| 1. | (a) | A company has decided to launch a new product X which is expected to have a demand of 10,000 units during the year at Rs. 160 per unit. The following information is furnished by the company : | (i) | Material – The manufacture of one unit of X requires one unit of each of materials A, B and C. | Raw Material | Current Stock
(Units) | Cost per unit (Rs.) | | | | Original
Cost | Current
Purchase Price | Resale
value | A – Regularly
being used | 10,000 | 16 | 20 | 14 | B – Old stock
(Not in use) | 6,000 | 28 | 24 | 8 | | C – New Stock | – | – | 48 | – |
| | (ii) | Direct labour
Skilled labour is paid at Rs. 80 per hour. It takes 0.25 hours/unit. Skilled labour has to be drawn from another production line which has a contribution of Rs. 240 per unit, with each unit requiring 2 hours of skilled labour.
Unskilled labour – 2 hours/unit @ Rs. 56 per hour. There is abundant unskilled labour in the factory, but according to an agreement with the labour union, no unskilled worker can be retrenched. | | (iii) | Variable overhead – Rs. 10 per unit. | | (iv) | Fixed Costs – no increase.
Using relevant cost approach, you are required to find out the average variable cost per unit of X. |
| 5 | (0) |
| | (b) | The following table gives the unit transportation costs and the quantities demanded/ supplied at different locations for a minimisation problem : | demand/supply | C1 | C2 | C3 | C4 | Total
Units | | R1 | 100 | 120 | 200 | 110 | 20000 | | R2 | 160 | 80 | 140 | 120 | 38000 | | R3 | 180 | 140 | 60 | 100 | 16000 | | Total Units | 10000 | 18000 | 22000 | 24000 | |
You are required to find out which cell gets the 3rd allocation in the initial basic feasible solution under each of the following methods and to give the cell reference, cost per unit of that cell and the quantity allocated to that cell : | (i) | North West Corner Rule | | (ii) | Vogel’s Approximation Method | | (iii) | Least Cost Method |
(Candidates may use the standard notation of CiRj for cell reference.( e.g. C2 R3 means the cell at the intersection of Column 2 and Row 3 ) (Note: The full solution is not required to be worked out). | 5 | (0) |
| | (c) | XY Ltd. makes two products X andY, whose respective fixed costs are F1 and F2. You are given that the unit contribution of Y is one fifth less than the unit contribution of X, that the total of F1 and F2 is Rs. 1,50,000, that the BEP of X is 1,800 units (for BEP of X, F2 is not considered) and that 3,000 units is the indifference point between X and Y.(i.e. X and Y make equal profits at 3,000 unit volume, considering their respective fixed costs). There is no inventory build up as whatever is produced is sold.
You are required to find out the values of F1 and F2 and unit contributions of X and Y. | 5 | (0) |
| | (d) | State whether each of the following independent activities is value–added or non–value–added : | (i) | Polishing of furniture used by a systems engineer in a software firm. |
| (ii) | Maintenance by a software company of receivables management software for a banking company. |
| (iii) | Painting of pencils manufactured by a pencil factory. |
| (iv) | Cleaning of customers’ computer key boards by a computer repair centre. |
| (v) | Providing.brake adjustments in cars received for service by a car service station. |
| 5 | (0) |
| 2. | (a) | AB Ltd. makes component ‘C’ and billing machines. Division A makes component ‘C’ that is used in the final assembly of the machine in Division B.(One unit of Component ‘C’ is used per machine). Component C has an outside market also. A and B operate as profit centres and each can take its own decisions. The following data is given in the existing scenario for Divisions A and B, under which Division A has enough special and external demand to use its capacity and hence is offering B rates of 800 Rs./unit for quantity up to 750 units and 900 Rs./unit for more than 750 units, so that its outside contribution is not affected by transfers to B. A and B can sell any quantity up to the maximum indicated under ‘units sold’, without affecting their future demands. | | Division A | Division B | | | External
Market
(normal sales) | (Special Sales) | External
Market
(normal sales) | | Selling Price
(Rs./u) | 1,000 | 800 | 4,000 | | Variable
manufacturing
cost(Rs./u) | 600 | 600 | 1,500∗ | (∗ excluding
Component C) | Variable
Selling cost
(Rs./u) | 100∗∗ | – | 200∗∗ | (∗∗ Not
incurred on
inter division
transfers) | Total variable
cost(Rs./unit) | 700 | 600 | 1,700∗ | (∗ excluding
component C’ | Contribution
(Rs./unit) | 300 | 200 | | | | Units Sold | 1,250 | 750 | 900 | | Production
capacity | 2,000 units | 900 units | |
For the next period, A requires for its own use in its selling outlets, 50 units of billing machines produced by B. B’s manager proposes as follows: Option I – B will supply 50 machines to A on its variable manufacturing cost basis provided A supplies to B, 500 units of Component C at A’s variable manufacturing cost basis. Option II – Both A and B resort to total variable cost per unit basis applicable to normal external sale, though neither A nor B incurs any selling cost on inter division transfers. A will be given 50 machines for its use. A will have to supply B all the 900 units that B requires. Option III – Both A and B use the external market selling price (i.e. 1,000 and 4,000 Vunit for 900 units of Component ‘C’ and 50 machines respectively). From a financial perspective, advise Division A’s manager what he should choose. Support your advice with relevant figures. What is the change in the rate of discount per unit given by B to A (based on unit transfer price to market price ratio) from option I to option II? (Note : Students need not work out the total cost statements. Steps showing relevant figures for evaluation are sufficient). | 10 | (0) |
| | (b) | The standard set for a chemical mixture of a company is as under : | Material | Standard Mix(%) | Standard Price Rs. / kg | | A | 80 | 50 | | B | 20 | 100 |
Standard yield in production is 75 %. The actual quantity produced was 1800 kg of output from the following: | Material | Quantity (kg) | Actual price | | A | 1400 | 60 | | B | 600 | 90 |
Calculate the total material price, mix and yield variances, indicating whether they are favourable (F) or adverse (A or U). | 6 | (0) |
| 3. | (a) | A company is operating 60% of its capacity with a turnover of Rs.43.20 lacs. If the company works at 100% capacity, the sales–cost relation is : Factory cost is two thirds of sales value. Prime cost is 75 % of factory cost. Administration and selling expenses (75 % variable) are 20 % of the sales value. Factory overhead will vary according to operating capacity as given below: | Operating capacity(%) | 60 | 80 | 100 | 120 | | Factory overheads (Rs. In lacs) | 9.90 | 10.80 | 12 | 15 |
The company has planned to operate at 80 % of its capacity. Moreover, it has received an export order and its execution will involve 40 % of the capacity. The prime cost of the order is estimated at Rs. 6.0 lacs and the shipping involved will be around Rs. 1.0 lac. Administration and selling expenses will be avoided on the export order. Taking the same percentage of profits as on the domestic sales, determine the minimum price to be quoted for the export order. | 8 | (0) |
| | (b) | In a transportation problem for cost minimization, there are 4 rows indicating quantities demanded and this totals up to 1,200 units. There are 4 columns giving quantities supplied. This totals up to 1,400 units. What is the condition for a solution to be degenerate ? | 3 | (0) |
| | (c) | State with a brief reason whether you would recommend an activity based system of costing in each of the following independent situations : | (i) | Company K produces one product. The overhead costs mainly consist of depreciation. |
| (ii) | Company L produces 5 different products using different production facilities. |
| (iii) | A consultancy firm consisting of lawyers, accountants and computer engineers provides management Consultancy services to clients. |
| (iv) | Company S produces two different labour intensive products. The contribution per unit in both products is very high. The BEP is very low. All the work is carried on efficiently to meet the target costs. |
| 5 | (0) |
| 4. | (a) | Ezee Ltd makes two products, E and Z. All units produced are sold. There is no inventory build up. Production facilities may be used interchangeably for both the products. Sales units are the limiting factor. The following information is given: | | Present Level | Proposed increase | | | E | Z | Total | Total | | Contribution Rs./unit | 25 | 20 | | | | Fixed Cost Rs. | | | 46,000 | 47,500 | | Sales units (nos) | 3,000 | 2,000 | 5,000 | 4,000 |
For increase in quantities above 4,000 units for each product, there will be an increase in variable selling costs,(for the increased portion only), thereby reducing the contribution per unit to the following figures : | Units | Contribution per unit | | | E | Z | | 4001–5000 | 20 | 15 | | 5001–6000 | 15 | 10 | | Above 6000 | No sales possible. |
| (i) | For the present level, find the break–even point with the present product mix. | | (ii) | What is the minimum number of incremental units to be sold to recover the additional fixed cost of Rs. 47,500 to be incurred? (Present product mix need not be maintained) : | | (iii) | If you are allowed to choose the best product mix for the incremental level, (while taking the present mix given in the first table above for the present level), what would be the individual product quantities and the corresponding total contributions, the total average contribution per unit and the total profits for the complete production? |
| 8 | (0) |
| | (b) | The following linear program is presented to you; | Objective : | Maximize Z = 30x + 45y | | Subject to : | (i) | 2x + 3y ≤ 1440 | | (ii) | 9x + 12y ≥ 2160 | | (iii) | 3x+4y ≥ 1080 | | (iv) | x,y ≥ 0. |
You are required to draw the graph taking quantities of x and y in the respective axes in steps of 60 units (scale 1 em. = 60 units), determine the optimality and offer your comments on the solution and the constraints. | 8 | (0) |
|
| 5. | (a) | A machine manufacturing company needs four components A, B, C and D. The components may be procured from outside. The cost, market price for the components and other information are given below : | Number of units required | 3,000 | 3,500 | 2,000 | 3,000 | | | Figs. Rs. per unit. | | | A | B | C | D | | Direct Material | 120 | 140 | 150 | 120 | | Direct Wages | 60 | 80 | 120 | 80 | | Direct expenses at {40 per machine hour | 80 | 60 | 80 | 80 | | Fixed Cost | 40 | 40 | 30 | 50 | | Total Cost | 300 | 320 | 380 | 330 | | Market Price | 300 | 320 | 400 | 270 |
There are constraints on the machine time in manufacturing all the components. Total machine hours available is only 12,000 hours. It is possible to use the machine time in a second shift which will attract 20 % extra wages and other fixed overheads at Rs. 6,000 for every 1,000 hours or part thereof. With relevant supporting figures, advise the best course of action to maximize the profits. (Note : Students need not work out the complete profitability statement). | 8 | (0) |
| | (b) | The following network and table are presented to you :  | Activity | Normal
Duration
(Days) | Normal
Cost (Rs.) | Crash
Duration
(Days) | Crash
Cost (Rs.) | | T | 8 | 2,250 | 6 | 2,750 | | U | 16 | 1,875 | 11 | 2,750 | | V | 14 | 2,250 | 9 | 3,000 | | W | 12 | 3,000 | 9 | 3,750 | | X | 15 | 1,000 | 14 | 2,500 | | Y | 10 | 2,500 | 8 | 2,860 |
Perform step by step crashing and reduce the project duration by 11 days while minimizing the crashing cost. What would be the cost of the crashing exercise? | 8 | (0) |
| 6. | (a) | PQR Ltd is considering introducing a new product at a price of Rs. 105 per unit.
PQR Ltd’s controller has complied the following incremental cost inforrnation based on an estimate of 1,20,000 units of sales annually for the new product : Direct material cost
Direct Labour cost
Flexible manufacturing support
Sales commission
Capacity–related cost | Rs. 36,00,000
Rs. 24,00,000
Rs. 12,00,000
10% of sales
Rs. 20,00,000 |
The average inventory levels for the new product are estimated as follows : Raw materials :
Work–in–progress (100% complete for
Materials and 50% complete for labour and
Flexible manufacturing support)
Finished goods | 2 months’ production
1 month production
2 months’ production |
Annual inventory carrying costs not included in the flexible manufacturing support listed earlier are estimated to be 12% of inventory value. In addition, the sales manager expects the introduction of new product to result in a reduction in sales of existing product from 3,00,000 to 2,40,000 units. The contribution margin for the existing product is Rs. 20 per unit. Prepare a statement showing the budgeted impact on PQR’s profits on the introduction of the new product. Should the new product be introduced? | 8 | (0) |
| | (b) | Explain the features of a balanced score card. | 4 | (0) |
| | (c) | Classify the following items under the more appropriate category :
Category (CC)–Cost Control Or Category ( CR)– Cost Reduction. | (i) | Costs exceeding budgets or standards are investigated. |
| (iii) | Corrective function |
| (iv) | Measures to standardize for increasing productivity |
| (v) | Provision of proper storage facilities for materials. |
| (vi) | Continuous comparison of actual with the standards set. |
| (vii) | Challenges.the standards set |
| 4 | (0) |
| 7. | Answer any four out of the following five questions: | | |
| | (a) | The following is a part of a network. 
What are activities P and Q called? How would you rectify the situation? | 4 | (0) |
| | (b) | The following matrix was obtained after performing row minimum operation on rows R1 and R2 in an assignment problem for minimization. Entries "xx" represent some positive numbers. (It is not meant that all "xx" numbers areequal). State two circumstances under which an optimal solution is obtained just after the row minimum and column minimum operations. (Candidates may use cell references as CiRj for uniformity. e.g. C1R1represents the cell at the intersection of Column 1 (C1) and Row 1 (R1), etc.) | | Cl | C2 | C3 | | R1 | 0 | xx | xx | | R2 | xx | 0 | xx | | R3 | xx | xx | xx |
| 4 | (0) |
| | (c) | A refreshment centre in a railway station has two counters – (i) self–service (opted by 60% of the customers) and (ii) attended service (opted by 40% of the customers). Both counters can serve one person at a time. The arrival rate of customers is given by the following probability distribution : | No.of arrivals | 1 | 3 | 4 | 0 | 2 | | Probability | 0.10 | 0.30 | 0.05 | 0.20 | 0.35 |
Formulate the associated interval of 2 digit random numbers for generating | (i) | The type of service and |
| 4 | (0) |
| | (d) | Define the following:- | (i) | maximum capacity (theoretical capacity) |
| (iv) | principal budget factor |
(The first three relate to a manufacturing plant) | 4 | (0) |
| | (e) | Suggest suitable cost units for the following services : | 4 | (0) |
