Strategic Cost Management NMIMS

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1) The following information is available for a watch showroom. Calculate the following:

1. a) Contribution
2. b) PV Ratio
3. c) BE Ratio (in no. of units and value)
4. d) MOS at actual sales of Rs. 6,00,000/-
5. e) Number of watches to be sold to get a profit of Rs. 20,000/-

 

Sale Price	Per unit (Rs.)	9800
Variable Costs	Per unit (Rs.)	4905
Commission (variable)	Per unit (Rs.)	500
Rent	Per month (Rs.)	100000
Salaries	Per Month (Rs.)	120000

 

2) A Factory produces 3 types of shoes. While producing, for switching over from one type to another, there is a shift-over process involved. Costs incurred are as follows:

Shift-over costs Rs. 50,000

Factory Overheads Rs. 1,00,000/-

Packing costs Rs. 20,000/-

Engineering Costs Rs. 30,000/-

Supervisor Costs Rs. 10,000/-

Quantity produced A- 1000, B – 2000, C- 4000

Allocate the costs to the 3 shoes (A, B and C) using Traditional Costing method and Activity Based Costing. Some other information of the 3 products is as under:

 

x	A	B	C
No. of Switches	3	4	2
Machine Hours	20	18	15
No. of Receipts / packs	4	5	8
Engineering Hours	30	40	50
Supervisor Hours spent	10	12	10

 

Compare the results and discuss.

 

Q3)

1. a) Prepare a Cash Budget with following information.

 

	Diary	Notebook	Spiral Bound
Sales Units	8750	12500	5000
Selling Price (per Unit)	80	64	100
Variable Cost ( per Unit)	20	23	35
Fixed Cost	65000	140000	95000
Allocation of General Overhead	280000	320000	200000

 

 

1. b) A firm faces a decision about replacement of a machine.

Following is the information available:

1. Depreciation of existing machine is Rs. 25000/- p.a.
2. A new machine is available at Rs. 45000/- that is much more efficient in production.
3. Increase in power cost due to the new machine is Rs. 5000/- p.a.
4. Rent of the factory building is Rs. 60000/- p.a.
5. Scrap Value of the old machine is Rs. 4000/-

 

Identify which of the above information is relevant and which is not relevant for taking the decision whether to continue with the existing machine or use new one.

Dec 2022

Q1. The following information is available for a pen making business.
Calculate the following: (10 Marks)
a) Contribution
b) PV Ratio
c) BE Ratio (in no. of units and value)
d) MOS
e) Number of pens to be sold to get a profit of Rs. 20,000/-
Sales Price of the pen Rs. 100/- each
Cost of refill Rs. 10/- per refill.
Ink cost Rs. 5 per ml. 2 ml of Ink is required for each pen.
Ball bearings Rs. 3 per bearing
Sticker on the pen Rs. 2 per sticker.
Fixed Costs Rs. 6,00,000 p.a.

Q2. Select the Financial Statements (Balance sheet / Profit & Loss) of any listed Company.
Explain the use of and calculate any 5 ratios. Analyse. (10 Marks)

Q3a. Explain what is meant by product mix analysis. What are the considerations to make product mix decisions. (5 Marks)

Q3b. Sanjay is the owner of SSR Pvt. Ltd. He needs to item ‘A’ for his business. He can buy the item at Rs. 50/- per piece. Alternatively, he can produce it in-house. His accountant produces an estimate of the costs of production for the item. Basis that he advises Sanjay not to produce the item in-house as it was costlier. Comment on whether the accountant is right or not. Support with analysis.

Direct Material Cost Rs. 20 per unit
Direct Labour Rs. 10 per unit
Power cost Rs. 5 per unit
Rent of factory allocated to Item A Rs. 18 per unit
Depreciation of Plant used for manufacturing A Rs. 6 per unit.

June 2022

Q1. ABC GAMA Ltd has a special product to sell some of its old stock, quantity 5000 units, in the market as a limited period offer. The total cost of production of these products was Rs. 15000 and these products would have normally been sold out in the market at Rs40per unit. The enterprise is looking for three alternatives –

1. Repackage the products at Rs. 25000 and sell all the quantities at Rs 10 per unit
2. Sell the items as scrap, at the discounted prize of Rs. 2 per unit
3. Dispose them off to another enterprise at an additional cost of Rs 3000

Discuss the important consideration in a decision-making process of a firm, identify the three alternatives available here, and evaluate the three alternatives reflecting which of the three alternatives to be accepted?

Q2. You are planning to launch an innovative and unique product in the market in the Upcoming year. You are brainstorming on the pricing aspect of the product with yourteam. Your team decided that let’s charge the maximum price in the initial stage of the product and then lower the costs gradually.

Discuss which pricing strategy your team planned to adopt here and what advantages your team would have been observed here to employ this specific strategy. (10 Marks)

Q3. From the following data of Megh Enterprises.

1. Calculate the combined breakeven sales. The Company is producing three products.(5 Marks)

product	sales	Variable cost
A	10000	6000
B	5000	2500
C	5000	2000
The company incurred a fixed cost of Rs5700.

1. Also, Discuss the concept and relevance of breakeven sales for an enterprise (5 Marks)–

 

Old Assignment MBA Question

Q1: “Beautiful Masks” is a start-up manufacturing designer masks for men and women set up in April’ 20 post COVID. It is managed by Ms Meher. She is facing a huge demand for her designer masks from Retail outlets and on their Online store as well. She wants to understand the correct approach for pricing the masks. She has appointed you as the management accountant. Please advise her regarding the key factors affecting pricing decisions, both internal and external. Also, suggest any 3 types of pricing methods she can choose from highlighting 2 salient features of each method.
Q2. Mr Chopra is the CEO of Tasty packaged Foods. They manufacture various products like potato fries, samosas etc. Post covid, the company is under revenue pressure due to the reduced demand for packaged food. Like every other business, the short term decision making process in this business is also a process of selecting the best amongst various alternatives considering the cost benefit factors and impact on overall profitability of the firm. These could involve accepting or rejecting a special order, making or buying decisions, product mix decisions etc. These decisions require different analysis like Contribution margin analysis, relevant and irrelevant cost analysis. Please describe any 3 of these short term decision strategies with salient features.

Make vs Buy Harish Aggarwal, A management accountant with Car Udyog is evaluating whether a component MTR2000 should continue to be manufactured by Car or purchased from Outside Vendor company. Outside Vendor has submitted a bid to manufacture and supply the 32000 units of MTR 2000 that Car udyog will need for 2021 at a selling price of Rs 173 Harish has gathered the following information regarding Car Udyog’s costs to manufacture 30000 units of MTR-2000 IN 2020
Direct Materials 19,50,000
Direct Manufacturing Labour 12,00,000
Plant space rental 8,40,000
Equipment leasing 3,60,000
Other manufacturing overhead 22,50,000
Total Manufacturing costs 66,00,000
Harish has also collected the following information related to manufacturing MTR 2000: a. Prices of direct materials used in the production of MTR 2000 are expected to increase by 8% in 2021

Car Udyog’s direct manufacturing labour contract calls for a 5% increase in 2021
Car Udyog can withdraw from the plant space rental agreement without any penalty. Car Udyog will have no need for this space if MTR 2000 is not manufactured
The equipment lease can be terminated by paying Rs 60,000/-
40% of the other manufacturing overhead is considered variable. Variable overhead changes proportionately with the number of units produced. The fixed component of other manufacturing overheads is expected to remain the same whether or not MTR 2000 is manufactured
Required:

a. On the basis of the financial information Harish has obtained, calculate the cost of making MTR 2000 inhouse in 2021? Please share calculations
b. Please compare with the cost of outsourcing the product and whether it is profitable to buy or manufacture MT 2000?

Previous Yrs Assignment

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 Rs. 80. If both have life of 8 years which machine will you recommend if interest rate is 9 %? P/V factor @ 9 % for 8 years is 5.5348

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

Tabl*

The annual Overheads are as under:

Tab*

You are required to calculate cost per unit of each product A & B based on
i. Traditional method of charging overhead and
ii. Activity based costing method

Q3. Following information is available from the books of ABC Ltd. As of March 31st 2020 a listed company.
Tab*

a. Calculate the current ratio, quick ratio and debt equity ratio (5 Marks)
b. The company reported earnings after taxes of Rs. 2 crores. Assuming PE ratio of 10, calculate the theoretical stock prices of ABC Ltd.

 

Previous June Assignment

Q1. A company has a contribution/sales ratio of 50%. It maintains a MOS of 25%. If its annual fixed cost is Rs. 50 lakhs, calculate:

BE sales, MOS, Total Sales, Total Variable Cost and Profit

Q2. The following information is available from the records of Alpha Ltd. For the year 2019:

You are required to prepare a master budget.

Q3. You are a consultant hired to advise ABC Limited on ROI and help with decision making for additional order. The company has provided you following information:

The amount of division investment is Rs. 15,00,000 and the target rate of return on investment is 20%

 

1. Based on the information provided calculate ROI and Residual income of ABC Limited
2. Assume that division has offer to sell 50,000 units at Rs. 25 per unit. If additional order is accepted, the variable cost per unit will remain the same. However, fixed costs would increase by Rs. 250,000. A further additional investment of Rs. 10,00,000 would also be required. Analyze the impact on residual income.

April 2020 NMIMS

Q1. A Company is considering replacing one of existing machine with either a state of the art “Automatic Machine” which will reduce the labor cost by 80% or with a standard machine. The automatic machine will cost Rs. 2,50,000 with an estimated life of 5 year, whereas the standard machine will cost Rs. 2,00,000 with an estimated life of 8 year. Both machine have no residual value. Assume tax rate to be 40%.

The annual sales and costs are estimated as below:

Calculate the payback period and advice the management

Q2. ABC Limited has provided following information related to sales, cost and margins for March 2020:

Calculate P/V ratio, Break-even Point (Sales), and Margin of Safety.

Q3. You have been hired as a consultant by an auto parts manufacturing company. The company is currently dealing with an issue with production of defective components costing them loss of customers and sales. Company has identified that the main issue lies with a component supplier. The company has already gathered some information but unable to make a decision.

You have been provided with this information, the company can purchase the components in question from two suppliers, existing supplier A or new Supplier B. The price quoted by Supplier A is ?18.00 per 100 numbers of the components and it is found that on an average 5% of the total receipt from this supplier is defective. The corresponding quotation from Supplier B is Rs. 15.00 per 100 numbers of the components but the defectives would go up to 10% for the total supply. If the defectives are not detected, they are utilized in production causing a damage of Rs. 18 per 100 components. The company intends to introduce a system of inspection for the components on receipt which would cost ?5.00 per 100 components. The new inspection system will be able to detect only 90% of the defective components received. No payment will be made for defective components in inspection. Assume total requirements of components to be 25,000 numbers. (Hint: Use total cost for your analysis and recommendation.

You are asked to advice company management on:
a. Whether inspection at the point of receipt is justified?
b. Which of the two suppliers should be asked to supply?