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|
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
- Traditional method of charging overhead and
- Activity based costing method (10 Marks)
- 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
- NPV at 14 % & 16%