| 1. | In each of the cases given below one out of four answers is correct. Indicate the correct answer (= 1 mark) and give your working/reasons in support of your answer (= 3 marks): | | |
| | (a) | A company presently sells 90,000 units of a product at a price of Rs. 100 per unit. The variable cost of the product is Rs. 42 per unit. The annual fixed costs amount to Rs. 24 lacs. The marketing director has stated that reduction of the selling price to Rs. 90 will increase the quantity of sales with the associated probability of it occurring as under: Sales quantity
100000 units
120000 units | Probability
0.45
0.55 |
The finance director has stated that at either of the aforesaid higher sales and production levels, the variable cost per unit with the associated probability of it occurring will be as under: Variable cost per unit
Rs. 40
Rs. 36 | Probability
0.40
0.60 |
The probability that the reduction of selling price to Rs. 90 will increase the overall profit will be A: 0.82
C: 0.25 | B: 0.21
D: 0.18 |
| 4 | (0) |
| | (b) | Appliances Division of a company has reported an annual operating profit of Rs. 402 lacs after charging Rs. 60 lacs of full cost of lunching a new product that is expected to last three years. The risk adjustment cost of capital of the Appliances Division is 11% and the division is paying interest on substantial bank loan at 8%. The historical cost of the division as per its balance sheet is Rs. 1000 lacs and the replacement cost is estimated at Rs. 1720 lacs.
Ignore taxation.
The EVA of the Appliances Division in lacs of rupees is: A: 308
C: 332 | B: 309.6
D: 252.8 |
| 4 | (0) |
| | (c) | A company has developed a new product and just completed the manufacture of the first four units of the product. The first unit took 3 hours to manufacture and the first four units together took 8.3667 hours to produce.
The learning curve rate is: A: 69.5%
C: 75.0% | B: 59.6%
D: 83.5% |
| 4 | (0) |
| | (d) | Zee Ltd., is preparing its annual Profit plan. As part of its analysis of the Profitability of individual products, the accountant estimates the amount of overhead that should be allocated to the individual product lines from the information given below: | Wall
Mirrors | Speciality
Windows | Unit Products
Material moves/Product line
Direct labour hrs./unit
Budgeted material handling costs (Rs.) 50,000 | 25
5
200 | 25
15
200 |
Under Activity–Based–Costing (ABC), the material handling costs allocated to one unit of Wall mirrors would be: | (A) | Rs. 1000 | | (B) | Rs. 500 | | (C) | Rs. 1500 | | (D) | Rs. 2500. |
| 4 | (0) |
| | (e) | A mobile phone manufacturer, Siemens Ltd., is planning to introduce a new mobile phone. The potential market over the next year is 10,00,000 units.
Siemens Ltd. has the capacity to produce 4,00,000 units and could sell 1,00,000 units at a price of Rs. 50.
Demand would double for each Rs. 5 fall in the selling price.
The Company has an 80% cost experience curve for similar products. The cost of the first batch of 1000 phones was Rs. 1,03,000.
A minimum margin of 25% is required:
What is Siemens Ltd.’s target cost/unit to the nearest Re.? | (A) | Rs. 40 | | (B) | Rs. 30 | | (C) | Rs. 32 | | (D) | Rs. 37.50. |
| 4 | (0) |
| 2. | (a) | Enumerate the steps involved in target costing. | 4 | (0) |
| | (b) | A project consists of the following activities. The time estimates are in days. | Activity | Normal
Days | Minimum
(crash) Days | Crash cost
per day | 1 – 2
1 – 3
1 – 4
2 – 4
3 – 4
4 – 5 | 9
8
15
5
10
2 | 6
5
10
3
6
1 | 40
50
60
20
30
80 |
The overhead costs amount to Rs. 120 per day.
Required: | (i) | Draw the network diagram and show the critical path and its duration. |
| (ii) | Determine the minimum project length. |
| (iii) | Find the optimal project cost. |
| 4+4+4 | (0) |
| 3. | (a) | A company manufacturing a wide range of kitchen items has observed that the best selling item is the garlic press. The key element in the budget for 2009 is the contribution which the company earns from the sale of the product garlic press. The sales, variable costs and contribution relating to the sales of garlic press for the last four years as adjusted to 2009 values are as under: | 2005 | 2006 | 2007 | 2008 | | Sales units | 15000
Rs. | 18000
Rs. | 20000
Rs. | 23000
Rs. | Sales
Variable costs
Contribution | 585640
262160
323480 | 692120
323412
368708 | 726000
357208
368792 | 897600
402320
495280 |
The company has estimated the sales for 2009 at 26000 units of garlic press.
You are required to project the trend and forecast the contribution for the year 2009 using linear regression. | 8 | (0) |
| | (b) | A company produces three products as per details given below: | Product | A | B | C | Selling price per unit Rs.
Material X : kg/unit
Material Y : kg/unit
Direct Labour
hour/unit
Variable overheads
Rs./unit
Fixed overhead Rs./unit
Expected demand in the
next month (units) | 42.00
2.0
2.0
0.6
2.20
3.00
950 | 57.00
3.0
2.2
1.2
2.60
3.20
1000 | 54.60
3.0
1.6
1.5
2.20
3.40
900 |
Material X which is not used in any other products of the company is in short supply in the next month for which the above information is furnished. The company has first received a consignment of 5500 kg of material X at the market price and this is to be used for preparing the production plan in the next month. The company will not be able to obtain further supplies of material X unless it pays a premium price. The market price of material X is Rs. 5 per kg. Material Y is available at a price of Rs. 4 per kg. and the company can obtain unlimited supplies of this material. the direct labour hour rate is Rs. 8 per hour.
Required: | (i) | Determine the optimum production programme for the next month assuming that the company does not obtain additional supplies of material X. |
| (ii) | If the company decides to buy further supplies of material X to meet the demand for the three products as aforesaid, what should be the maximum price per kg which the company can afford to pay? |
| 6+2 | (0) |
| 4. | A Company manufactures two products using its maximum capacity of 30000 machine hours. The price and cost data relating to the two products are as under: | Product – A | Product – B | Selling price
Material cost
Variable conversion cost
Maximum Sales Potential (units)
Production per machine hour (units)
Total fixed overheads RS.84 lacs. | Rs./unit 400
Rs./unit 160
Rs./unit 40
75000
3.125 | 560
200
120
35000
2.50 |
As the company uses first–in–time system, the stock of work–in–process and finished goods is negligible. Required: | (i) | Determine the optimal product mix using marginal costing. |
| (ii) | Calculate the through–put accounting ratio for each product and rank the products for manufacture. |
| (iii) | Based on the concept of throughput accounting, compute the product mix to yield maximum profit. For this purpose, use the total variable costs as calculated on the basis of the product mix obtained by using the marginal costing method in(i) above. |
| 4 + 8 + 4 | (0) |
|
| 5. | Stylo is a complex business house. It owns, interalia, a dress making firm, making ready made dresses for men of particular material and style. A worker, who is paid Rs. 100/hr. can produce two dresses an hour. Each dress uses material costing Rs. 304 and incurs a variable overhead of Rs. 50. Each dress sells for Rs. 449. At present, owing to economic conditions, work is rather slack and six of Stylo‘s employees are occupied in carrying out re–modelling of internal decoration of a club–house for Style‘s staff and workers. Stylo owns warehouse next to the dress making factory, which has been used as a factory store in the past. Today it is let out on a renewable lease of Rs. 1,30,000 for storage to world wing, a courier. A new dress making company, which specializes in making ready made dresses has asked stylo if it would be interested in accepting a contract for Rs. 1,60,00,000, which will be for a year initially to produce dresses for Stylo.
At this | (a) | Stylo estimates that it would take 26,400 hours work, or the work of ten men for a year and that the variable overheads would be Rs. 15,56,000. The work could be carried out in the factory, but because of the large amount of space needed, it would have to replace 17,600 hours of existing work. Stylo calculates that the materials required for the contract would cost Rs. 1,17,00,000. | | (b) | Alternatively, Stylo wonders if the work could be carried out in the warehouse which it owns and is situate next to the dress making workshop: the lease is due to be renewed next month anyway. Stylo reckons that this would involve it in an extra cost of Rs. 3,00,000 for air–conditioning and the cost of power would increase by Rs. 4,00,000. Stylo would hire four new workers and pay them Rs. 2,16,000/annum/worker. If the contract was carried out in the ware–house, the other six men would be those at present engaged in re–modelling the staff club house. The six workers are paid Rs. 14,50,000/annum in total and it would cost Rs. 5,00,000 to get an outside contract to finish the club decoration.
Required: |
| (i) | What would you advise City style to do? |
| (ii) | What other factor and to be considered. |
| 10+6 | (0) |
| 6. | (a) | Briefly explain the concept of ‘customer Profitability Analysis’. | 6 | (0) |
| | (b) | The following information are available for a manufacturing firm. ABC Ltd: | (1) | Information on 4 customers, using the same products: | A | B | C | D | (i)
(ii)
(iii)
(iv)
(v)
(vi)
(vii) | No. of units sold:
Selling price net (Rs.)
No. of sales visits
No. of purchase orders
No. of deliveries
Kilometres per journey
No. of rush deliveries | 120,000
2
3
20
12
20
– | 160,000
3
3
60
16
35
3 | 220,000
1
5
50
25
10
1 | 140,000
2
10
40
15
50
2 |
| | (2) | Costs of each activity (Rs.): (viii)
(ix)
(x)
(xi)
(xii) | Sales visit
Order placing
Product handling
Normal delivery cost
Rushed delivery cost | 4,200
1,200
0.3
40
4,000 | per visit
per order
per item
per kilometre
per delivery |
|
Required: To carry out the Customer Profitability Analysis: | (i) | To ascertain the operating Profit for A, B, C & D. |
| (ii) | To find out the percentage profitability. |
What would be the conclusions, drawn after carrying out the customer Profitability Analysis. | 4+4+2 | (0) |
| 7. | A company has two manufacturing divisions operating on profit centre basis. Division B makes a product X which requires a particular component which can be sourced only from Division A. Each unit of Product X requires one unit of that particular component.
The demand for Product X is not steady and order for increased quantities can be obtained by reduction in the price.
The Manager of Division B has given the following forecast. Sales (per day)
units | Average price per unit of X
(Rs.) | 5000
10000
15000
20000
25000
30000 | 400
300
250
200
180
150 |
The manufacturing cost (excluding cost of component from Division A) of X in Division B is Rs. 15,00,000 on first 5000 units and @ Rs. 60 per unit in excess of 5000 units for upto 15,000 units and thereafter @ Rs. 50 per unit for unit in excess of 15000 units Division A incurs a tool cost of Rs. 5,62,500 per day. For an output of upto 5000 units of component and then total costs will increase by Rs. 3,37,500 per day for every additional 5000 components manufactured. The manager of Division A has requested for transfer price for component X at Rs. 90 per unit.
You are required to prepare:— | (a) | Prepare a divisional profitability statement at each level of output for Division A and B separately. [3+3] |
| (b) | Find out the profitability of the company as a whole at the output level where [3+3] |
| (i) | Division A‘s net profit is maximum |
| (ii) | Division B’s net profit is maximum |
| (c) | Find out at what level of output, the company will earn maximum profit, if the company is not organised on profit centre basis. [4] |
| 16 | (0) |
| 8. | Write short notes on the following (any four): | 4x4 | |
| | (a) | Balanced score card | | (0) |
| | (b) | Bench marking | | (0) |
| | (c) | Flexible Management System | | (0) |
| | (d) | Pull System in inventory control | | (0) |
| | (e) | International Transfer Pricing | | (0) |
| | (f) | Modified I.R.R. | | (0) |
