Strategic Cost Management – NMIMS June188

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Strategic Cost Management June18

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Q1. X Ltd has to replace its machine and the production manager has to decide between Machine A and Machine B. Machine A is having installation cost of 160 and annual electric bill 200. Machine B has installation cost of 760 and annual electric bill of 80. If both have life of 8 years which machine will you recommend if interest rate is 9 % for five years. P/V factor @ 9 % for 8 years is 5.5348 (10 Marks)

 

Q2. A company manufacturing two products furnishes the following data for a year.

Product Annual Output Units

 

Total machine hours Total No. of purchase orders Total No. of setups
A 5,000 20,000 160 20
B 60,000 1,20,000 384 44

 

The annual Overheads are as under:

Volume related activity cost (Activity driver-Machine hours )      5,50,000

Setup related cost           8,20,000

Purchase related cost    6,18,000

You are required to calculate cost per unit of each product A & B based on

  1. Traditional method of charging overhead and
  2. Activity based costing method (10 Marks)

 

  1. Project X Involves an initial outlay of Rs 32,400.Its working life is 3 years. The cash streams are as follows Year Inflows P .V Factor @ 14% P .V Factor @ 16% 1 16,000 0.877 0.862 2 14,000 0.769 0.743 3 12,000 0.675 0.641

Calculate

  1. NPV at 14 % & 16%
  2. IRR