CA Final :: Cost Management : November 2004

What do you mean by 'Back flushing' in JIT system? Explain briefly the problems with back flushing that must be corrected before it will work properly.

Panchwati Cement Ltd. produces '43 grade' cement for which the company has an assured market. The output for 2004 has been budgeted at 1,80,000 units at 90% capacity utilisation. The cost sheet based on output (per unit) is as follows :

To utilise the idle capacity and to improve the profitability of the company, the following proposals were put up before the Board of Directors for consideration :

A Company manufactures two Products A and B by making use of two types of materials, viz., X and Y. Product A requires 10 units of X and 3 units of Y. Product B requires 5 units of X and 2 units of Y. The price of X is Rs. 2 per unit and that of Y is Rs. 3 per unit. Standard hours allowed per product are 4 and 3, respectively. Budgeted wages rate is Rs. 8 per hour. Overtime premium is 50% and is payable, if a worker works for more than 40 hours a week. There are 150 workers.

The Sales Manager has estimated the sales of Product A to be 5,000 units and Product B 10,000 units. The target productivity ratio (or efficiency ratio) for the productive hours worked by the direct worker in actually manufacturing the product is 80%, in addition, the non-productive downtime is budgeted at 20% of the productive hours worked. There are twelve 5-day weeks in the budget period and it is anticipated that sales and production will occur evenly throughout the whole period.

It is anticipated that stock at the beginning of the period will be :

Product A 800 units; Product B 1,680 units. The targeted closing stock expressed in terms of anticipated activity during the budget period are Product A 12 days sales; Product B 18 days sales.

The opening and closing stock of raw material of X and Y will be maintained according to requirement of stock position for Product A and B.

XYZ Ltd. manufactures four products, namely A, B, C and D using the same plant and process. The following information relates to a production period :

The four products are similar and are usually produced in production runs of 24 units and sold in batches of 12 units. Using machine hour rate currently absorbs the production overhead. The total overheads incurred by the company for the period is as follows :

• Machine operation and maintenance lost should be apportioned between setup cost, store receiving and inspection activity in 4 : 3 : 2.

• Number of requisition raised on store is 50 for each product and the no. of order executed is 192, each order being for a batch of 12 of a product.

A manufacturing company produces two types of product the SUPER and REG|ULAR. Resources requirements for production are given below in the table. There are 1,600 hours of assembly worker hours available per week. 700 hours of paint time and 300 hours of inspection time. Regular customers bill demand at least 150 units of the REGULAR type and 90 units of the SUPER type.

Formulate and solve the given Linear programming problem to determine product mix on a weekly basis.

"Relevant cost analysis help in drawing attention of managers to those elements of costs, which are relevant for the decision." Comment.

A company manufactures two products X and Y. Product X requires 8 hours to produce while Y requires 12 hours. In April, 2004, of 22 effective working days of 8 hours a day, 1,200 units of X and 800 units of Y were produced. The company employs 100 workers in production department to produce X and Y. The budgeted hours are 1,86,000 for the year.

A manufacturing company runs its boiler on furnace oil obtained for X oil company and Y oil company whose depots are situated at a distance of 24 kms and 16 kms from the factory site.

Transportation of furnace oil is made by company's own tank lorries (two) of 8 ton capacity each. Onward trips are made only with full load and lorries return empty. The filling time take an average of 40 minutes for X oil company and 30 minites for Y oil company. The empty time in the factory is only 40 minutes for each. The average speed of lorries work our is 24 km per hour. The varying operating charges average 80 paise per km covered and fixed charges gives an incidence of Rs. 7.50 per hour of operation.

Tycon Ltd. has two manufacturing departments organised into separate profit centres known as Textile unit and Process House. The Textile unit has a production capacity of 5 lacs metres cloth per month, but at present its sales is limited to 50% to outside market and 30% to process house.

The transfer price for the year 2004 was agreed at Rs. 6 per metre. This price has been fixed in line with the external wholesale trade price on 1st January, 2004. However the price of yarn declined, which was the raw material of textile unit, effect that wholesale trade price reduced to Rs. 5.60 per metre with effect from 1st June, 2004. This price however not made applicable to the sales made to the processing house of the company. The textile unit turned down the processing house regust for revision of price.

The Process house refines the cloth and packs the output known as brand Rayon in bundles of 100 metres each. The selling price of the Rayon is Rs. 825 per bundle. The process house has a potential of selling a further quantity of 1,000 bundles of Rayon provided the overall prices is reduced to Rs. 725 per bundle. In that event it can buy the additional 1,00,000 metres of cloth from textile unit, whose capacity can be fully utilised. The outside market has no further scope.
The cost data relevant to the operations are :

A Marketing Manager has 4 subordinates and 4 tasks. The subordinates differ in efficiency. The tasks also differ in their intrinsic difficulty. His estimates of the time each subordinate would take to perform each task is given in the matrix below.

How should the task be allocated one to one man so that the total man-hours are minimised?

A company trading in motor vehicle spares wishes to determine the level of stock it should carry for the item in its range. Demand is not certain and replenishment of stock takes 3 days. For one item X, the following information is obtained :

Each time an order is placed, the company incurs an ordering cost of Rs. 20 per order. The company also incurs carrying cost of Rs. 2.50 per unit per day. The inventory carrying cost is calculated on the basis of average stock.

Currently (on first day) the company has a stock of 17 units. The sequence of random number to be used is 08, 91, 25, 18, 40, 27, 85, 75, 32, 52 using first number for day one.

You are required to carry out a simulation run over a period of 10 days, recommend which option the manager should chose.