can vary in size from an entire
  company, to a division or program within the
  company, or down to a single product or service

8
Direct and Indirect Costs

• Direct Cost
• a cost which is related to a particular cost
  objective and can be traced to it in an
  economically feasible way
• Indirect Cost
• a cost which is related a particular cost
  objective but cannot be traced to it in an
  economically feasible way
• indirect costs are allocated to cost objectives

Direct Cost
Cost Object
Indirect Cost
9
Cost Drivers and Cost Management

• Cost driver (cost generator or cost determinant)
• a factor which causes the amount of cost incurred
  to change
• production costs are driven by the number of
  products produced, labour costs, number of setups
  required, and the number of change orders

• Cost Reduction Programs focus on two things
• Doing only value-added activities
• Efficiently manage the use of cost drivers in
  those value-added activities

10
Variable and Fixed Costs

• Variable Cost
• a cost which is constant per unit but changes in
  total in proportion to changes in the output
• materials (parts), fuel costs for a trucking
  company

Rs
Volume
11
Total Costs and Unit Costs

• Unit Cost (or Average Cost)
• Total cost / some number of units

Average cost Total manufacturing costs / Number
of units produced Rs980,000 / 10,000 Rs98 per
unit

• Unit or average costs must be interpreted with
  caution
• As volume increases, the unit or average cost
  falls as the fixed costs are spread over a larger
  number of units

12
Types of Inventory

• Direct material inventory (stock awaiting use in
  the manufacturing process)
• Work-in process inventory (partially completed
  goods on the shop floor)
• Finished goods inventory (goods completed but not
  yet sold)

13
Period and Product Costs

• Period Costs
• are expensed on the income statement as they are
  incurred
• also called operating costs (excluding cost of
  goods sold)
• examples selling, general and administrative
  costs
• Product Costs
• are inventoried on the balance sheet and expensed
  only when the product or service is sold
• also called inventoriable costs
• Examples materials and labour (manufacturing)

14
Costing System Terminology

• Cost Object
• anything for which a separate measurement of
  costs is desired
• Cost Pool
• a grouping of individual cost items
• Cost Allocation Base
• a factor that is the common denominator for
  systematically linking an indirect cost or group
  of indirect costs to a cost object

15
Alternative Classifications of Costs

• Business function
• RD
• Design
• Production
• Marketing
• Distribution
• Customer service
• Assignment to a cost object
• Direct costs
• Indirect costs

• Behaviour pattern
• Variable costs
• Fixed costs
• Aggregate or average
• Total costs
• Unit costs
• Assets or expenses
• Inventoriable costs
• Period costs

16
Costs in a Manufacturing Company
Balance Sheet
Income Statement
Direct Material Purchases
Materials Inventory
Revenue
Direct Labour Indirect Manufacturing Costs
Work in Process Inventory
Finished Goods Inventory
Cost of Goods Sold
Gross Margin
Period Costs
Marketing and Administrative Costs
Inventoriable (Product) Costs
Operating Income
17
Costing Systems

• Job-Costing
• System
• Costs are assigned to a distinct unit or batch
• Resources are expended to bring a distinct
  product or service to market for a specific
  customer
• advertising campaign, audit, aircraft assembly

• Process-Costing
• System
• Costs are assigned to a mass of similar units
• Resources are used to mass-produce a product or
  service and not for any specific customer
• Postal delivery, oil refining

18
Job Costing Approach

• 1. Identify the cost object(s)

2. Identify the direct costs for the cost
object(s) 3. Select cost-allocation bases to use
in allocating the indirect costs to the cost
object(s) 4. Identify the indirect costs
associated with each cost-allocation
base 5. Compute the rate per unit of each
cost-allocation base to allocate indirect costs
to the cost object(s) 6. Compute the indirect
costs allocated to the cost object(s) 7. Determine
the cost of the cost object(s) by adding the
direct and indirect costs
19
Job Costing Overview

• Indirect
• Cost Pool

Manufacturing Overhead Rs1,215,000
20
Job Costing System in Manufacturing
Buy Materials

• Cost of
• Goods Sold

Finished Goods Inventory
Work-In-Process Inventory
Materials Inventory
Use Materials
Complete Production
Sell Goods
Incur Labour Costs
Incur Overhead Costs
21
Cost Sheet
22

• Cost Sheet
• It is a statement designed to show the output of
  a particular accounting period along with breakup
  of cost.
• It is a memorandum statement
• It does not form part of double entry cost
  accounting records.
• It discloses the total cost and cost per unit.
• It helps
• To fix Selling Price.
• To submit quotation price.
• To Control cost.

23

• COST SHEET

Total Cost Cost Per unit
Direct Materials Direct Labour Prime Cost Add Works Overheads Works Cost Add Administration overheads Cost of Production Add Selling Distribution Overheads Total Cost or Cost of Sales
24

• Elements of Cost
• Direct Material -
• Identify in the product
• Easily measure directly charge
  to the product
• e.g. Timber in furniture making
• Categories
• raw material
• Specifically purchased for specific job or
  process
• Parts or components purchased.
• e.g. tyres for cycles
• Primary Packing material
• to protect finished product
• for easy handling inside the factory.

25

• Direct Labour -
• Labour engaged in
• converting raw material into finished goods
• Altering the construction
• Actual Production
• Composition of Product
• i.e labour which can be attributed to a
  particular job,product or process
• Exception - Where the cost is not significant
  like
• wages of trainees- their
  labour though directly
• spent on product is not
  treated as direct Labour
• Test-
• Easily Identify
• Feasible to Identify

26

• Overheads - It may be defined as the aggregate
  of the cost of indirect materials, indirect
  labour and such other expenses including services
  as cant conveniently be charged direct to
  specific cost unit.
• Categories-
• Manufacturing Overheads
• Administration of machines
• Selling distribution of machines

27
Standard Costing
28
Why is Standard Costing Used?
A standard is a preestablished benchmark for
desirable performance.
A standard cost system is one in which a company
sets cost standards and then uses them to
evaluate actual performance.
A variance is the difference between actual
performance and the standard.
29
Favorable versus Unfavorable
A standard is a preestablished benchmark for
desirable performance.
An unfavorable variance occurs when
actual performance falls below the standard.
30
. Standard cost is the Predetermined cost based
on a technical estimate for material, labor and
overhead for a selected period of time and for
a specified set of working conditions.

• Standard costing is the preparation of standard
  cost and
• applying them to measure the variations from
  actual
• costs and analyzing the causes of variations with
  a view
• to maintain maximum efficiency in production

31
Quantity and Price Standards
What can cause a cost to increase?
Quantity used
Price paid
32
Ideal versus Practical Standards
A standard that allows for no inefficiencies of
any kind is an ideal standard.
A standard that allows for the normal inefficienci
es of production is called a practical standard.
33
The Standard Costing Process
Gather information and set standards.
Investigate the cause of variances.
Compare actual performance to standard and
prepare performance reports.
Determine if corrective action is needed.
Determine which variances to investigate.
Take corrective action.
34
Problems With Standard Costing
Employees may try to set low standards to make
them easier to achieve.
Using historical data to set standards may build
in past inefficiencies.
Managers might focus on the numbers to the
exclusion of other important factors.
35
Problems With Standard Costing
Focus on unfavorable variances may result in
ignoring the favorable variances.
Managers may lose sight of the big picture.
36
Comparison of Cost Systems
37
Analysis of variance
38
Analysis of Variance
Analysis of Variance may be done in respect of
each element of cost and sales 1.Direct Material
Variance 2.Direct Labor Variance 3.Overhead
Variance 4.Sales Variance
39
Material Variances
Material Cost Variance
(Standard Price x Standard Rate) - ( Actual
quantity x Actual Rate )
40
Direct Materials Variances
There are two variances calculated for material
cost variance.
The material quantity variance (also called the
usage variance) is a measure of the amount of
materials used.
The material price variance is a measure of the
cost to buy the various materials that were
purchased.
41
Material Variances
Material price variance
( Standard material price Actual material
price) Actual material quantity
Material quantity variance
( Standard material quantity Actual material
quantity) Standard unit price
42
Direct Materials Variances
Again Material Qt variances can be divided into
two varainces
The material mix variance .
The material Yield variance
43
Material Mix Variances
Actual weight do not differ
Standard Cost of Standard Mix Standard Cost
of Actual Mix Std. Unit cost (SQ AQ)
44
Material Mix Variances
Actual weight differ
Total wt. Of actual mix X Std. Cost -
Std. Cost Total wt. Of standard of Std.
Mix of actual mix mix
45
Material Variances
Material yield variance
Standard Rate (Actual Yield Standard Yield
) If std. actual mix are same
Standard Rate Std. Cost of Std. Mix
Net Std. Output
(Gross output Standard loss)
46
Material yield Variances
Standard Rate (Actual Yield Revised Standard
Yield ) If std. actual mix are not same
Standard Rate Std. Cost of Revised Std. Mix
Net Std. Output
(Gross output Standard
loss)
47
Labor Variances
The labor cost variance is the difference
between actual cost of hour worked and the
standard cost allowed.
The labor rate variance is the difference
between the actual direct labor cost incurred and
the standard cost for the actual hours worked.
48
Labor variance
Labor Cost Variance
St. Cost of labor Actual cost of labor
Labor Rate Variance
Rate variance Actual Time Taken (Standard Rate
Actual Rate)
49
Total Labor Efficiency Variance
Standard Rate (Standard time for actual Output
- Actual time Paid for)
50
Labor Variances
Total Labor efficiency variance are of two types
Labor Efficiency Variance
Labor Idle Time variance
51
Labor Variances
Labor Efficiency Variance
Labor Efficiency Variance Standard
rate(Standard time
for actual output - Actual time worked)
52
Labor Variances
Labor Idle Time variance
Labor Idle Time variance Abnormal Idle Time x
Standard Rate
53
Labor Variances
Labor Mix Variance
St. Cost of St Composition (Actual time taken)
Standard cost of actual Composition ( Actual
time worked)
54
Labor Variances
Labor Yield Variance
Standard Rate (Actual Yield Revised Standard
Yield)
55
Overhead Variance
Overhead cost variance can be defined as the
difference between the Standard cost allowed for
the actual output achieved and the actual
overhead cost incurred.
56

• Overhead - According to terminology of cost
  Accountancy (ICWA London) Overhead is defined as
  The aggregate of indirect material cost,
  indirect wages (indirect Labor Cost) and indirect
  expenses.

57
Overhead Costs

• Overhead costs are significant for most
  organizations
• Variable Overhead
• Recall that variable overhead is allocated to
  products and services using a budgeted variable
  overhead rate
• Fixed Overhead
• Recall that fixed overhead is allocated to
  products and services using a budgeted fixed
  overhead rate

58
Overhead Cost Variances

• Variable Overhead

Fixed Overhead
How the Cost is Planned and Controlled
Rs
Rs
Volume
Volume
How Costs are Allocated to Products
Rs
Rs
Volume
Volume
59

• Overhead cost Variance-
• Overhead Cost Variance
• Variable overhead variance Fixed overhead
  variance
• Expenditure Efficiency Expenditure
  Volume
• variance variance variance
  variance
• Capacity Calendar Efficiency
• variance variance variance

60
Overhead Cost Variance -

• Overhead Cost Variance
• ( Actual output x Standard overhead Rate per unit
  )
• Actual
  overhead cost

61
Overhead Cost Variances
Overhead Cost variances can be divided into two
varainces

• Variable Overhead variance
• .

• 2. Fixed Overhead variance

62

• Variable Overhead Variance
• Variable Overhead variance
• (Actual output x Standard variable overhead
  rate)
• (Actual variable
  overheads)

63
Variable Overhead Variances
Variable Overhead variances can be divided into
two variances

• Variable Overhead Expenditure variance
• .

2. Variable Overhead Efficiency variance
64
(A) Variable overhead (spending) expenditure
variance (Actual hours worked x
standard variable overhead rate) Actual
variable overheads (B) Variable overhead
efficiency variance Standard variable
overhead rate(standard Hours for
Actual output Actual Hours)
65

• Fixed overhead variance
• Fixed overhead variance
• (Actual output x standard fixed overhead
  rate)
• 
  Actual fixed overheads
• Fixed overhead variance can be categorized
  into-
• Expenditure variance Budgeted Fixed overheads
  Actual fixed overheads
• Volume variance actual output x Standard rate
  Budgeted fixed overheads

66

• Capacity variance standard rate( Revised
  Budgeted units Budgeted units)
• Calendar variance
• (Decrease or increase in number of units
  produced due to the difference of budgeted and
  actual days x standard rate per unit)
• e) Efficiency Variance Standard Rate (Actual
  Production Standard Production)

67
Using Standard Cost Variances
A performance report should be prepared on a
periodic basis for the managers who are
responsible for the standard cost variances.
The management by exception concept would then be
used by the managers to focus their attention on
the most significant cost variances.
68
Marginal Costing
69

• Marginal Costing-
• Chartered Institute of Management Accountant,
  England-
• Marginal costing is the ascertainment of
  marginal cost and of the effect on profit of
  changes in volume or type of output by
  differentiating between fixed cost and variable
  costs.

70

• Features of Marginal Costing
• Cost is classified into
• Fixed Cost
• Variable Cost
• Variable cost is only charged to production
• Fixed cost is recovered from contribution
• Valuation of stock of WIP and F.G. is done on the
  basis of marginal cost.
• Selling price is based on marginal cost and
  contribution
• It is technique used to ascertain the marginal
  cost to know the impact of V.C. on volume of
  output
• Profit is calculated by deducting marginal cost
  and fixed cost from sales
• C-V-P analysis is one of integral part of
  marginal costing

71
Costs

• Fixed (Indirect/Overheads) are not influenced
  by the quantity produced but can change in the
  long run e.g., insurance costs, administration,
  rent, some types of labour costs (salaries), some
  types of energy costs, equipment and machinery,
  buildings, advertising and promotion costs.
• Variable (Direct) vary directly with the
  quantity produced, e.g., raw material costs, some
  direct labour costs, some direct energy costs.
• Semi-fixed Where costs not directly
  attributable to either of the above, for example
  some types of energy and labour costs.

72
Costs

• Total Costs (TC) Fixed Costs (FC) Variable
  Costs (VC)
• Average Costs TC/Output (Q)
• AC (unit costs) show the amount it costs to
  produce one unit of output on average
• Marginal Costs (MC) the cost of producing one
  extra or one fewer units of production
• MC TCn TCn-1

73
Revenue

• Total Revenue also known as turnover, sales
  revenue or sales Price x Quantity Sold
• TR P x Q
• Price may be a variety of different prices for
  different products in the portfolio
• Quantity Units sold

74
Profit

• Profit TR TC
• Normal Profit the minimum amount required to
  keep a business in a particular line of
  production
• Abnormal/Supernormal Profit the amount over and
  above the amount needed to keep a business in its
  current line of production

75

• Marginal Cost Equation
• Sales Variable Cost Fixed Cost
  Profit/Loss
• Sales - Variable Cost Fixed Cost
  Profit/Loss
• Sales - Variable Cost Contribution
• Therefore,
• Contribution S.P. V.C. or
• Contribution Fixed Cost Profit

76
Cost-Volume-Profit(CVP) Analysis
77

• Cost volume Profit Analysis
• Cost volume Profit Analysis is a logical
  extension of marginal costing
• C.V.P. analysis examines the relationship of cost
  profit to the volume of business to maximize
  profits
• Indicates direct relationship between volume
  profit
• Indicates Indirect relationship between volume
  cost per unit (Inverse)

78
Cost-Volume-Profit Assumptionsand Terminology
1. Changes in the level of revenues and costs
arise only because of changes in the number
of product (or service) units produced and
sold.
2. Total costs can be divided into a fixed
component and a component that is variable
with respect to the level of output.
79
Cost-Volume-Profit Assumptionsand Terminology
3. When graphed, the behavior of total revenues
and total costs is linear (straight-line) in
relation to output units within the relevant
range (and time period).
4. The unit selling price, unit variable costs,
and fixed costs are known and constant.
80
Abbreviations
SP Selling price
VCU Variable cost per unit
CMU Contribution margin per unit
CM Contribution margin percentage
FC Fixed costs
81
Abbreviations
Q Quantity of output units sold (and
manufactured)
OI Operating income
TOI Target operating income
TNI Target net income
82
Breakeven Point
Variable expenses
Fixed expenses
Sales


Total revenues Total costs
83
Break Even

• Point of No Profit and No Loss
• Occurs where Total Costs Total Revenue
• Fixed Costs
• Break-Even Point ---------------
• Contribution

84
Cost-Volume-Profit Assumptionsand Terminology

• Break even point ( Rs ) Fixed Cost / P/V ratio
• Break Even point (Units) Fixed Cost (Total)
• 
  -----------------------------
• (S.P per
  unit M.C per unit)
• or(
  Contribution per Unit)

• P/V Ratio ? Profit / ? Sales
• P/V Ratio Contribution / Sales

85
Cost-Volume-Profit Assumptionsand Terminology

• Value of sales to earn desired amount of
• profit-
• (Fixed Cost Desired Profit)
• -------------------------------------
  -----
• P/ V ratio

86
Cost-Volume-Profit Assumptionsand Terminology

• Variable Cost Sales (sales x P/V ratio)
• Profit (sales x P/V ratio) Fixed Cost
• Fixed Cost (sales x P/v ratio) Profit
• Margin of safety
• (Rs) Profit/ P/V ratio or
• Actual sales Break Even
  Sales
• (Units) Profit / Contribution per unit

87
Essentials of Cost-Volume-Profit(CVP) Analysis
Example
Assume that the Furniture Shop can purchase
Chairs for Rs32 from a local factory other
variable costs amount to Rs10 per unit.
The local factory allows the Furniture Shop
to return all unsold Chairs and receive a full
Rs32 refund per pair of Chairs within one year.
The average selling price per pair of Chairs is
Rs70 and total fixed costs amount to Rs84,000.
88
Essentials of Cost-Volume-Profit(CVP) Analysis
Example
How much revenue will the business receive
if 2,500 units are sold?
2,500 Rs70 Rs175,000
How much variable costs will the business incur?
2,500 Rs42 Rs105,000
Rs175,000 105,000 84,000 (Rs14,000)
89
Essentials of Cost-Volume-Profit(CVP) Analysis
Example
What is the contribution margin per unit?
Rs 70 Rs 42 Rs 28 contribution margin per unit
What is the total contribution margin when 2,500
pairs of Chairs are sold?
2,500 Rs 28 Rs70,000
90
Essentials of Cost-Volume-Profit(CVP) Analysis
Example
Contribution margin percentage (contribution margi
n ratio) is the contribution margin per unit
divided by the selling price.
What is the contribution margin percentage?
Rs28 Rs70 40
91
Essentials of Cost-Volume-Profit(CVP) Analysis
Example
If the business sells 3,000 pairs of
Chairs, revenues will be Rs 210,000 and
contribution margin would equal 40 Rs 210,000

Rs 84,000.
92
Equation Method
(Selling price Quantity sold) (Variable unit
cost Quantity sold) Fixed costs Operating
income
Let Q number of units to be sold to break even
Rs70Q Rs42Q Rs84,000 0 Rs28Q Rs 84,000 Q
Rs84,000 Rs28 3,000 units
93
Contribution Margin Method
Rs84,000 Rs28 3,000 units
Rs84,000 40 Rs210,000
94
Graph Method
Breakeven
Revenue
Total costs
Fixed costs
95
Target Operating Income
(Fixed costs Target operating income) divided
either by Contribution margin percentage or
Contribution margin per unit
96
Target Operating Income
Assume that management wants to have an operating
income of Rs 14,000.
How many pairs of Chairs must be sold?
(Rs84,000 Rs14,000) Rs 28 3,500
What sales are needed to achieve this income?
(Rs84,000 Rs14,000) 40 Rs245,000
97
Target Net Incomeand Income Taxes Example
Proof Revenues 4,822 Rs70 Rs337,540 Variable
costs 4,822 Rs42 202,524 Contribution
margin Rs135,016 Fixed costs
84,000 Operating income 51,016 Income
taxes Rs51,016 30 15,305 Net
income Rs 35,711
98
Alternative Fixed/Variable CostStructures Example
Suppose that the factory the Chairs Shop is using
to obtain the merchandise offers the following
Decrease the price they charge from Rs32 to Rs25
and charge an annual administrative fee of
Rs30,000.
What is the new contribution margin?
99
Alternative Fixed/Variable Cost Structures Example
Rs70 (Rs25 Rs10) Rs35
Contribution margin increases from Rs28 to Rs35.
What is the contribution margin percentage?
Rs35 Rs70 50
What are the new fixed costs?
Rs84,000 Rs30,000 Rs114,000
100
Alternative Fixed/Variable Cost Structures Example
Management questions what sales volume would
yield an identical operating income regardless of
the arrangement.
28x 84,000 35x 114,000
114,000 84,000 35x 28x
7x 30,000
x 4,286 pairs of Chairs
101
Alternative Fixed/Variable Cost Structures Example
Cost with existing arrangement Cost with new
arrangement
.60x 84,000 .50x 114,000
.10x Rs30,000 ? x Rs300,000
(Rs300,000 .40) Rs 84,000 Rs36,000
(Rs300,000 .50) Rs114,000 Rs36,000
102
Contribution income statement emphasizes contribut
ion margin.
.
Financial accounting income statement emphasizes
gross margin.
103
Application Of Marginal Costing

• Cost Control
• Profit planning
• Evaluation of performance
• Decision Making
• Fixation of selling Price
• Key or limiting factors
• Make or Buy Decision

104
Application Of Marginal Costing

• Selection of suitable product mix
• Effect of change in price
• Maintained a desired level of Profit
• Alternative methods of Production
• Diversification of Products
• Closing down of activities
• Alternative course of action
• Level of activity planning

105
Typical Relevant Costing Decisions

• One-Time-Only Special Order (Pricing)
• Make or Buy Decisions (Outsourcing)
• Opportunity Costs
• Product Mix Decisions under Capacity Constraints
• Add or Drop a Product Line or Customer
• Equipment Replacement Decisions

106
One-Time-Only Special Order

• Without With
• Order Order Difference
• Volume 30,000 35,000 5,000
• Relevant revenues Rs600,000 Rs655,000 Rs55,000
• Relevant costs
• Variable
• manufacturing (225,000) (262,500) (37,500)
• Incremental income Rs17,500

107
Outsourcing and Make/Buy Decisions

• Make Buy Difference
• Relevant costs
• Outside cost of parts Rs160,000 Rs160,000
• Direct materials Rs80,000 (80,000)
• Direct labour 10,000 (10,000)
• Variable overhead 40,000 (40,000)
• Fixed purchasing,
• receiving and
• setup overhead 20,000 (20,000)
• Incremental difference
• In favour of making Rs10,000

108
Outsourcing and Opportunity Costs

• Make Buy
• Relevant cost to make Rs150,000
• Relevant cost to buy Rs 160,000
• Opportunity cost
• Profit forgone because
• Capacity cannot be used
• to make another product 25,000
• Total relevant costs Rs175,000 Rs160,000

• Opportunity cost considers the profits lost by
  not following the next best alternative course of
  action

109
Product Mix Decisions Under Constraint

• Snowmobile Boat
• Engine Engine
• Contribution margin per unit Rs240 Rs375
• Machine hours required per unit 2 5
• Contribution margin per
• machine hour Rs120 Rs75

• If machine hours are constrained, maximize income
  by first producing as many snowmobile engines as
  can be sold and then shift production to boat
  engines

110
Customer Profitability Analysis
Keep
Drop Account Account Difference
Relevant revenue Rs1,200,000 Rs800,000 Rs(400,000)
Relevant costs Cost of goods
sold 920,000 590,000 330,000 Material-handling
labour 92,000 59,000 33,000 Marketing
support 30,000 20,000 10,000 Order/delivery 32,000
20,000 12,000 Decline in operating income if
drop account Rs(15,000)