Cost Management Test Questions and Suggested Solutions

SREERAM COACHING POINTCOST Management Test Questions & Suggested Solutions by L. Muralidharan, FCA., Grad. CWA., COST MANAGEMENT - TEST QUESTIONS & SOLUTIONS Question: 1 Bharata Ltd is considering proposals for design changes in one of a range of soft toys. The proposals are as follows: (a) Eliminate some of the decorative stitching from the toy. (b) Use plastic eyes instead of glass eyes in the toys (two eyes per toy). (c) Change the filling material used. It is proposed that scrap fabric left over from the body manufacture be used instead of the synthetic material which is currently used. The design change proposals have been considered by the management team and the following information has been gathered: (a) Plastic eyes will cost Rs.15 per hundred whereas the existing glass eyes cost Rs.20 per hundred. The plastic eyes will be more liable to damage on insertion into the toy. It is estimated that scrap plastic eyes will be 10% of the quantity issued from stores as compared to 5% of issues of glass eyes at present. (b) The synthetic filling material costs Rs.80 per tonne. One tonne of filling is sufficient for 2,000 soft toys. (c) Scrap fabric to be used as filling material will need to be cut into smaller pieces before as and this will cost Rs.0.05 per soft toy. There is sufficient scrap fabric for the purpose. (d) The elimination of the decorative stitching is expected to reduce the appeal of the product, with an estimated fall in sales by 10% from the current level. It is not felt that the change in eyes or filling material will adversely affect sales volume. The elimination of the stitching will reduce production costs by Rs.0.60 per soft toy. (e) The current sales level of the soft toy is 3,00,000 units per annum. Apportioned fixed costs per annum are Rs.4,50,000. The net profit per soft toy at the current sales level is Rs.3. Required: (i) Using the information given in the question, prepare an analysis which shows the estimated effect on annual profit if all three proposals are implemented, and which enables management to check whether each proposal will achieve an annual target profit increase of Rs.25,000. The proposals for plastic eyes and the use of scrap fabric should be evaluated after the stitching elimination proposal has been evaluated. (ii) Calculate the percentage reduction in sales due to the stitching elimination at which the implementation of all three design change proposals would result in the same total profit from the toy as that earned before the implementation of the changes in design. Question:2 ABC Ltd manufactures a simple garden tool. At present the company is working at full capacity producing the three components A,B,C one of each being required for the assembly of the tool. All the machines are capable of making all the components. Current cost data concerning and hundred tools are as follows: Machine Hours 10 16 20 46 Variable Cost Rs. 26 32 32 42 142 Fixed Cost Rs. 10 2 32 22 76 Total Rs. 36 44 64 74 218 250 Components - A Components - B Components - C Assembly Selling Price The management is engaged in preparing next year's budget an increase in sales is to be provided for. The factory already has to work at full machine capacity to meet current demand and no increase in the present machine capacity can be effected for over 12 months. Though facilities involving variable costs can be increase data very short notice. It is decided that one of the components will have to be bought out. The following quotations have been received: L. Muralidharan, FCA., Grad. CWA., 1 Sreeram Coaching Point COST MANAGEMENT - TEST QUESTIONS & SOLUTIONS Components A B C Price per 100 tools Price per 100 tools Price per 100 tools Rs 36 46 54 The Sales manager feels sure that he can sell at least 50% more tools than at present and probably 75% more provided the factory capacity is available. You are required to prepare a report for management giving your recommendations as to which component should be ordered from outside supplied for the coming year if production is increased by 50% and 75% respectively. Question : 3 The Chakrapani Ltd's Cost behaviour is as follows: Production range in units 0- 20000 20001 - 65000 65001 - 90000 90001 - 100000 Fixed cost Rs. 160000 Rs. 190000 Rs. 210000 Rs. 250000 At an activity of 70000 units per year, variable costs total 280000.Full capacity is 100000 units per year. Required: (1) Production is now set at 50000 units per year with a sales price of Rs.7.50 per unit. What is the minimum number of additional units needed to be sold in an unrelated market at Rs.5.50 per unit to show a net profit of Rs.3000 per year? (2) Production is now set at 60000 units per year. By how much may sales promotion costs be increased to bring production up to 80000 units and still earn a net profit of 5% of total sales if the selling price is held at Rs.7.50? (3) If net profit is currently Rs.10000 with fixed costs at Rs.160000 and a 2% increase in price will leave units sold unchanged but increase profits by Rs.5000.What is the present volume in units? Question: 4 The manager of a business has received enquiries about printing three different types of advertising leaflet. Information concerning these three leaflets is shown below: A Selling prices per 1000 leaf lets Estimated printing costs: Variable per 1000 leaflets Specific fixed costs per month 40 2,400 70 4,000 130 9,500 100 B 220 C 450 In addition to specific fixed costs a further Rs. 4,000/- per month would be incurred in renting special premises if any or all of the above three leaflets were printed. The minimum printing order would be for 30,000 of each type of leaflet per month and the maximum possible order is estimated to be 60,000 of each leaflet per month. Required (i) Examine and comment upon the potential profitability of leaflet printing. Make whatever calculations you consider appropriate. (ii) Assuming that orders have been received to print each month 50,000 of both leaflet A and leaflet B calculate the quantity of leaflet C which would need to be ordered to produce an overall profit, for all three leaflets of Rs. 1,800/- per month. L. Muralidharan, FCA., Grad. CWA., 2 Sreeram Coaching Point Grad. Based on past experience and current prices and quotations.000 of each type of leaflet have been printed there remains unfulfilled order of 10. of past occasions 4 6 8 2 20 L. formed to examine more closely the likely outcome of the function. Muralidharan.1 per person Rs.2. 3 Sreeram Coaching Point . Question: 5 For the past 20 years a charity organisation has held an annual dinner and dance with the primary intention of raising funds.800 800 200 A sub-committee. What will be your reaction if the printing quantity is to be pack of 1000 leaflets.000.000 for each type of leaflet and there 170 packs of special paper available for the rest of the month.5 per page Price of tickets Average revenue from : Raffle Photographs Programme: Average revenue from advertising Rs. (Rs.. of tickets sold 250 to 349 350 to 449 450 to 549 550 to 649 No. This year there is concern that an economic recession may adversely affect both the number of persons attending the function and the advertising space that will be sold in the programme published for the occasion.20 per person 700 2..12 per person (with a guarantee of 400 persons minimum) Programme: Revenues: Dinner and dance: A fixed cost of Rs. if 50. it is expected that the following costs and revenues will apply for the function.TEST QUESTIONS & SOLUTIONS (iii) It is possible that a special type of paper used in printing leaflets will be difficult to obtain during the first few months.5 per person Re.COST MANAGEMENT .70 per page Rs. Three estimated consumption of this special paper for each type of leaflet is: Leaflet Leaflet Leaflet A B C 2 packs per 6 packs per 6 packs per 1000 leaflets 1000 leaflets 1000 leaflets Advise the manager on the quantity of each leaflet which should be printed in order to maximise profit in the first month.) Costs: Dinner and dance: Hire of premises Band and entertainers Raffle prizes Photographer Food at Rs. CWA. plus Rs. discovered the following from previous records and accounts: No. FCA. with relevant supporting financial and cost data. . (iii)Another ratio which you consider may be useful to management and explain the meaning of the ratio you have calculated.500 on the market research enquiry and indicate the possible benefits the enquiry could provide. Grad..TEST QUESTIONS & SOLUTIONS No. the second department in the initial common same of operations.950 plates. (ii) An appropriate ratio expressing the department's actual production relative to that budgeted. Direct labour (14 hours at Rs.COST MANAGEMENT . Production is carried on by subjecting the various raw materials to a number of standardised operations. NB: All workings for tickets should be in steps of 100 tickets and for advertising in steps of 8 pages. 30 cups. 4. The standard cost per unit of output of department B is: Rs. (b) Recommend. During period 7. or 25 plates.260 cups. If the pilot scheme produces useful results then a management accountant will be employed and the system would be incorporated as appropriate throughout the whole firm.. whether or not the charity should spent Rs. CWA. 28 27 L.250 plates. the order and extent of further processing then depending upon the type of end product to be produced. Required: Using the above information calculate for period 7: (i) The productivity of the direct operatives. 6.400 saucers and 3. B and C.2 per hour) Direct material (i) (ii) Output of department A (3 kg at Rs. 400 direct labour hours were worked and actual production was. 4. All products are subject to the same initial processing which is carried out in departments A. FCA. Muralidharan.500 cups. or 40 saucers. Question: 7 The Bashyam Co Ltd manufactures a variety of products of basically similar composition. each major series of operations being carried out in a different department. of programme pages sold 24 32 40 48 No. Question: 6 The budgeted production for period 7 in the finishing department of a pottery manufacturer is. of past occasions 4 8 6 2 20 Several members of the sub-committee are in favour of using a market research consultant to carry out a quick enquiry into the likely number of tickets and the likely number of pages of advertising space that would be sold for this year's dinner and dance. It has been decided that a standard costing system could be usefully employed within Bashyam and pilot schemed to be operated for six months based initially only on department B. 4.9 per kg) Acquired by and directly input to department 4 Sreeram Coaching Point Rs.000 saucers and 6. You are required to: (a) Calculate the expected value of the profit to be earned from the dinner and dance this year. In one standard hour a direct operative is expected to be able to finish either. 59. Direct labour (6. The actual costs allocated to department B in the first month of operation were: Rs. 5 Sreeram Coaching Point Rs. Based on the actual expenditure on joint manufacturing overheads and allocated to departments in accordance with labour hours worked The production manager feels that the actual costs of Rs.000 11. the statement should utilize variance analysis to the extent it is applicable and relevant.000 21. The budget had been prepared in the previous spring. he says. The total market for the product nationally had been only 45.this overspending of Rs.TEST QUESTIONS & SOLUTIONS B material X (4 kg at Rs.600 2.400 kg) .000 units were budgeted at a unit selling price of Rs.500 Rs.000 kg) Variable overhead Fixed overhead (i) (ii) Directly incurred manufacturing overhead Allocated to department B .3.59..000 units as Mathanakesari had originally anticipated.000 Note 2.COST MANAGEMENT .. In the quarter to 30 November 2002 sales of 10.(note 2) Material X (1.(note 3) 1.9. department B had no work in progress at the beginning and the end of the month.000 proves I am right'. and not 50. and proved to be inaccurate. Muralidharan.000 . Actual cost of output of department A.1 per direct labour hours worked) Fixed production overheads (i) Directly incurred by department B . Required: Prepare a brief statement which clearly indicates the reasons for the performance of department B and the extent to which that performance is attributable to department B.1 (after charging variable costs).000 units during the quarter.000 units at a unit selling price of Rs. giving a unit contribution of Rs. 'I was right to request that the pilot standard costing system be carried out in department B as I have suspected that they are inefficient and careless .500 hours) Direct materials (i) (ii) Output of department A (1. Grad. 14. Note 3. Actual sales for the November quarter were 7.5 and a unit contribution of Rs. Based on normal monthly production of 400 units. You are required to calculate appropriate sales margin variances on the basis of this information. Mathanakesari had previously maintained a 20% share L.(note 1) manufacturing overhead (per unit) (ii) Allocated to department B general factory overhead (per unit) 3 8 11 14 20 47 Note 1.000 for production of 500 units indicates considerable inefficiency on the part of department B.5 per kg) Variable overhead (at Rs. (ii) When reviewing the results for the quarter to 30 November the sales manager ascertained several additional facts. CWA.500 8.500 32. In the first month of operation of the pilot study (month 7 of the financial year). Question: 8 (i) Mathanakesari Ltd manufactures and sells a single product.8.900 4. FCA. Quantity (units): Needed Already for contract in stock 1. (3) The cost of investigation averages Rs. and to discuss their significance.00 21. plus the estimated wages of direct labour.00 20. (b) Recommend.100 150 600 200 100 200 300 400 6 Price per unit: (in Rs. . to cover overheads and profit..00 33. You are required to calculate a set of variances to take appropriate notice of this additional information. He calculates direct costs as the actual cost of materials valued on a first-in-first-out basis.550. Normally he prices a contract by adding 100% to direct costs.00 38. (d) Mention any one variation in the information used that you feel would be beneficial too the company if you wished to improve the quality of the decision-making rule recommended in (b) above.00 35. Project A Vishwakarma is tendering for a school extension contract. FCA.00 8. Question: 10 Vishwakarma is a builder.350 and that of correcting variances averages Rs. but the remainder have continued.525 per month and the company's policy is to assess the present value of such costs at 2% per month for a period of five months.00 10. to represent the position if an investigation is: (i) Carried out. Four types of material will be needed: Matl. His business will have spare capacity over the coming six months and he has been investigating two projects. An index of the selling price levels of competitors' products had risen to 140. corrective action has eliminated 70% of the variances.00 44. whether or not the company should follow a policy of investigating variances as a matter of routine. (1) Its variances fall into two categories: Category 1: those which are not worth investigating Category 2: those which are worth investigating 64 36 100 (2) Of category 2. Question: 9 From past experience a company operating a standard cost system has accumulated the following information in relation to variances in its monthly management accounts: Percentage of total number of variances.00 25. which had gone up from the expected level of 100 to an actual level of 125. (c) Explain briefly two types of circumstance that would give rise to variances in Category 1 and two to those in Category 2. CWA. (4) The average size of any variance not corrected is Rs. instead of remaining at the level of 100 as originally budgeted. You are required to: (a) Prepare two decision trees. with supporting calculations.00 10.TEST QUESTIONS & SOLUTIONS of the market for many years. adopting a policy of matching the market price. Mathanakesari's variable costs (all materials) had risen in line with the change in the appropriate commodity price index.) Purchase Current Current price of Purchase resale units in stock price price 7. Grad. Explain briefly why you have suggested it..00 Sreeram Coaching Point Z Y X W L. Muralidharan.00 40.COST MANAGEMENT . (ii) Not carried out. But for this contract he has prepared more detailed information. 4 Rs.16. Project B If Vishwakarma does not get the contract he will buy a building plot for Rs. Requirements: (a) Ignoring the possibility of undertaking project B.000 5. To complete the contract in time it will also be necessary to pay them a bonus of Rs.49.20.80.000 19.2.000 Similarly the price obtained for the house will depend on market conditions: Market condition Probability Sale price (net of selling expenses) D 0. X has no foreseeable use in the business. which will be retained at the end of the contract. Grad. are shown below.purpose equipment already owned by Vishwakarma.500 20.000 B 0.TEST QUESTIONS & SOLUTIONS Z and Y are in regular use. Building costs will depend on weather conditions: Weather condition Probability Building costs (excluding land) A 0.800. If Vishwakarma does not get the contract the yard will probably remain empty.COST MANAGEMENT .000. and (ii) The tender price at which you consider Vishwakarma would neither gain nor lose by taking the contract.800 6.000 C 0.00.000 E 0.400 7. (b) Explain.000 two years ago and is being depreciated on a straightline basis over a seven-year life (with assumed zero scrap value). which will be sold at the end of the contract. FCA. Second-hand prices for comparable general-purpose equipment.) 9. with supporting calculations. The contract will last for six months and requires two craftsmen. General .11.000 12.000 Vishwakarma does not have the resources to undertake both projects.2 Rs.21.purpose equipment Purchase Resale Price Price (Rs. L. Three causal labourers would also be employed specifically for the contract at a cost of Rs.000 7.3 Rs. Neither X nor W is currently used. The contract will require two types of equipment: general.400 The contract will require the use of a yard on which Vishwakarma has a four-year lease at a fixed rental of Rs.000 17. CWA. but W could be used on other jobs in place of material currently costing Rs.4.95. The contract will also incur administrative expenses estimated at Rs..200 Specialized equipment Purchase Resale Pricep Price (Rs.) Current After 6 months: If used for 6 months If not used 15.4 Rs. and those for the relevant specialized equipment. The costs of his supervision time can be ignored. Muralidharan.000 per year.000 and build a house.60. 7 Sreeram Coaching Point . Equivalent new equipment can be purchased currently for Rs.600 16.000.1.7 Rs.) (Rs.) (Rs.000 each. whose basic annual wage cost is Rs.16 per unit.5.1.20.700 each. doing work which will otherwise be done by temporary workers engaged for the contract period at a total cost of Rs. calculate: (i) The price at which Vishwakarma would tender for the school extension contract if he used his normal pricing method. The general-purpose equipment cost Rs.000 each. and specialized equipment to be purchased second-hand. how the availability of project B should affect Vishwakarma's tender for the school extension contract.000 8.. Without the contract they would be retained at their normal pay rate. Question: 12 Division A of a large divisionalized organization manufactures a single standardized product.00. 40.000 units are transferred annually to Division B at an internal transfer charge of Rs.32.. The unit costs of this product are as follows: L. Annual fixed overhead will be increased to Rs.24 respectively.00. Each unit of X requires an hour of processing time in this department and every unit of Y correspondingly requires half an hour.000 as a consequences of this expansion of facilities. The unit costs of Division A's product are as follows: (Rs. Assuming that the company is now willing to abandon its cost plus pricing practices. 5.) Direct material Direct labour Direct expense Variable manufacturing overheads Fixed manufacturing overheads Selling and packing expense .4. Muralidharan. in the year which is just ending.60. Fixed overhead was Rs. if these can be shown to be deficient.13. In the current year it is estimated that Rs. Division B incorporates the transferred-in goods into a more advanced product. With these prices. The company uses a markup of 33?% in establishing its selling prices and the current prices are thus Rs. 8 Sreeram Coaching Point .000 units of the product are sold externally at the standard price of Rs. but variable costs per unit are unchanged.00 20 It is thought reasonable to assume that the price/demand relationship is linear. CWA.16 and Rs. you are required to calculate the optimal selling price for each product and the optimal output levels for these prices. In addition to the external sales.00 60 Y Rs.00.3.12 and Rs.variable 4 2 2 2 4 1 17 Annually 10. With the existing selling prices it is considered that the potential annual demand for X is 20. Grad. Calculate what would have been the optimal plan given that there was no intention of changing the selling prices.000 from having produced and sold 15. the company expects to make a profit of Rs.000 units and that for Y.3.000 units of Y.18. You are required to comment critically on the product mix adopted by Narendran Products.60. All other cots may be assumed variable in relation to processing hours. This transfer price is obtained by deducting variable selling and packing expense from the external price since this expense is not incurred for internal transfers.50 30 Rs.TEST QUESTIONS & SOLUTIONS Question: 11 Narendran Products has two main products. which have unit costs of Rs.. This programme will have used all the available processing time in the finishing department.000 for the year and this has been charged to the products on the basis of the total processing hours used. X and Y. Some of the output is sold externally whilst the remainder is transferred to Division B where it is a subassembly in the manufacture of that division's product.29.3.000 units of X and 30.50 10 Rs.000 by Y.000 of the fixed overhead will be absorbed by X and Rs. State clearly any assumptions that you find it necessary to make.000 units.COST MANAGEMENT .30. FCA.29 per unit.35. A study commissioned by the Sales Director estimates the effect that alterations to the selling prices would have on the sales that could be achieved. The following table has been prepared: X Price Demand ('000) Rs. (a) For the forthcoming year increased capacity has been installed in the finishing department so that this will no longer be a constraint for any feasible sales programme. must obtain quotations from companies inside and outside of the group.30. Grad. RT would need to buy parts from RR at a price of Rs.30.000.200 Rs.35.20 15. including purchases from RR and RT.7.11. Muralidharan.) Transferred-in term (from Division A) Direct material and components Direct labour Variable overheads Fixed overheads Selling and packing expense variable 29 23 3 12 12 1 80 Division B's manager disagrees with the basis used to set the transfer price.200. For the Company B contract it expects a profit of 25% on the cost of its own work.42. RR.500. however. However..90 5. RS would need to buy parts from RR at a price of Rs.000.13. From outside of the group the following quotations are received: Company A quoted Rs.800 Rs.000 The manager of Division B claims that this study supports his case. and (b) To establish the likely effect on profit of adopting the suggestion by the manager of Division B of a transfer price of Rs. The resulting report contains the following table: Customer demand at various selling prices: Division A Selling price Demand Division B Selling price Demand Rs. RP wishes to buy an electronic control system for its factory and.000. a study of the relationship between selling price and demand has recently been made for each division by the company's sales director. FCA. You are required: (a) To calculated the effect that the transfer pricing system has had on the company's profits. He suggests that a transfer price of Rs.48.000 and units from RT at a price of Rs. CWA. total Rs. (2) RS costs for the RP contract.33. This would require RS buying parts from RR at a price of Rs.000 100 2.000 Rs. He also believes that it would lead to an increase of output and an improvement in the overall level of company profits. 9 Sreeram Coaching Point L. Question: 13 Companies RP.The inside quotation was from RS whose price was Rs. Company B quoted Rs.40 5.000.30 10.000 Rs.80 7. . Additional data are as follows: (1) RR is extremely busy with work outside the group and has quoted current market prices for all its products.12 would give Division A a reasonable contribution to its fixed overheads while allowing Division B to earn a reasonable profit.000 but would buy a special unit from RS for Rs.8. To make this unit.TEST QUESTIONS & SOLUTIONS (Rs.000.. RS and RT are members of a group. He argues that the transfers should be made at variable cost plus an agreed (minimal) mark-up since he claims that his division is taking output that Division A would be unable to sell at the price of Rs. Partly because of this disagreement.COST MANAGEMENT .12. in accordance with group policy. TEST QUESTIONS & SOLUTIONS (3) (4) RT prices provide for a 20% profit margin on total costs. (b) State briefly two assumptions you have made in arriving at your recommendations. The maximum capacity of Division A is 1. two units of which are used by Division B for every one of its product B. to: (a) Recommend. the output of Division A is product A.000 units of B per annum.5 Product B Rs. 15 23 29 30 25 35 100 70 130 Product A Rs.000 units of A and that of Division B is 50. The bases of transfer pricing are Absorbed standard cost Market price Variable cost plus a lump sum of 80% of Division A's fixed cost Scenario Number Product A Market price Total Demand (per unit) (thousand units) Rs.. Each division maintains a stable level of stocks throughout the year. Division B has first call on Division A's output but there is a separate market outside the group for the balance of Division A's output. The group would like to examine the results of using different bases of transfer pricing under different scenarios (ie situations that could be expected to arise).000 You are required to calculate the profits shown by Division A and by Division B for the following seven situations: Scenario 15 23 29 MP MP Basis of Transfer pricing VC VC VC AS AS L.COST MANAGEMENT . FCA. Muralidharan. All the output of Division B is sold outside the group. RS: 70% of own cost (excluding purchases from other group companies) RT: 65% of own cost (excluding purchases from other group companies) You are required. Grad.30.00.12 Rs.. The variable costs of the group companies in respect of the work under consideration are: RR: 20% of selling price.000 40. Question: 14 An industrial group of companies includes two divisions: A and B.18 (Exclusive of 2 units of Product A) 100 90 90 AS MP VC Product B Market price Total Demand (per unit) (thousand units) Rs.20 Rs. 10 Sreeram Coaching Point . 40 30 30 Costs per unit are: Variable cost Fixed cost Budgeted volume in units per annum Part 1 1. with appropriate calculations. whether the contract should be placed with RS or Company A or Company B. from a group point of view. CWA. Question: 15 Vista Electronics manufactures two different types of coils used in electric motors.2 per direct-labor hour.000 lb. 11 Sreeram Coaching Point .55 Rs.65 Rs. 2000 36. 29.000 Price Rs.65 Basic of transfer pricing AS MP (b) If you were Managing Director of the whole group state.TEST QUESTIONS & SOLUTIONS Part 2 Assume that Division B receives an overseas order for 20.000 lb 6. Erica Becker.000 40. 7.000 Light coil Heavy coil L.000 units Anticipated Purchase Price in Rs. 95 Sheet metal Copper wire Platform Use of raw material: Raw Material Sheet metal Copper wire Platform Direct-labor requirements and rates: Product Light coil Heavy coil Amount Used per Unit Light Coll Heavy Coll 4 lb 2 5 lb 3 1 unit Hours per Unit 2 3 Rate per Hour Rs. (a) As manager of Division B state. 8 5 3 Units 60.. compiled the following data.000 units of B that will in no way influence its other clientele.000 9.000 lb. 2000 25. Sales forecast for 2000 (all units to be shipped in 2000): Product Light coil Heavy coil Raw material prices and inventory levels: Raw Material Expected Inventories January 1.000 lb. with very brief reasons.000 Desired December 31. 32.. whether you would recommend acceptance of the order in the following two situations: Scenario (i) 23 (ii) 29 Price per unit (ex factory) Rs.000 units Desired Inventories December 31. the controller.COST MANAGEMENT . CWA. FCA. whether you would recommend acceptance of the orders in (a) (i) and (a) (ii) above. Finished-goods inventories (in units): Product Expected January 1. 2000 32. In the falls of the current year. Muralidharan. 2000 20. Grad.15 20 Overhead is applied at the rate of Rs.000 8. with supporting calculations. 24.875 3.000 7.125 3.1.36.375 1.000 7.00..45.000 50.500 3.875 4.750 45.000 22.36.625 30. Muralidharan. 4) Raw-material purchases budget (in Rupees).000 22.24.500 3. The corporate management at Maple Leaf Services is pleased with the performance of Toronto Business Associates for the first nine months of the current year and has recommended that the division manager.625 L.24.000 50.46. The division specializes in website development and other Internet applications.00.21.000 7. 3) Raw-material purchases budget (in quantities).000 6.000 7. Rs.22.22.000 6.4.00 per direct-labor hour General manufacturing overhead Required: Prepare the following budgets for 2000.000 40.40.875 3.875 10.COST MANAGEMENT .65.000 50.000 18.375 1.500 4.36.000 1.625 1.00. 6) Manufacturing overhead budget (in Rupees).67. utilities and inspection Activity-Based Budget Rate Rs.875 3.875 10. offers management and computer consulting services to clients throughout Canada and the northeastern United states. submit a revised forecast for the remaining quarter.00 per coil shipped (either type) Rs.000 40.625 1.875 4.00 per coil produced (either type) Shipping Rs.875 12. FCA.21.15. Question: 16 Toronto Business Associates.86. Ramachandran.000 7.750 45.00.625 9.TEST QUESTIONS & SOLUTIONS Manufacturing overhead: Overhead Cost Item Purchasing and material handling Depreciation.21.86.50. 12 Sreeram Coaching Point .15.46.875 3.25 per Rupee of sheet metal and cooper wire purchased.000 6.22.500 11.46.3. TORONTO BUSINESS ASSOCIATES 20x1 Operating Budget 1st Quarter 2nd Quarter 3rd Quarter Total for first three Quarters Revenue: Consulting fees: Computer system consulting Management consulting Total consulting fees Other revenue Total revenue Expenses: Consultant salary expenses Travel and related expense General and administrative expenses Depreciation expense Corporate expense allocation Total expenses Operating income 3.250 1.000 7.750 45.000 40.15. CWA.875 10. 5) Direct-labor budget (in Rupees). Grad. 1) Sales budget (in Rupees).375 1.625 1.73. An unexpected increase in billed hour volume over the original plan is the main reason for this increase in income. 2) Production budget (in units).10. The original operating budget for the first three quarters for Toronto Business Associates follows.36.86.20.60.. as the division has exceeded the annual plan year-to-date by 20 percent of operating income. a division of Maple Leaf Services Corporation.000 1. FCA. paid monthly.000 for a management consultant and 46. However.000 for a computer consultant. Grad. RF17.. • Other revenue is derived from temporary rentals and interest income and remains unchanged for the fourth quarter. and the previously determined hourly rate has proven to be adequate to cover these costs.000 in 2001. this 7 percent savings on fourth quarter expenses will be reflected in the revised plan. ford must reduce the price of RF17 to Rs. • The budgeted annual salaries and actual annual salaries. CWA. Calculate the markup percentage on the full cost per unit of RF17 in 2001. Ford earns a 20% return on an investment of Rs..18.50. Question: 17 Ford ltd. the hours for each consultant will be increased by 50 hours per quarter. • The original plan assumes a fixed hourly rate for travel and other related expenses for each billing hour of consulting. Should ford have increased the selling price of RF17 to Rs.230. calculate the variable cost per unit of RF17 in 2001 (3) Calculate ford's operating income if it had increased the selling price to Rs. • The hourly billing rate for consulting revenue will remain at 90 per hour for each management consultant and 75 per hour for each computer consultant.230? (4) In response to competitive pressure. while the new consultants will be compensated at the planned rate.000. Three additional management consultant have been hired to start work at the beginning of the fourth quarter in order to meet the increased client demand. Required: 1) Prepare a revised operating budget for the fourth quarter for Toronto Business Associates that Ramachandran will present to corporate management. 10 for management consulting and 15 for computer systems consulting.000 units. in order to achieve sales of 15. Corporate management has approved a merit increase of 10 percent at the beginning of the fourth quarter for all 25 existing consultants. • Depreciation of office equipment and personal computers will stay constant at the projected straight-line rate. the corporate management at Maple Leaf Services has increased the corporate expenses allocation by 50 percent. (2) If the selling price in requirement 1 represents a markup percentage of 40% on variable costs per unit.500 units of RF17. Assume no change in total fixed costs. • The planned salary expense includes a provision for employee fringe benefits amounting to 30 percent of the annual salaries. If ford wants to maintain a 20% return on investment. However. 13 Sreeram Coaching Point . 2) Discuss the reasons why an organization would prepare a revised operating budget. Required: (1) Calculate the selling price of RF17 in 2001.00. Muralidharan. • Due to the favourable experience for the first three quarters and the division's increased ability to absorb costs. • Toronto Business Associates currently has 25 consultants on staff. are the same: 50.000 units of a raft.210 in 2002.16. manufactures and sells 15. due to the favorable increase in billing hour volume when compared to the plan. the improvement of some corporate wide employee programs will increase the fringe benefits to 40 percent. at this price ford would have sold 13. what is the target cost per unit in 2002? L.COST MANAGEMENT . in 2001.TEST QUESTIONS & SOLUTIONS Howell will reflect the following information in his revised forecast for the fourth quarter. These are expense that are not reimbursed by the client. The full cost per unit is Rs. Ford plans to reduce its investment to Rs. • General and administrative expense have been favourable at 7 percent below the plan.200. The ABC system helped them better identify costs.15 per finished unit.000. cost pools. By changing to a JIT cell manufacturing system. president of PAL Electronics (PE). marketing product manager.6. discussion.. He also suggested that using target costing would help in meeting the new target price.35 profit on each unit sold.110 40 65 9 18 23 21 14 5 10 Rs. is concerned about the prospects of one of its major products. Now it appears that costs will need to be reduced considerably more to remain competitive and to earn a profit on the 10-disk car CD changers.36.300 per unit. and warranty costs are expected to be reduced by 40 percent. Machine costs will be reduced from Rs. CWA. and cost reduction opportunities. shaping. Grad. with the released funds to be invested at a 12 percent return for the firm.00. Additional data follow: L. Muralidharan.350 sales price. sell.000 to Rs. and drilling Bending and finishing Other Finished-goods warehousing Warranty Total unit cost Rs.300 competitive sales price while maintaining the same percentage of profit on sales as is earned on the current Rs. After two weeks of review. which yields a Rs. Changes made when adopting ABC reduced costs on this product by approximately 15 percent during the last two years. The current selling price for their 10-disk car CD changers is Rs. setup.COST MANAGEMENT .00. PE expects that manufacturing direct labor will increase by Rs. to help decide how to proceed. This concerns Amrutha because their current cost of producing the CD changers is Rs.30 per unit. a consultant. and value engineering analysis.TEST QUESTIONS & SOLUTIONS Question: 18 Amrutha. will PAL Electronics meet the unit target cost you determined in requirement (3)? Prepare a schedule detailing cost reductions and the unit cost under the proposed JIT cell manufacturing process. and finished goods warehousing will all be eliminated. inspection. Question: 19 The management of Alliance Enterprises recently decided to adopt a just-in-time inventory policy to curb steadily rising costs and free up cash for purposes of investment. However. Total costs to produce. cost drivers. 14 Sreeram Coaching Point . Chandran suggested that PE adopt a just-intime (JIT) cell manufacturing process to help reduce costs. The situation is especially disturbing because PE had implemented an activity-based costing (ABC) system about two years ago. The report indicates another price reduction is needed to meet anticipated competitors' reductions in sales prices. for their 10-disk car compact disk (CD) changer. Required: (1) Determine PAL Electronics' unit target cost the Rs.315 Amrutha has decided to hire Damodar. material handling.. and service the CD changer units are as follows: 10-Disk Car CD Changer Per Unit Material Purchased components All other material Labor Manufacturing. direct Setups Materials handling Inspection Machining Cutting.35 to Rs.315. FCA.350 per unit. The president has been reviewing a marketing report with Krishna. The company anticipates that inventory will decrease from Rs. It is expected that within three months PE's two major competitors will be selling their 10-disk car CD changers for Rs. (2) If the just-in-time cell manufacturing process is implemented with the changes noted. 2 per square foot. LT = 3 R (3). Assume that there is no particular order size and therefore all the order quantities are lot for lot..000.30. sub-assemblies and the end product are either on hand or on order..25. The production requirements of paracetamol over the next nine weeks are as: Week Amount in kg 1 24 2 3 29 4 11 15 5 - 6 5 7 19 8 27 9 18 L.000 square feet. • A shift in suppliers is expected to result in the purchase and use of more expensive raw materials. X.COST MANAGEMENT . Two employees will be transferred to other positions with Alliance. (3) Adoption of a just-in-time purchasing system will often result in less need for the inspection of incoming materials and parts.70. LT = 3 P (2).000.27. compute the amounts and dates of the planned order releases for all the components and sub-assemblies. FCA.000. At present. why does a just-in-time system give rise to an increased number of small shipments to the buying firm? Question: 20 The product structure and the lead times for a finished product 'X' are given in figure below If 100 units of X are required in week 12 and if none of the components. There is also a scheduled receipt of 45 kg of it in four weeks. • Three employees who currently earn Rs. Sreeram Coaching Point . • Because of the need to handle an increased number of small shipments from suppliers. Grad. Alliance will remodel production and receiving-dock facilities at a cost of Rs.000 each will be directly affected by the just-in-time adoption decision. Muralidharan. LT = 3 Q (2). LT = 1 R (3). LT = 3 The lead time to procure Paracetamol from a supplier is four weeks. LT = 2 P (1).6. these materials should give rise to fewer warranty and repair problems after Alliance's finished product is sold. However. Why? (4) In comparison with a traditional purchasing system.000.TEST QUESTIONS & SOLUTIONS • Reduced inventories should produce savings in insurance and property taxes of Rs. resulting in a net savings for the firm of Rs. one will be terminated. The warehouse has 30. CWA.00. • Reduced raw material inventory levels and accompanying stockouts will cost Alliance Rs. LT = 3 Question: 21 S (2). 54 kg of the drug is available with us. LT = 3 S (2). Required: (1) Compute the annual financial impact of Alliance's decision to adopt a just-in-time inventory system. The construction costs will be depreciated over a 10-year life. (2) If the just-in-time system is implemented in proper fashion. • Alliance will lease 75 % of an existing warehouse to another firm for Rs. what is the likelihood of excessive raw material stockouts? Briefly explain. two of the boards account for the majority of the company's sales. CWA. using activity-based costing.600 2. The market for this type of board is competitive and price-sensitive.430 5. each orders being for a batch of 10 of a product. has been a standard in the industry for several years.. and the total of the production overhead for the period has been analysed as follows: (Rs.) 30 14 2 D 120 (Rs. business rates.) 50 21 3 C 80 (Rs..) Machine department costs (rent. a television circuit board. Because the PC board incorporates the latest technology it can be sold at a premium price. a personal computer circuit board. Sumantra plans to sell 65. You are required. when shall we release the orders for Paracetamol? Question: 22 Having attended a CIMA course on activity-based costing (ABC) you decide to experiment by applying the principles of ABC to the four products currently made and sold by your company. (a) To calculate the total costs for each product if all overhead costs are absorbed on a machine hour basis. Question: 23 Sumantra Technology Ltd. (b) To calculate the total costs for each product. however.. L.100 4. 16 Sreeram Coaching Point .) 60 21 3 The four products are similar and are usually produced in production runs of 20 units and sold in batches of 10 units. FCA. The second high-volume product.150 per unit. to show the differences and to comment briefly on any conclusions which may be drawn which could have pricing and profit implications. manufactures several different types of printed circuit boards. Details of the four products and relevant information are given below for one period: Product Output in units Costs per unit: Direct material Direct labour Machine hours (per unit) A 120 (Rs. The 2001 plans include the sale of 40.300 per unit.COST MANAGEMENT .) 40 28 4 B 100 (Rs.620 You have ascertained that the 'cost drivers' to be used are as listed below for the overhead cost shown: Cost Set up costs Stores receiving Inspection / Quality control Materials handling and despatch Cost Driver Number of production runs Requisition raised Number of production runs Orders executed The number of requisition raised on the stores was 20 for each product and the number of orders executed was 42. Grad.250 3. (c) To calculate and list the unit product cost from your figures in (a) and (b) above. depreciation and supervision) Set-up costs Stores receiving Inspection / Quality control Materials handling and despatch 10.TEST QUESTIONS & SOLUTIONS If we use an order quantity of 45 kg.. The production overhead is currently absorbed by using a machine hour rate. is a recent addition to Sumantra's product line. The first of these boards.000 of the TV boards in 2001 at a price of Rs. Muralidharan.000 PC boards at Rs. .10.000 12..1.20.000 Required per Unit Parts: Machine insertions Manual insertions Machine setups Hazardous waste disposal Inspections L.20.000.000 boards 30. respectively.5 hr. variable overhead is budgeted at Rs. Fulton has prepared the following schedule to help the management group understand this concept. Total 2001 expenditures for direct material are budgeted at Rs. "we can calculate an activity-based cost for each TV board and each PC board and then compare it to the standard cost we have been using. "Why don't you go after a bigger market for the PC board? The cost sheets that I get show that the contribution from the PC board is more than double the contribution from the TV board. Selling it should help overall profitability.00.32. CWA. the production manager said." Fulton explained. In response to this suggestion.5 hr. machine time. 2 TV Board 25 24 1 2 .00. FCA.000 parts 1." The cost-accounting system shows that the following costs apply to the PC and TV boards.COST MANAGEMENT . .06.000 48.00. Grad.5 hr.000 boards 1.000 1.10.60. This material-handling charge is not included in variable manufacturing overhead.40.35 lb.000 boards PC Board 55 35 20 3 . The hourly rates for machine time and direct labor are Rs.00.60. it might be worth while to look at these products on the basis of the activities involved in their production.000 insertions 1. and overhead costs in the old standard cost figures.78.000 53.000 boards 2. The sales manager believes that the market share for the TV board could be expanded by concentrating Sumantra's promotional efforts in this area.46.000. Sumantra's controller. believes that before the management group proceeds with the discussion about allocating sales and promotional Rupees to individual products.000. 4.140 4 hr. PC Board Direct material Direct labour Machine time Rs.80. Andrew Fulton.00.000 4.TEST QUESTIONS & SOLUTIONS Sumantra's management group is meeting to discuss how to spend the sales and promotion Rupees for 2001.000 40. and direct-labor hours are estimated at 2.000 insertions 10.10 and Rs.60.750 setups 16.00. TV Board Rs.32.14. I know we get a premium price for the PC board.11.02 lb. 1 Sreeram Coaching Point . Muralidharan.000 66.10. 17 Cost Driver Number of parts Number of boards Number of boards Number of setups Rupees of waste Number of inspections Number of boards Number of insertions Numbers of insertions Number of boards Budgeted Annual Activity for Cost Driver 40.00.000 Rupees 1.10.80 1.000 11. Variable manufacturing overhead is applied on the basis of direct-labor hours.000 2. The cost drivers will replace the direct labor.000 4.000 inspections 1. The company applies a material-handling charge at 10 percent of material cost. 1." Budgeted Cost Procurement Production scheduling Packaging and shipping Total Machine setup Hazardous waste disposal Quality control General supplies Total Machine insertion Manual insertion Wave-soldering Total In Rs.000 10. "Using this information.000 5. For 2001. The only cost that remains the same for both cost methods is the cost of direct material.20. Question: 24 Calton Ltd.100 Calton Ltd.e. (3) A reduction in material X losses in process to 2. running hours = 80% of gross hours).. There are no stocks of product units at the beginning or end of the period under review.000 per period Production quantity is increased to allow for the downgrading of 12. Inspection during the production cycle.6 running hours Rs.000 per period. Replacement units incur a delivery cost of Rs.000 per period. The remaining returned units are sold as scrap for Rs. (6) (7) (8) (9) (10) Calton Ltd. 4% of material X input to the machine process is wasted due to processing problems.20. L.60.5% of input to the machine process. CWA. metres at Rs.2 hours of machine running time per unit and are re-sold as 'third quality' products at a discount of 50% on the standard selling price. calculate the total contribution margin expected in 2001 for the PC board and the TV board. Calton Ltd is aware of the problem of excess costs and currently spends Rs.000 per period in efforts to prevent a number of such problems from occurring.40 Rs. Muralidharan.4 per sq. FCA.000 product units per period. (3) On the basis of an activity-based costing system. require to fulfil orders for 5.8 per unit. Machine idle time is 20% of gross machine hours used (i.COST MANAGEMENT . Production quantity is increased to allow for returns from customers which are replaced free of charge.000 to Rs. calculate the total contribution margin expected in 2001 for the PC board and the TV board. Product liability and other claims by customers is estimated at 3% of sales revenue from standard product sales. 18 Sreeram Coaching Point . metre 0. metre purchased. It is estimated that this will have the following impact.5% of units inspected. vendor rating and other checks costs Rs. Returns are due to specification failure and account for 5% of units initially delivered to customers. The stock level of material X remains unchanged throughout the period. selling and distribution total Rs. The existing product unit specifications are as follows: Direct material X: Machine time: Machine cost per gross hour: Selling price: 8 sq. Downgraded units are sold as 'second quality' units at a discount of 30% on the standard selling price. Inspection and storage of material X costs Rs..20. The following additional information affects the costs and revenues: (1) (2) (3) (4) (5) 5% of incoming material from suppliers is scrapped due to poor receipt and storage organisation. (2) On the basis of Sumantra's unit cost data given in the problem. Grad.0.. is planning a quality management programme which will increase its excess cost prevention expenditure from Rs. make and sell a single product.5 per unit. Sundry costs of administration.25.10 pence per sq. 80% of the returns from customers are rectified using 0. calibration checks on inspection equipment.60. (4) Explain how a comparison of the results of the two costing methods may impact the decisions made by Sumantra's management group. (1) A reduction in stores losses of material X to 3% of incoming material. (2) A reduction in the downgrading of product units at inspection to 7.TEST QUESTIONS & SOLUTIONS Required: (1) Identify at least four general advantages associated with activity-based costing.5% of product units at the final inspection stage. (6) A reduction in product liability and other claims to 1% of sales revenue from standard product sales.5% of gross hours used. (8) A reduction in sundry administration. 19 Sreeram Coaching Point . (5) A reduction in machine idle time to 12.20.1.3. Estimates about MX3 are as follows: Life-cycle units manufactured and sold Selling price per watch Life-cycle costs R & D and design costs Manufacturing Variable costs per watch Variable costs per batch Watches per batch Fixed costs Marketing Variable costs per watch Fixed costs Distribution Variable costs per batch Watches per batch Fixed costs Customer-service costs per watch Ignore the time value of money.5 hours. Development on the new watch is to start shortly.00. Destiny is preparing a product life-cycle budget for a new watch. Required: (a) Prepare summaries showing the calculation of (I) total production units (pre-inspection).. MX3. CWA.50 Rs.COST MANAGEMENT .10. (9) A reduction in machine running time required per product unit to 0.00.00.280 160 Rs. Question: 25 Destiny Products makes digital watches. Required: (1) Calculate the budgeted life-cycle operating income for the new watch. Grad.18.TEST QUESTIONS & SOLUTIONS (4) A reduction in returns of products from customers to 2.000 Rs.5% of units delivered. in order that the orders for 5.40 L.15 Rs. FCA. (b) Prepare profit and loss account for Calton Ltd for the period showing the profit earned both before and after the implementation of the additional quality management programme. (c) Comment on the relevance of a quality management programme and explain the meaning of the terms internal failure costs. metres). (iii) gross machine hours. taken where possible from the information in the question. (7) A reduction in inspection. calibration. In each case the figures are required for the situation both before and after the implementation of the additional quality management programme.7..20 Rs.000 Rs. appraisal costs and preventation costs giving examples for each.000 Rs.000 Rs. Muralidharan. (ii) purchases of material X (sq.600 500 Rs.10.00.000 product units may be fulfilled. vendor rating and other checks by 40% of the existing figure.000 4. external failure costs. selling and distribution costs by 10% of the existing figure. (2) What percentage of the budgeted total product life-cycle costs will be incurred by the end of the R & D and design stages? Rs. variable costs per batch.COST MANAGEMENT . Muralidharan.125 Proportional to direct labour BSF being satisfied with this gun have asked the lowest bid for supply of 1. Question: 28 One unit of product A contributes Rs.875 11. has designed a new type of gun and a first lot of 25 guns assembled for test purposes had the following costs: Direct materials Direct labour Variable overheads Fixed overheads Total costs 24.. (a) Formulate it as a linear programming problem. Availability of the raw material at present is 48 units and there are 40 hours of labour. giving reasons in brief: (a) Is this solution optimal? (b) Are there more than one optimal solution? (c) Is this solution degenerate? L.TEST QUESTIONS & SOLUTIONS (3) An analysis reveals that 80% of the budgeted total product life-cycle costs of the new watch will be locked in at the end of the R & D and design stages.250 75. Question: 29 The simplex tableau for a maximization problem of linear programming is given here: Product Mix Cj 5 0 xj x2 S2 cj zj cj . It is proposed to assemble another 40 units. Determine the unit price that should be bid. 20 Sreeram Coaching Point . What implications does this finding have for managing MX3's costs? (4) Destiny's Market Research Department estimates that reducing MX3's price by Rs.000 guns.5 and requires one unit of raw material and one hour of labour. Question: 26 A first batch of 25 transistor radios took a total of 250 direct labour hours. Question: 27 Bhakatavatsala & Co. (c) Solve the dual with Simplex method and find the optimal product mix and shadow prices of the raw material and labour. The company will set a selling price to earn 40% gross profit margin.zj Xl 1 1 4 5 -1 x2 1 0 5 5 0 S1 1 -1 0 5 -5 S2 0 1 0 0 0 Quantity (bi) 10 3 Answer the following questions.3 will increase life-cycle unit sales by 10 percent. Destiny plans to increase manufacturing and distribution batch sizes by 10% as well. Grad. CWA. FCA. and fixed costs will remain the same. Should Destiny reduce MX3's price by Rs. One unit of product B contributes Rs.500 22. What will be the average labour per unit in this lot? Assume that there is 85% learning rate. The company will pass on the benefits of learning of 85% to the client in setting the bid.500 16.3? Show your calculations..7 and requires 3 units of raw material and 2 hours of labour. a fire arms manufacturer. Assume that all variable costs per watch. If unit sales increase by 10%. (b) Write its dual. 7 2. Because of the varying work experience of the leaders.7 1. 3 project leaders are available for assignment to the contracts. Work on these contracts must be started immediately.7 1. the profit to consulting firm will vary based on the assignment as shown below.0 3.3 0. Cost of redundancy is given as a general figure at each unit is to be closed.6 4. they have decided to close four divisions namely A. 1 13 15 6 21 2 10 17 8 3 9 13 11 4 11 20 7 Sreeram Coaching Point .4 0. Muralidharan.6 0. Contract Project Leader A B C L. Not all existing personnel can be absorbed by transfer and a number of redundancies will arise.4 2.4 3. The unassigned contract can be completed by subcontracting the work to an outside consultant.6 2. FCA.5 0.0 3. thousands per person Retraining costs Transfer to : Unit E Unit F Unit G Removal costs: Transfer to : Unit E Unit F Unit G Redundancy payments 2.3 A B C D Additional personnel required at units remaining open: E-350 F-450 G-200.3 6. Finds the optimal assignment.7 7.7 5.5 2.C and D and transfer some of the employees to the remaining divisions. Question: 31 A management consulting firm has a backlog of 4 contracts..Personnel at the units to be closed have signified a willingness to move to any of the three remaining units and the company is willing to provide them with removal costs.TEST QUESTIONS & SOLUTIONS (d) Is this solution feasible? (e) If S1 is slack in machine A (in hours / week and S2 is slack in machine B (in hours / week).6 0.. Number employed A-200 B-400 C-300 D-200 Rs.0 3.4 0.COST MANAGEMENT . CWA. The profit on the subcontract is zero. Grad.3 0.6 0. which of these machines is being used to the full capacity when producing according to this solution? (f) A customer would like to have one unit of product x1 and is willing to pay in excess of the normal price in order to get it. The company has 7 divisions (A to G).0 0. The technology of production is different to some degree at each unit and retraining expenses will be incurred on transfer.5 6. To use the transportation method to obtain an optimal solution to the problem of the cheapest means to transfer personnel from the units to be closed to those which will be expanded.5 0.3 0.4 3.B. How much should the price be increased in order to ensure no reduction of profits? Question: 30 Management of Ranga Ltd are very much worried about the continuing recession in the country. 20 11 0. Grad.2 0.3 0.3 0.2 0. generate data on the process times for 15units of the item and complete the expected process time for the product.10 0.10 0.15 0. FCA.10 0. Processing time (minutes) Assembly A1 Assembly A2 10 0.8 0.F 2 3 Probability 0.20 13 0..C 4 5 E D 3 4 5 6 F D 5 7 G E.COST MANAGEMENT .6 0.40 12 0.75 0.3 0.2 0.40 0.5 8343 1183 1915 3602 9445 5415 7505 0089 0880 7428 3424 9309 L. The company has two different assembly lines to produce its popular product "P". 4134 7476 4943 Question: 33 A project consists of 7 activities.25 0.) no's.80 0. CWA.5 0.20 0. Muralidharan. The time for performance of each of the activity is as follows:Activity A Immediate Time 3 4 5 B 4 4 4 4 4 C A 1 1 1 D B.3 0.1 0.1 0.15 14 0.3 0.1 0..2 0.TEST QUESTIONS & SOLUTIONS Question: 32 The tit-fit Scientific Laboratories is engaged in producing different types of High-class equipments for use in Science labs.05 Use the following Random(Rn.15 0. 22 Sreeram Coaching Point . b) Simulate the project for 5 times using Rn.TEST QUESTIONS & SOLUTIONS a) Draw a network and identify critical path using expected time. No. of persons: 4 Job (I-j) 1-2 1-3 1-5 2-3 2-6 3-4 4-7 5-6 6-7 tn 10 6 5 0 8 10 10 7 5 Men 1 2 3 0 1 2 3 1 2 L. The cost in Rs. Grad. Muralidharan. With each job is listed its normal time and a minimum or crash time in days. the minimum length schedule. 23 Sreeram Coaching Point .COST MANAGEMENT . CWA. What is the optimum length schedule in terms of both crashing and overhead cost? Question: 35 Allocate the men efficiently to the jobs given below and Find out the time required to complete the project.no's and find critical paths? 68 99 57 57 77 Question: 34 A small maintenance project consist of jobs in the table below.. and including. FCA. c) Overhead costs total Rs..115/day. Per day of each job is also given: Job(i-j) 1-2 1-3 1-4 2-4 3-4 4-5 Normal days 9 8 15 5 10 2 Crash days 6 5 10 3 6 1 Cost/Day 40 50 60 20 30 80 13 93 33 12 37 09 18 49 31 34 20 24 65 96 11 73 22 92 85 27 07 07 98 92 10 72 29 00 91 59 a) What is the normal project length and minimum project length? b) Determine the minimum crashing cost of schedules ranging from normal length down to. . Muralidharan..TEST QUESTIONS & SOLUTIONS Suggested Solutions L. CWA.COST MANAGEMENT . Grad. FCA. 24 Sreeram Coaching Point . 500 2.70. Cost Loss of contribution due to fall in sales (WN-1) 1. CWA.62.000 4.5/30.000 Net benefit = 27.70. 2 Increase Production by 50% Purchase Purchase Purchase ABCOutside Outside Outside 1) Hours released 10 16 30 20 26 Increase Production by 75% Purchase Purchase Purchase ABCOutside Outside Outside 10 36 16 30 20 26 2) Hours for other components 36 3) Capacity increase possible (10/36) x 100 = 27.000 x 0. Cost of Glass eyes = 2.60.984/- 10.70.769 Percentage of decrease in sales that can be tolerated = (3.700 ² Effect of implementation of 3 proposals on unit contribution = 4.TEST QUESTIONS & SOLUTIONS Answer to Question No.000 x 2 x 100/95 x 20/100 = 1. 25 Sreeram Coaching Point .000 x 0.000/- Cost of Plastic eyes= 2.800 13.684 ..000 x 2 x 100/95 x 15/100 = Saving in cost (b) Cost of synthetic material = Cost of Scrap fabric = Change the filling material: 2.1: Elimination of decorative stitching cost.684/90.92 restricted to 50% 27.00.78% (16/30) x 100 = 53.700) = 47.92% restricted to 75% L.5 = 3.08% Working note 1 (i) (ii) (iii) (iv) (v) (vi) (vii) Net Profit = Fixed cost = Total contribution = Units = Unit contribution = Decrease in sales = Contribution lost = 3.6 = 1.70.177 = 2. FCA.33% 76.700) / 2. Muralidharan.50.000 x 10% = 30.00.13.684/Benefit Reduction in production cost 2.000 = 13.00.13.000-2.000 13.000/(a) Substituting glass eyes by plastic eyes.000 x 3 = 9.35.000 4.70.33 restricted to 50% (20/26) x 100 = 76.00. Grad.000 = 5.177/Sales necessary to earn contribution of Rs.684-2.00.000 x 4.70..000/5.60.50.6+(23.78% 53.769/3.000/23.2.00.000 units 1.50.000/- Answer to Question No.COST MANAGEMENT .50.35.5+0.000 x 80/2000 = 2.000 3.000) x 100 = 13.000 + 23.05 = Additional Cost Net effect on the profit (increase) = (27. max).5/Current production = 60.000 x 7.000 2.000) Unit contribution (from unrelated market) No.000 x (7. (ii) SP = 7.000 (II range .000 40.TEST QUESTIONS & SOLUTIONS 4) Additional contribution (Same cost is assumed incremental cost considered separately) 5) Incremental Cost 6) Net benefit 7) Strategy 30 (108 x 27.4) .00. FCA.000 units p.5 = = 1.U) 12.000 = 4/Profit / Loss from current production Increase in profit necessary (to reach a total profit = 3.33% = 21.000 Since 62.22 (III) Make (46-32) x 150% = 21 33 (I) Buy (54-32) x 150% = 33 21 (II) Make 12.78 (46-32) x 153. 3 (i) Local market Production = 50.20.000 + 12.000 = = 5.000 2.5) = 30. of additional required units Note: Total units = 50.78%) 54 (108 x 50%) 54 (108 x 50%) 30 57.000 units Net profit = 5% on (80.000 3.000 2.60 (108 x 53.000 30.78% 17.50..5 .80.COST MANAGEMENT .46 36.5/.000 = (15.33%) 81 (108 x 75%) (36-26) x 127.a.000 units L.4 18.5 .(P.5/² Total net profit requirement = 3. Additional production requirement = 20.000 = 18.000 x 4) Contribution Profit Fixed Cost (Estimated) Actual Fixed Cost Sales promotion (Balancing Figure) 6. there will be no additional units to be sold.5 (I) Buy 17.90. Muralidharan.10.000/-) = 15.78% = 12.) SP = 7.000 + 3.5/Unrelated market SP = 5..13 (II) Make (54-32) x 175% = 38.000 units (p.5 42.) = 2.U.000 /1.22 (III) Make Answer to Question No. CWA.000 variable cost (P.000/Sales VC (80. 26 Sreeram Coaching Point .000/70.a.000 < 65. Grad.000 = 62.000 = 50.80.1. 000.000 5.000/= 2.000 / 70. Current sales = 5.000 53.66 60 No (106.VC 1.000 X After 2% increase (x * 1.000 /1.000 (-) FC 1. or C as the only product) (4 ÷ 3) (6) Maximum output possible (7) BEP .000 = 2. 27 Sreeram Coaching Point .000/=4 = 20.000 6.02 = 2.50.achievable at peak (8) Conclusion 106.60.2x .TEST QUESTIONS & SOLUTIONS (iii) NP Currently FC 10.500 42.000/Current Sales (-) VC 1.000LL) (1-2) (4) Specific FC Add General Fixed Cost Assuming A or B or C the only product (5) BEP (in 1.000 /- 2% increase in SP è increase in profits 5.70...000 = 1.000 = 80.000 / 4 = 80.000 units 1.000s) (Assuming .02) Solving these 2 equations x Variable cost Unit variable cost Sales units Answer to Question No.70.75.000 8.400/60 = 40 30 Takeup only if the minimum order is 40 and not as a stand alone product A 100 40 60 2. CWA.VC = 1.66 30 Can be taken up as a stand alone and as well as jointly C 450 130 320 9.000 .1.33 60 Yes Can be a stand alone Product 4.000 13.COST MANAGEMENT .Cannot be a stand alone Product 2.60. Grad.80.000 4.400 B 220 70 150 4.500/320 = 29.400 4.75.000 = 2. Muralidharan.50.000 LL) (2) VC (per 1.000 10.50.A. B.000 1.000 LL) (3) Contribution (per 1.000 X .6875 30 Can be taken up as a stand alone as well as jointly (9) BEP (if it is performed with other products) (in 000s) (10) Minimum output necessary (11) Conclusion L.1875 60 Yes Can be a stand alone product 9. FCA.500 4.70.000/150 = 26. 4 (i) Particulars (1) SP (per 1.000/0.60.66 > 60) A . So. This would leave 10 packs not utilized at all. The sacrifice between the second ranked and the last ranked product shall only be Rs. FCA.. Grad.500 Profit 600 3. This is a problem on limiting factor involving the best utilization of limited resource of 170 packs. One (000s) units of B upon sacrificed will result in 6 packs released in favour of C.I Upon allocation of remaining 90 packs only 5625 nos of C can be printed. only 5000 nos can be printed.5 x 16). In the process of reallocation some give and take adjustment shall be carried out between the last ranked product C and second ranked product B.TEST QUESTIONS & SOLUTIONS (ii) Product A B C (000’s) 50 50 35 Contribution 60 150 320 Contribution to General FC General FC Profit (iii) Packs of special paper required Units A B C Total required Availability = 170 Packs Availability < required (Packs are the Limiting Factor) Contribution A B C Allocation .800 SP FC 2. CWA. But this will violate the basic condition of printing to be made in multiples of 1000 nos.700 Required 2 6 16 Total required 20 60 160 240 Packs 10 10 10 Packed required Contribution/pack 20 6 16 30 25 20 Rank I II III 60 150 320 Contribution 600 1500 1600 3700 No of packs Contribution 10 x 2 = 20 9 x 6 = 54 6 x 16=96 170 600 1350 1920 3870 Sreeram Coaching Point .10 (30 -20). Before adjustmentAfter adjustment Products A B C Contribution/ Pack 30 25 20 No of packs 10 x 2 =20 10 x 6 =60 5 x 16 =80 160 L. (90 ..5 (25 -20). Muralidharan. If the sacrifice were to be between first ranked and the last ranked then the sacrifice per pack will be as maximum of Rs. Why such adjustment between second and last ranked product should be made? The amount of sacrifice between 2nd ranked product and the last ranked product shall be minimal. The released 6 packs and the remaining 10 will make out one (000s) units of C and thereby the entire 170 units shall be fully utilized. It is to be seen whether this combination would show a better profit than the profit when 10 packs went unutilized.500 11.500 1.000 7. One should find better combination of printing the final product ensuring the fullest utilization of all 170 packs. 28 Total 3.000 1.400 4.800 4.COST MANAGEMENT .200 5.000 9. It should not result in 10 packs unutilized. COST MANAGEMENT .800 800 200 4.800 9. If Dance & dinner Results in Profits Does not result in profit Then the market research is not useful. 5 Cost 120 160 200 240 Total Cost 2. 0.120 2. 70 1.000 2. 29 Sreeram Coaching Point Expected loss/profit Tickets Band & entertainment Total Revenue (300) 330 .420 Programme advertising No.800 9. Has no such policy Then the market research is not relevant Then the market research is relevant.4 0.. 5 Revenue (Photo) @ Re.000 Variable @ Rs.240 Net Revenue (440) 80 600 1. 12 Mini.656.000 1.3 0.800 1. FCA.4 0. Company Has policy of conduting dinner & dance irrespective of the fact whether it results in profit or loss. Then the market research is useful (since the dance programme can be cancelled to avoid loss) Note: The institution incurs loss only when it sells 300 tickets.500 12.500 800 200 7.000 700 2.000 2. Muralidharan.600 700 2.000 2.000 10.200 2.800 700 2.2 0.360 Fixed Cost 2.000 2.700 1..500 3. Answer to Question No. L.420 + 236 = 1.300 (1.200 11.800 500 13.500 8.1 400 10. CWA.400 700 2.1 Profit/ Loss (88) 32 180 112 236 Expected profit Total expected profits = 1.500) 800 200 4.160 2. 5 Computation of expected value of profit to be earned from the dinner & dance: Revenue (Raffle) @ Rs. Expected loss from sale of 300 tickets.680 2.000 10.3 0.100 2.TEST QUESTIONS & SOLUTIONS It is very clear that such an adjustment between B and C had resulted in a better profit and the scarce resources are fully utilized.000 300 7.120 Prob. Grad.800 600 15. 1 Food @ Rs.900 Photo Hire Net Profit Raffle Prizes 0.2 0.000 2. Revenue (Tickets) @ 20 Total Cost Profitability 300 400 500 600 6.000 3.800 3.240 2. of Pages 24 32 40 48 Revenue @ Rs. 400 Nos.000 390 1.300 800 200 6. (440) 80 600 1120 Net Profit (1.4 = 0.500) (1.420) (900) (380) Joint Probability 0.2 8/20 = 0.02 Expected Value (77. 6 Actual Production 4260 6400 3950 Probability 4/20 = 0.3 2/20 =0.940) (1.Programme No of Programmes 24 32 40 48 Nos 4 8 6 2 20 Answer to Question No.3 8/20 = 0.8) Expected value of loss avoided (This is the benefit from market research) Since cost > benefit .500) (1.2 6/20 = 0.04 0.0 Cups Saucers Plates Total standard hours produced (for actual production) Standard hours for budgeted production Items Output per Standard hours Standard hour Produced 30 142 40 25 160 158 460 Budgeted production 4500 4000 6250 Output per per standard hour 30 40 25 Standard hours produced 150 100 250 500 Cups Saucers Plates Standard hours required for Budgeted production L.TEST QUESTIONS & SOLUTIONS Dance & Dinner (1..2 x 0.1 1.6) (54) (7.6) (113.06 0. FCA. CWA.6) (252.COST MANAGEMENT . Grad.1 1.4 6/20=0.08 0.1 = 0.2 x 0.3 = 0.4 2/20 = 0.500) Program Advt.2 = 0.2 x 0.Tickets Tickets sold 250 to 349 350 to 449 450 to 549 550 to 649 Nos 4 6 8 2 20 Working notes on Probability .2 x 0. Working notes on Probability .the market research is not justified. Muralidharan.0 Mean 300 400 500 600 Probability 4/20 = 0.500) (1. 30 Sreeram Coaching Point .. FCA.A = 9 x 500 x 3 . 31 Sreeram Coaching Point ..3200 = 800 F c) Variance relating to material consumed in Department B SP X SQ 5 x 500 x 4 = 10000 MPV MUV MCV d) =3-2 =1-3 AP X AQ 6.9500 Direct labour variance SRX SH 2 x 500 x 14 = 14000 DLRV DLEV DLCV =3-2 =1-3 e) AQ x SR 500 x 14 = 7000 ARX AH 14000 (given) SRX AH 2 x 6500 = 13000 = 13000 . CWA. Price variance relating to material transferred from department . Actual production relative to that budgeted Answer to Question No.14000 = 1000 A = 14000 . Allocated fixed overhead expenditure variance Budgeted (400 x 8) Actual = = 3200 2900 300 F Directly attributable to department-B a) Usage variance relating to materials transferred from department .05 x 1900 = 11500 = 2000 A = 500 F = 1500 A SP X AQ 5 x 1900 = 9500 = 9500 .9 x 1400 = 900 F b) Allocated fixed overhead volume variance = 500 x 8 . 7 Directly not attributable to department-B a..COST MANAGEMENT . Muralidharan.21000 = 8400 A b.A = 9 x 1400 .TEST QUESTIONS & SOLUTIONS i) Ratio for the productivity of the direct operatives = Standard hour equivalent of actual production Actual hours worked = 460/400 x 100 = 115% = Standard hour equivalent of actual Production Standard hour equivalent of budgeted production = 460/500 = 92% iii) Capacity utilisation ratio = Actual hours worked Std. Grad.13000 = 1000 F _ 0 Variable overhead variance AVO 8000 AH x SR 6500 X 1 = 6500 L.11500 = 10000 . hours equivalent to budgeted production = 400/500 = 80% ii) Ratio appropriate expressing the depts. 000 9.000 x 1) = Add: Favourable Sales Margin variance 10.2 = 21.000 SP 5 7 8 32 VC 4 5 5 C 1 2 3 Total contribution 10.000 x 1 = 7.100) = 900 A ² Total variances = 9000 A NOTE It is assumed that department . (2) AQ x AM 7. FCA.000 x 20%) Actual L.B has control over all items except the material transferred and allocated fixed overheads Answer to Question No.V = 1 .000 7.000 18.1200 Summary ² Non-attributable variances = 8100 A (8400 A .TEST QUESTIONS & SOLUTIONS VOEV =3-2 = 6500 .000) 21.1000 .000 18..000 .000 (7.000 F = 1 .3 = 7000 .000 A = 3 .COST MANAGEMENT .000 F (3) AQ x BM 7.000 Less: Adverse variable cost variance (4-5 ) x 7.8000 = 1500 A = 500 F = 1000 A VO Eff.000 = 1 . Muralidharan.000 Sreeram Coaching Point 10.2 = 18..000 ² Sales margin volume variance ² Sales margin price variance ² Total sales margin variance Note: Budgeted contribution (10. 8 (i) Computation of sales margin variances (1) BQ x BM 10.000 21.000 x 4 = 28.000 28.300 F) ² Attributable variances (900 + 800 .000 x 1 = 10.6500 f) Fixed overhead variance AO X SR 500 x 3 = 1500 FOEV FOVV =3-2 =1-3 AFO 1600 = 400 A = 300 F = 100 A BFO 1200 (400 X 3) AH X SR 6500 x (3/14) = 1393 = 1200 .3 = 3.000 Actual contribution (ii) Units Original ex-ante Ex-post (45. CWA. Grad.1600 = 1500 .1500 . 64 Expected cost = 0.3 x 525 x (4.000 x (1) = 1.36 x 550) + (0. 9 a) (i) Decision Tree if an investigation is carried out Investigation Undertaken Cost =Rs 350 Worth investigating and corrective Action taken (0. 33 Sreeram Coaching Point . Grad.000 F Variable Cost Variance = 9.000 = 18.36) Cost Rs.000 F Answer to Question No.815 Decision tree if an investigation in not carried out No investigation Undertaken Worth investigating and corrective action taken 0.7) x 9.36 Not worth investigating further 0.7135 = 891 b) investigate the variances (based on the criterion of expected cost) c) Not worth investigating Worth investigating i) Variance is due to random uncontrollable factors i) excessive usages of labour and material due to wrong working practices on a repetitive operations which is likely continue if not corrected.4) = 9.000 A Sales Margin Price Variance = (5 .000 A Sales Margin Price Variance (8 .COST MANAGEMENT . Muralidharan..7 350 + (0. ii) Where the cause is obvious and future action has been taken to remedy the situation d) Indifference point 'X' = variance 350 + (0. CWA.000 F 3.3 Not worth investigating further 0.64 Fault eliminated 0.550 Expected cost = (ii) (a) Fault not eliminated 0.000 x 2 = 4.7) x 7.TEST QUESTIONS & SOLUTIONS Variance (11. ii) Where the variance is signifi cant and exceeds standard limits..000 x (5 .36 x 0.000 8.7135)) = Rs.36 x 550) + (0.7135x) [expected cost of investigation] = 0.7135X [Expected cost of no investigation] x = 461 L. FCA.000 A Sales Margin Volume Variance 2.000 = 7.36 x 4.000 F) Planning Variance (not controllable) Operating variance (Controllable) Sales Margin Valume Variance 1.36 x 0.36 x 525 x 4.3 x 4. 000 x 3) Total direct cost Tender price = 70.12. Direct material Z (100 x 7 + 1000 x 10) Y (150 x 40) X (300 x 35 + 300 x 33) W (200 x 20) Direct labour Craftsmen (2 x 16.000 .500 = 1.500 + 70.400 4.800) = 3. Muralidharan.400 .200 11. . 10 (a) (i) Ascertainment of tenderprice for school extension contract using normal pricing method.000 20.200/The company had already entered into lease agreement.. Direct Materials.400 3.600 17. Temporary workers are hired only because the craftmen are used in the contract.000 . = = = = 11. FCA. Therefore the wages to temporary workers should be included in computation of the project cost.800 Special purpose equipment (9.000 1.200 38. CWA. 34 Sreeram Coaching Point = = = = 10.000 x 6/12) Bonus (2 x 700) Causal labour (4.700 6.600) 3. Z (1.TEST QUESTIONS & SOLUTIONS Answer to Question No. Anyway general purpose equipment is going to be retained.000 6.400 70.800) Administrative expenses Total cost Note: (1) (2) (3) (4) (5) Salary paid to craftmen is not relevant since they are going to be retained anyway.200 3.000 75.41.COST MANAGEMENT . Therefore the relevant cost is the fall in the realisable value after 6 months (due to usage).5.400 12.000 25.400 12.000 41.000 29.5.000/(ii) Ascertainment of Break-even tender price using relevant cost approach. Tender price Direct cost = Direct cost + 100% of direct cost = Direct material + Direct labour.800 1.100 = = = 16.200 5.100 x 10) Y (150 x 44) X (300 x 33 + 300 x 25) W (200 x 16) Direct labour Craftsmen Bonus (700 x 2) Casual Labour (4..400 L.000 x 3) General purpose equipment (16.500 Rs. Special purpose equipment is to be purchased second hand and it could be sold after the end of the project the relevant cost is (9. Therefore there is not going to be any additional commitment due to this project. Grad. 000 30.000 Req.00.TEST QUESTIONS & SOLUTIONS (b) Expected profit from project-B. (hrs) 1.000 Availability < Requirement.000 11.000) L.5 = 20. Particulars (1) Unit costs (2) Fixed OH (3) Units (4) FOH (P.06. 11 (a) Ascertainment of Processing time available:Products X Y Units 15.4 + 95.00025x (where 'x' is the demand for Product X.000 30.7 + 1.000 20. = 86.COST MANAGEMENT .000 Total 30.000 Ascertainment of hours reqd. Therefore It is the opportunity cost.3) Less: Building cost (60. Muralidharan. we will be losing the profit from project-B.0. FCA..000 20.000 Req.0. Grad.5 Total req.20.2) Less: Land cost Expected profit = = = (1.000 Y 24 3.00.00.000 hrs 7. Products X Y Units 20.000 x 0..000 x 0. (grs) 20.000 When school extension contract is accepted. 35 Sreeram Coaching Point .000 10 14 32 18 0.000 30.5 36 I 40.400 + 11.) (8) Hours (P. SP = Selling Price) TR = 21x .X SP = 21 .000) 75.) 1 0. Expected Revenue = (1.000 15.400 (75.000 x 0.U) (6) SP (P. (Grs.U) (7) Contribution (P.000 40.8 Optimum output level is the output level at which MR = MC X 12 60.U) (5) VC (P. Therefore the processing time is the limiting factor.5 Total Available 15.000 hrs.000 x 0.000 x 0.U.00 0.000 x 0.20.000 15.00025x2 (TR = Total Revenue) MR = dTR/dx = 21-0. CWA.000 hrs (balancing figure) 80.4 + 80.U) (9) Contribution (Per Hour) (10) Rank (11) Allocation of hours (12) Contribution (11 x 9) (b) Product .0005x (MR = Marginal revenue) MC = Rs. Relevant cost of school extension profit Answer to Question No.000.000 40.000 4 8 16 8 1 8 II 10. 8. B Transfers price 39) SP 80 90 100 VC 39 39 39 TP 29 29 29 C 12 22 32 Demand 7200 5000 2800 Total contribution 86400 110000 89600 Remarks Division B will Decided to sell5000 units to Customers L.TEST QUESTIONS & SOLUTIONS 21-0. Answer to Question No.Y SP = 38 . CWA.000 x 0. FCA.00015x (where 'x' is the demand for product .5 (Optimum selling price) Product . 38-0.Rs 29 (.000) = 26/Assumptions: (1) Price-demand relationship is linear (2) (3) Marginal cost per unit is constant at all output levels.000 units (optimum output level) SP = 21 .00015 x 80.0005x = 8 x = 26.0. 12 Pictorial representation of facts Company Division A Division B Ezxternal Market 1000 units Additional Internal Transfers to B Dependent only on Division A for its input a) Effect of the current transfer pricing system on company's profit: Current transfer price ..000 units SP = Optimum selling price = 38 . optimum output level = x = 80.A) SP 20 30 40 VC 11 11 11 C 9 19 39 Demand 15000 10000 5000 Total Contribution 135000 190000 145000 Remarks ContributionDivision A will Decided to sell 10000 units to external market ii) Optimal output (for DIV . Fixed cost is constant throughout the range.COST MANAGEMENT .14.0. Grad. 30 selling and pack Expenses avoided Re.(0.Y & SP = Selling Price) TR = 38x .0003x MC = Rs.00025) = 14.0003x = 14. 1) i) Optimal output (for DIV . Muralidharan.00015x2 MR = dTR/dx = 38-0.external price Rs. 36 Sreeram Coaching Point ..(26. B) 39 39 39 VC (Div. Division B has also followed the foot steps of division A.. Muralidharan. 37 Sreeram Coaching Point . 7200 x (29-10) = 136800 5000 x (29-10) = 95000 2800 x (29-10) = 53200 Div B Cont..there is perfect goal congruence Assumptions i) division A has abundant capacity ii) Its existing 10000 units sale to external market is unaffected Division A Contribution to FC (12-10) x 7200 = 14400 (12-10) x 2800 = 5600 (12-10) x 5000 = 10000 Division B 7200 x (80-39-12) = 208800 2800 x (100-39-12) = 37200 5000 x (90-39-12) = 195000 Company as a whole 223200 142800 205000 Div A Cont. FCA. CWA. 7200 x 12 = 86400 5000 x 22 = 110000 2800 x 32 = 89600 Total Contribution 223200 205000 142800 VC (div. But this has resulted in a loss of Rs (223200-205000) = 18200 to the company as a whole. A) 10 10 10 TVC 49 49 49 UC 31 41 51 Demand 7200 5000 2800 Total Contribution 223200 205000 142800 Remarks The optimal output for div.TEST QUESTIONS & SOLUTIONS Note: Optimal output (for final product) company on a whole SP 80 90 100 Summary Units 7200 5000 2800 Comments Division A has decided its output level where its profit is maximum. 13 Group RP RR Wishes to buy electronic control system Member company RS RT L. B 7200 units Answer to Question No. b) Transfer price is Rs 12 Units 7200 2800 5000 Comment Division A Optimal output is 7200 Division B Optimal output is 7200 Optimal output from Company's view point is also 7200 Thus if the TP is 12/. Grad.COST MANAGEMENT . Muralidharan.48000 Own cost and profit Rs. TP = MP Division . 13000 Purchase of SP. 10000 Cost of parts from RR .COST MANAGEMENT .. 1100 Variable 70% 3080 Evaluation of Quotations Company ² A ² B (22000 + 13000 .6000 . Grad. 13000 Own cost 4000 Profit 48000 . 38 Sreeram Coaching Point .. CWA.5000 .A Revenue .42000 = 6000 RTs cost and profit 19000 RRs cost 11000 B’s own cost & profit 22000 Variable 70% 28000 Fixed 30% 1200 Cost 14000 Profit 30000 x 20/100 = 5000 B’s own cost & profit 22000 Variable 65% 91000 Fixed 35% 4900 Cost 5500 x 100/125 = 4400 Profit Rs.1320) ² RS (48000 .1200 .Internal (80 x 30) = .30000 Company B 35000 Company A 332000 Purchase of SP.B Total L.TEST QUESTIONS & SOLUTIONS Inside/outside quotation Inside quotation from RS .8000 Out side quotation Cost of Units from RT . Assumptions involved a) VC-are linear with respect to output changes b) RS and RT have sufficient spare capacity Therefore the opportunity Cost is zero c) RP is not free to select its own source of supply Answer to Question 14 (1) Scenario .49000) Fixed 30% 1320 Quotation 33200 32580 30900 Conclusion:Buy from RS (Since the cost is the lowest) NOTE: Since RR is extremely busy with work outside the group the correct transfer price is the current market price. Unit from Rs.15.External (20 x 30) = 2400 600 3000 Less: Variable cost (100 x 20) Less: Fixed Cost Profit 2000 500 500 Less: Variable cost (40 x 12) = Less: Fixed cost 480 720 400 900 Revenue (40 x 100) = Less: Transfer Price (80 x 30) = 4000 2400 Division .1100 . Unit from Rs. FCA. Grad.000 Division .500 1.600 500 1.23.700 2.100 1.100 4.000 2.Internal (60 x 20 + 400) = 250 1.23.B Total Less: Fixed Cost (720) (120) (30k) 250 1.600 Revenue (40 x 100) = Less: Transfer Price (80 X 20 + 400) = Less: Variable cost (40 x 12) = 2.TEST QUESTIONS & SOLUTIONS (2) Scenario .A Revenue .External (70 x 35) = .15.750 Less: Variable cost (30 x 12) Division . 39 Sreeram Coaching Point .Internal (60 x 35) = Less: Variable costs (130 x 20) = Less: Fixed costs 2.000 500 100 Less: Fixed Cost = 720 800 900 600 2. Division .A Revenue .A Revenue .500 1.600 2.000 480 4. Muralidharan.B Total L.200 360 Total 1. TP = VC Division . CWA.COST MANAGEMENT .Internal (60 x 25) = Less: Variable cost (70 x 20) = Less: Fixed Cost Loss (5) Scenario .700 1. FCA..External (20 x 30) = .External (10 x 25) = .29.400 500 (50) Less: Variable cost (30 x 12) = Less: Fixed cost 360 720 20 30 Revenue (30 x 90) Less: Transfer Price (60 x 20 + 400) = 1.550 Less: Variable cost (60 x 12) = Less: Fixed Cost 360 720 (480) 970 K Revenue (30 x 90) = Less: Transfer price (60 x 35) = 2.850 Less: Variable cost (70 x 20) = Less: Fixed cost (4) Scenario .450 2.700 Division .400 (500) (150) TP = MP Division ..B Revenue (30 x 90) Less: Transfer price (60 x 25) = 2.External (10 x 25) = .600 1.Internal (80 x 20 + 400) = Less: Variable cost (100 x 20) = Less: Fixed Cost (3) Scenario .B Total 2.A Revenue . TP = VC Division .450 2. TP = AS Division . 700 Total .500 3. SP (B) Less: TP (A) (35 x 2) Less: VC(B) Loss = = = 65 70 12 (17) = = = 55 50 12 (7) Less: Variable cost (30 x 12) = Less: Fixed Cost 360 720 120 970 K Revenue Less: Transfer price Division . SP = 55 (B) (i) (From division -B's point of view) SP (B) Less: TP (A) (25 x 2) Less: VC (B) Loss Conclusion: Overseas order should not be accepted.COST MANAGEMENT .TEST QUESTIONS & SOLUTIONS (6) Scenario .23 TP = AS. Muralidharan.B Revenue (30 x 90) Less: Transfer Price (60 x 200 + 400) = Less: Variable cost (30 x 12) 4. Grad..29 TP = VC.Internal (60 x 20 + 400) 1.2 (a) Scenario . SP(B) = 65.A Revenue . (ii) Scenario .450 1.600 500 950 (7) Scenario . Note: External & Internal demand Product A required to meet the overseas order (20 x 2) = = 70 40 110 Total requirement it is less than 130.700 1.950 Less: Variable cost Less: Fixed Cost 2.29 TP=MP..600 360 720 2.600 500 850 Part . FCA. Division .050 Less: Variable cost (130 x 20) Less: Fixed Costs 2.29 TP = AS Division . CWA. 40 Sreeram Coaching Point .450 Division .600 L.A Revenue External (70 x 35) = Internal (60 x 25) = 2.External (70 x 35) 2.B 2.500 Total 20 970 K Less: Fixed Cost 1. 000 Heavy coil 40.000 40.000 (8. 41 Sreeram Coaching Point .000 38. External & Internal requirement Product A required to meet the overseas demand (20 x 2) Total requirement it is less than 130 more (b) From company's point of view: (i) SP (B) Less: VC(A) (20 x 2) Less: VC(B) Contribution Conclusion: Overseas order should be accepted.65.00.TEST QUESTIONS & SOLUTIONS Conclusion: Overseas order should not be accepted.60.00.000) 41.Order should not be accepted.000 Heavy Coil 2.. 15 1) Sales Budget Product Light coil Heavy coil Units 60.13 = 17/.000 36.000 2) Production budget (units) Light coil Sales (+) Closing stock 85.20) x 2 = 30/(Since the capacity is the limiting factor) Loss = 30 .000 Total 4.000 (-) Opening Stock Production 60.000 (32. (ii) SP (B) Less: VC(A) Less: VC(B) Gain = = = = 65 40 12 13 = = = 55 40 12 3 = = 130 40 170 Contribution lost: (35 . FCA.000 3) Raw material budgeted purchase (Quantities) I sheet metal Production Requirement (+) Closing Stock (-) opening Stock Purchase Light Coil 2.000) 4..000 25. CWA. Grad.000 49.000 L. Answer to Question No.69.000 9.000 Price 65 95 Total Sales 39.000) 65.000 77. Muralidharan.00.COST MANAGEMENT .000 (20.05. 00.COST MANAGEMENT .. 16 (1) Revised Operating budget for the fourth quarter A Revenue a) consulting fees from computer consulting system (con-1) b) Consulting fees from management consulting (con-2) c) Other revenue B..000 (6. Grad.000) 42.000 x 93%) d) Depreciation e) Corporate expense allocation (50. 42 Sreeram Coaching Point .000 x 150%) C Revised operating income (for the fourth quarter) 510650 57875 93000 40000 75000 776525 179600 Rs.25 x 5032000) Depreciation Utilities and inspection 4 x 10600 coils Shipping (1 x 106000) General manufacturing OH(3 x 253000 hours) 1258000 424000 106000 75900 2547000 Answer to Question No. FCA. Expenses a) Consultant salary expense (con-3) b) Travel of related expenses (con-4) c) General of administrative expenses (1. 478125 468000 10000 956125 2 x 65000 x 15 3 x 41600 x 20 = 1950000 = 2460000 = 4410000 L.TEST QUESTIONS & SOLUTIONS II Copper wire Production Requirement (+) Closing Stock (-) opening Stock Purchase III Platform Requirement (+) Closing Stock (-) opening Stock Purchase Light Coil 130000 Heavy Coil 123000 Total 253000 32000 (29000) 256000 Light Coil - Heavy Coil 41000 Total 41000 7. Muralidharan.000 4) Raw material purchases Budget (Rupees) Sheet metal Copper wire Platform 469000 x 8 256000 x 5 42000 x 3 = 3752000 = 1280000 = 126000 = 5158000 5) Direct labour budget (Rupees) Light Coil Heavy Coil Total 6) Manufacturing overhead budget Purchasing and material handling (0. CWA. 421875 2) Hourly billing rate = Rs.150 12. 50000 Rs.500 1.000 11. 90 3) Hours = 3500 4) No.)-from management consulting system =Rs.10..650 Rs.COST MANAGEMENT .5. Grad.710 15 2.. of computer consultants = 15 5) Hours per consultant = 375 6) Additional billing hours per consultant = 50 7) Revised total hours per consultant = 425 8) Revised total billing hour (7 x 14) =6375 9) Revised revenue (8x2) = 478125 Working note -2 1) Budgeted revenue (per quat. 12500 1250 13750 5500 19250 192500 52500 245000 46. of Computer Consultants (8) Total revised quarterly salary (c) Total revised consultants quarterly salary = L. 315000 2) Hourly billing rate = Rs. FCA. 43 = = = = = = = = = Rs. of computer consultants = 10 5) Hours per consultant = 350 6) Additional billing hours per consultant = 50 7) Revised total hours per consultant = 400 8) Revised no of consultants = 13 9) Revised total billing hour = 5200 10) Revised revenue from management consulting system = 468000 Working note -3 (a) (1) Annual salary of a management consultant (2) Quarterly Salary (1 x ¼) (3) Increase in salary (10%) (4) Revised quarterly salary per excusive management (Without provision for Fringe benefits) (5) Fringe benefirs (40%) (6) Revised quarterly salary per existing management consultant (with fringe beniefits) (7) Revised quarterly salary for existing management consultants(6 x 10) (8) Quarterly salary for new management consultants (3 x 12500 x 140%) (9) Total quarterly salary for management consultants (b) (1) Annual budgeted salary of a computer consultant (2) Quarterly salary (3) Increase in salary (10%) (4) Revised quarterly salary (without fringle benefit) (5) Fringe benefits (40%) (6) Revised quarterly salary (with fringe benefits) (7) No.650 Sreeram Coaching Point . CWA.650 5. 75 3) Hours = 5625 4) No.TEST QUESTIONS & SOLUTIONS Working note -1 1) Budgeted revenue (per quarter) .060 17.65. Muralidharan.from computer consulting system =Rs. 000 = = Rs.000 224 (b) Markup VC = 40% on VC = 224/140 x 100 = 160/= 230 = 13. or changes in the economic / political environment in which the company operators.45.. 18 (1) Competitive selling price Less: Profit on Sales (300 x 10%) Target cost L. Answer to Question No.TEST QUESTIONS & SOLUTIONS Working note: 4 (1) Budgeted quarterly travel & related expenses (2) Total Budgeted Billing hours ( 5.575 57.500) (3) Expenses per hour (4) Revised billing hours (6.U.000 x 200) + Return (18. The assumption may involve factors outside/inside the company changes in assumptions involving external factors may include changes in demand for the companys product or services.5 11.625 9.000/15.U.000 Units Unit SP Mark up (%) Profit = 24/200 x 100% = 12% = 24 x 15. CWA..300/30/Rs.30. 44 = = 31. 17 Ford Ltd. Changes in assumptions involving internal factors may include changes in company goals or objectives.000 x 20%) Target cost Unit cost = 28.000 3.125 Rs.000) (d) Targeted sales (15.) = Rs.20.sells 15.60.00.) Full cost (15.000 3. FCA.000 (c) SP Units Contribution per unit = 230 . Grad.000 x 210) Less: Targeted return (16.000 = 188/Answer to Question No.000/15.000 x 20%) = = 30.50.500 x 70 Less: FC (40 x 15.000 3.000 = 3.875 (2) Any organization would prepare a revised operating budget when the assumption underlying the original budget are no longer valid.COST MANAGEMENT .375 + 5.500 = 70/= = 9.00. Muralidharan.270/Sreeram Coaching Point .45.00.000 units of a raft:è Full Cost (P.50.160 Total contribution = 13.200) (5) Total expenses (11.60.625 + 3.575 x 5) 45. .60.20.000 6. changes is the cost of various inputs to the company.200/(a) Computation of SP (P.000 33.000 28. 000 25. 45 Sreeram Coaching Point .00.000 45.COST MANAGEMENT .000 x 12%) = (b) Savings in insurance in prop.000/10) (b) Stock out costs 60. Muralidharan. FCA.57.00.00..000 JIT 315 49 266 < 270 target cost.000 4. material handling..000 L.000 Adopts Benefits (a) Savings of interest on amount blocked in inventories (30.000 30.30. CWA.TEST QUESTIONS & SOLUTIONS Working note: 1 Current Selling Price Less: Total unit cost Profit Profit on sales = 35/350 x 100 = 10% (2) Cost Lab cost increase = 15 Benefits Savings in setup.000 Savings due to JIT = 3. inspection flushed goods warehousing Savings in machine cost Net cost savings = 49 15 Total original unit cost Less: Benefits Revised unit cost Answer to Question No. Grad.000/36.87. 19: Alliance enterprises Costs (a) Depreciation on cost of re-modeled facilities (6.000 x 75% x 2) (d) Savings in warranty & repair costs (e) Salary earnings 1.000 27. Taxes (c) Lease revenue (30. Savings in warranty cost (10 x 40%) 55 = = 350 315 35 5 4 64 70. Grad. 46 Sreeram Coaching Point .200(R) 800(S) 12 11 10 9 8 7 100 (P) 6 400 (P) 5 4 3 10 9 8 7 6 5 4 3 Planned order release Requirement of R + S for (P) Planned order release Requirement of P for Q Planned order release Requirement of R & S for (P) Planned order release Summarised planned order release 100(x) 200 (Q) Answer to Question No. 20 Week Requirement of X Planned Order release for X Requirement of P & Q 12 11 100 Units 100 Units 100 Units (P) 200 Units (Q) 200 (Q) 100 (P) 300 (R) 200 (S) 300 (R) 200 (S) 400 (P) 400 (P) 1..200 (S) 200(S) 800 (S) 6 5 30 - 7 19 11 - 8 27 45 -16/29 - 9 18 11 - Planned order release - Answer to Question No.. CWA. Muralidharan. FCA. Hour 480 300 160 360 9600 6000 3200 7200 (4) Total Cost 17760 13100 6720 16920 Unit Cost 148/131/84/141/- A B C D 120 100 80 120 4800 5000 2400 7200 3360 2100 1120 2520 1300 L.COST MANAGEMENT .TEST QUESTIONS & SOLUTIONS Answer to Question No. 22 (a) Computation of total costs for each product (Assumption: Overheads are absorbed based on machine hour basis) Products Units (1) DM (2) DL (3) Overhead Machine Rs. 21 LT = 4 EOQ = 45 kg Week Production requirement (in kg) Scheduled receipts Stock at the end (54) 1 24 30 (in kg) 2 3 30 29 1 4 11 45 35 45 5 35 - 300(R) 1.200(R) 800(S) 1. COST MANAGEMENT - TEST QUESTIONS & SOLUTIONS Working note: 1 Total overheads = 26,000 (given) Total machine hours = 1,300 Recovery rate (per machine hour = 20/-) (b) Computation of total cost for each product (using ABC) No. of production runs Machine hours Set up cost Stores requisition SR (Stores receiving) Products Ins./Qty Control Cost Unit DM MD DL A B C D 120 100 80 120 4800 5000 2400 7200 3360 2100 1120 2520 6 5 4 6 1500 1250 1000 1500 200 300 480 200 20 20 20 20 900 900 900 900 12 10 8 12 1320 1100 880 1320 480 300 160 3600 380 16330 136.08 2406 13256 132.56 1283 7983 99.78 2887 16927 141.06 Working note: 2 Cost Set up cost Stores receiving Insp / quality control Material handling & despatch MDC (a) A Unit costs under traditional system Unit cost under ABC 148 136 12 Over costed B 131 133 2 Under coated C 84 99 +1 = 100 16 Under coated D 141 141 4620 10430 Orders less Machine hours 42 1300 110 8.02 Amount 5250 3600 2100 Cost drives No. of production Requisition raised No. of production No. of Cost or 21 = 20 x 4 = 80 21 Cost per Unit of CD 250 45 100 If cost + pricing is followed the selling price will differ under ABC (when compared with traditional method). Answer to Question No. 23 (1) Advantages associated with ABC (a) Enables through understanding of complex product costs and product profitability for improved resource management and pricing decisions. (b) Allows management to focus on value added and non-value added activities. This results in eliminating non-value added activities and streamlining production process. (c) Highlights the relationship between activities and identifies opportunities to reduce costs. (d) Provides a more appropriate means of charging overheads/costs to products. (2) Computation of contribution margin under traditional system. L. Muralidharan, FCA., Grad. CWA., 47 Sreeram Coaching Point TC Unit Cost MH & D COST MANAGEMENT - TEST QUESTIONS & SOLUTIONS Particulars PC Board (Rs.) (a) SP (per unit) (b) Direct material (P.U) (c) Direct labour (P.U) (d) Variable manufacturing overhead (P.U) - (wn-1) (e) Machine related overhead (f) Material handing cost (10% of direct materials) (g) Contribution (per unit) Working note - 1 (a) Variable management overhead (b) Direct labour hours (c) Variable manufacturing overhead per direct labour hour (b) Machine setup (c) Hazardous waste disposal (d) Machine insertions (e) Quality control (f) General supplies (g) Manual insertion (h) Wave soldering (i) Contribution (p.u.) (j) Total contribution (k) PVR (3) Computation of contribution margin under ABC System. Particulars PC Board Rs. (l) SP (per unit) (m) Direct material (P.U.) (n) Procurement (o) Production scheduling (p) Packaging & Shipping 300 140 5.5 2 4 TV Board Rs. 150 80 2.5 2 4 4.8 1.05 14 7 0.6 80 1.2 39.85 15,94,000 13.28% Rs.11,20,000 2,80,000 4/3.2 0.06 9.6 3.5 0.6 4 1.2 39.34 25,57,100 26.22% 300 140 56 16 15 14 59 TV Board (Rs.) 150 80 21 6 5 8 30 (4) The analysis using the previously reported costs shows that the unit contribution of the PC board is almost double that of the TV Board. On this basis, management in likely to accept the suggestion of the production manager and concentrate promotional efforts on expanding market for the PC Boards. However, the analysis using ABC does not support this decision. This analysis shows that the unit contribution form each of the board is almost equal, and the total contribution from TV board exceeds that of PC Board by almost 10,00,000. as a percentage of selling price, the contribution from the TV Board is double that of PC Board (26% Vs 13%). L. Muralidharan, FCA., Grad. CWA., 48 Sreeram Coaching Point COST MANAGEMENT - TEST QUESTIONS & SOLUTIONS Answer to Question No. 24 (a) (i) Total production units (Pre-inspection) Total Sales requirement Add: Specification loss (5,000 x 5%) (5,000 x 2.5%) 5,250 Add: Down grading at inspection (5,250 x 12.5/87.5) (5,725 x 7.5/92.5) To total production units (pre-inspection) (ii) Purchase of material - x:Materials required to meet pre-inspection production requirements (6,000 x 8) (5,541 x 8) Processing losses (4/96 x 48,000) (2.5/97.5 x 44,328) Input to the process Scrapped materials (5/95 x 50,000) (3/97 x 45,465) Total purchases (iii) Gross machine hours:Existing Initial requirement (6,000 x 0.6) (5,541 x 0.5) Rectification hours (250 x 80% x 0.2 hours) (125 x 80% x 0.2 hours) 3,640 Idle time (3,640 x 20/80) (2,791 x 12.5/87.5) 4,550 910 399 3,190 40 20 2,791 3,600 2,771 Revised 52,632 2,632 1,406 46,871 50,000 2,000 1,137 45,465 48,000 44,328 6,000 750 416 5,541 250 125 5,125 Existing situation 5,000 Revised situation 5,000 L. Muralidharan, FCA., Grad. CWA., 49 Sreeram Coaching Point 000 x 90%) (h) Prevention programme costs Total Net Profit (A-B) Existing Revised 210528 187484 5263 4687 1.000 x 100) (b) Second Quality (750 x 100 x 70%) (416 x 100 x 70%) (c) Third Quality (250 x 80% x 100 x 50%) = (125 x 80% x 100 x 50%) = (d) Scrap sales (50 x 5) (25 x 5) 5.000 60.474 L.000 54.000 20.550 x 40) (3.00.245 10.000 1.1) (46871 x 0..959 60.000 /-) (1% of 5.19.34.000 5.000 15.000 /-) (g) Sundry fixed costs (60.000 52.120 Existing 5.00.791 42.TEST QUESTIONS & SOLUTIONS (b) Profit & Loss Account (A) Revenue (a) First quality (5.000 x 60%) (f) Product liability (3% of 5. FCA.000 Revised 5.000 (B) Cost (a) Material .82. CWA.COST MANAGEMENT .1) (c) Machine costs (4.771 79.000 4.27.500 29.190 x 40) (d) Delivery of replacements (250 x 8) (125 x 8) (e) Inspection & other cost (25.600 2.00..000 5. Grad.00.000 1.000 15.750 250 125 5.62.000 25. Muralidharan.54.X (52632 x 4) (46871 x 4) (b) Inspection and storage cost (52632 x 0. 50 Sreeram Coaching Point .000 5. 25 (i) Computation of budgeted life-cycle operating income: Revenue: (4.000 1.000/160 x 280) • Fixed 7.00. The implication is that it will be difficult to alter/reduce the cost of Mx3 once design finalizes the design of Mx3.00.00.000 1. Prevention cost Training costs in quality prevention and preventative maintenance.20.80.00.000 x 40) Less: (a) (b) R&D and designcost Manufacturing cost • Variable 4.000 (e) (f) Customer related service costs (4.00.000 x 15 • Batch cost (4.COST MANAGEMENT .000 x 1.00.00.000 22. L.36% of the costs are incurred.80.35.000 4. Muralidharan.000 18.000 7.2 • Fixed 12.000 10. Grad.20. Product liability claims Loss of customer goodwill Answer to Question No.00.00. 51 Sreeram Coaching Point .80.000 60.00.60. and down grading products at the final inspection stage External failure costs Free replacement of goods. The analysis reveals that 80% of the total product life cycle costs of the new watch will be locked in at the end of R & D and design stages when only 7.00.000/1..000 (c) Marketing costs • Variable 4.00.00.000 10.TEST QUESTIONS & SOLUTIONS Quality Cost Internal failure costs In coming materials scrapped due to poor receipt & storage organization.36%.5) Total cost ( a to e) 6. To reduce and manage total costs.00..80.000 (d) Distribution costs • Batch (4.80. Destiny must act to modify the design before the costs get locked in.000/500 x 600) • Fixed cost • 82.000 24.000 x 3.20. Appraisal costs Inspection checks of incoming materials and completed output.000 14.000 Operating income: (ii) (iii) % of budgeted product life cycle costs incurred till the R & D and design stage = 10.35.80. CWA. FCA.000 x 100 = 7. x = 2.300541 = antilog (0.7 x 2.000 units. Number of units to be assembled = 40 units (in terms of batches) = 40/25 = 1.3979 .000 1.2346(0.000 98.000 7.85 = Log 2 y log y Log y Log y Y -1+0.08. Y=axb a = 250 hours.000 4.000) • Fixed 24.000/550) • Fixed 66.6 batches..73 hours (per unit) 40 52 Sreeram Coaching Point Total hours required =199.TEST QUESTIONS & SOLUTIONS (iv) market research finding: • Increase in SP by 3/.7 = 250 hours = 269 = 6.00.6)-0.20 x 4. CWA.6 batches b = log 0.00.000 14.0.300541) x 1000=199.6 new batches = 269 hours .000 18.301 = -0.43.9294 0.40.2346 = log 250 .80.0706 0.68.000) Total cost (a to e) 6.50 x 4.00.2346 = 250 x (2.000 10..20.85% Number of transistors in the batch = 25 nos.000 19. Answer to Question No.20. 26 Time taken for first batch=250 hours Learning effect .000/176) • Fixed 7. Muralidharan.COST MANAGEMENT .40.6 = 2.301 = -0.000 14.000 (d) Distribution costs • Batch (280 x 4.80.60.40.000 (c) Marketing costs • Variable (3.62.000 x 37 Less (a) R & D & design costs (b) Manufacturing costs • Variable (4.80.000 1.40.leads to increase in sales by 4. • Batch size increases by 10%.00.0.00. Hours taken for 1.000 10.000 x 5) • Batch (600 x 4.08.000 (e) (f) Customer service costs (1.6 = 519 hours Less hours for 1st batch Average hours per transistor (in the new batch) L.40. Revenue 4. Grad.40.00.4150) = 2.12. FCA.2346 log 2.000 x 10% = 40.000 Operating income Conclusion: Price should not be reduced. y2 0 = 1797.0.97383712) x 10000 = 9414 = 385974 = 85% = -0.60 Mark Up 1198.474 Computation of unit selling price a) Direct material (24500/25) b) Direct labour c) Variable Overheads (75% of labour) = = = 980.75 = 2996. CWA.97383712 = antilog (0.2346 = 41 batches Total requirement (9414 x 41) Assumption first 25 units are not intended for sale Less: His 1st 2T guns 22500 Direct labour for 1000 guns 363474 ` Direct labour per gun = 363474 1000 = 363.TEST QUESTIONS & SOLUTIONS Answer to Question No. x2 0 b) Dual Minimize 48y1 + 40y2 Subject to: 3y1 + 2y2 7 y1 + y2 5 y1.6128) = 3. Learning rate = Rs.2346 log 41 = 4.41 272. 225000 b = 25+1000 25 = 22500 x (41)-0. 53 Sreeram Coaching Point .COST MANAGEMENT ..3522 -0. Grad.74 d) Fixed overheads (50% of direct labour)1 = Total Cost Selling price Answer to Question No. 27 Computation of Direct labour Y A x y Log y Log y Log y y = axb.2346 (1.00 363. 28 a) Formulation: Maximize Z = 7x1 + 5x2 Subject to: 3x1 + x2 < 48 2x1 + x2 < 40 x1.50 (40/60) 181..2346 = log 22500 .25 L. Muralidharan. FCA. S2 + 0. 54 Sreeram Coaching Point .. Grad.COST MANAGEMENT . CWA.A1+M.TEST QUESTIONS & SOLUTIONS Converting Inequalities into equalities Minimize Z = 48y1 + 40y2 + 0. FCA..S2 + M. Muralidharan.A2 Subject to: 3y1 + 2y2 -S1 + A1 = 7 y1 + y2 -S2 + A2 = 5 First table FR 1/2 I = Y2 0 = A1 PROG COST A1 A2 M M QTY 7 5 C Z C-Z (NER) I Iteration FR -1 ½ I = S2 0 = A2 PROG Y1 A2 COST 40 M QTY 7/2 3/2 C Z C-Z (NER) A2 A B (IR X KR) II Iteration FR Y1 S2 Prog 40 0 Cost 5 3 QTY 1 -1 C Z C-Z (NER) Y1 A B A-B 7/2 -3/2 5 3/2 ½ 1 1 0 1 -1/2 -1/2 0 0 1 -1 ½ ½ 0 0 -1 1 Y1 1 0 48 40 8 Y2 0 1 40 40 0 S1 -1 -2 0 0 0 S2 0 -1 0 -40 -40 A1 1 2 M 0 M M 40 M-40 A2 R/R 5 7/2 3/2 1 3/2 -1/2 1 1 0 0 -1/2 ½ -1 0 -1 0 1-2 -1/2 1 0 1 Y1 3/2 -1/2 48 60-(M/2) (M/2)-12 Y2 1 0 40 40 0 S1 -1/2 1/2 0 (M/2)-20 20-(M/2) S2 0 -1 0 -M M A1 ½ -1/2 M 20-(M/2) (3/2)M-20 A2 0 1 M M 0 R/R -7 3 Y1 3 1 48 4M Y2 2 1 40 3M S1 -1 0 0 -M M S2 0 -1 0 -M M A1 1 0 M M 0 A2 0 1 M M 0 R/R 7/2 5 48-4M 40-3M L. (f) By producing 1 unit of x1.TEST QUESTIONS & SOLUTIONS a) optimal product mix:Product A:.40 units b) Shadow cost of Raw material = 0 Shadow cost of Labour hours = Rs.1 (See value of x1 in NER). (e) Machine A has been used to its fullest capacity and has got an opportunity cost of Rs5/hour. Answer to Question No. So the price has to be increased by Re 1 to avoid reduction in profit.0 units Product B:. In this solution both basic variables are not artificial variables and hence feasible... (b) A Problem is said to be having multiple optimal solution if any of the non-basic variable has Zero as its value in the NER. Grad. the profit will be reduced by Re.1 : so optimality test can be done L. 29 (a) This solution is optimal because all the numbers in NER is either negative or zero. 5/hour Answer to Question No. 30 I Formulation of Transportation Problem E A B C D Demand 3 4 4 5 350 F 3 5 4 2 450 G 3 3 4 3 200 R 6 5 6 7 100 Supply 200 400 300 200 II Obtaining IBFS using Vogel Method Number of allocations = m + n . FCA. it has only one optimal solution. Since this problem does not have Zero as the value of non-basic variable in NER.COST MANAGEMENT . (c) The Problem also is not degenerate (d) A solution is said to be infeasible if the basic variable happens to be an artificial variable. CWA. Muralidharan. 55 Sreeram Coaching Point . . Muralidharan. 31 I Balancing the unbalanced problem 1 A B C D 13 15 6 0 2 10 17 8 0 3 9 13 11 0 4 11 20 7 0 II conversion of maximization problem to minimization by deducting all the numbers in the matrix form highest number 1 A B C D 7 5 14 20 2 10 3 12 20 3 11 7 9 20 4 9 0 13 20 L.. Answer to Question No. It is also an example of Multiple-optimal solution. FCA. CWA. 56 Sreeram Coaching Point .COST MANAGEMENT .TEST QUESTIONS & SOLUTIONS III Modi's Optimality Test Allocated cells U1 + V2 U2 +V1 U2 + V3 U2 + V4 U3 + V1 U3 + V2 U4 + V2 Values of U1 to V4 assuming U1=0: U2 = 1: U3= 1: U4 = -1: V1 = 3: V2 = 3: V3 = 2: V4 = 4 Unallocated cells Zj U1 + V1 = 3 U1 + V3 = 2 U1 + V4 = 4 U2 + V2 = 4 U3 + V3 = 3 U3 + V4 = 5 U4 + V1 = 2 U4 + V3 = 1 U4 + V4 = 3 Cj-Zj(NER) 3-3=0 3-2=1 6-4=2 5-4=1 4-3=1 6-5 =1 5-2 =3 3-1 =2 7-3 =4 =3 =4 =3 =5 =4 =4 =2 The above solution is optimal since all the values in NER is either +ve (or) zero. Grad. 15 0. NO 00-19 20-59 60-79 80-94 95-99 L.TEST QUESTIONS & SOLUTIONS III Row operations 1 A B C D 0 5 5 0 2 3 3 3 0 3 4 7 0 0 4 2 0 4 0 IV Covering zero's in III with minimum number of lines:1 A B C D 0 5 5 0 2 3 3 3 0 3 4 7 0 0 4 2 0 4 0 No of lines = order of matrix so we can proceed to make allocations V Allocation 1 A B C D 0 5 5 0 2 3 3 3 0 3 4 7 0 0 4 2 0 4 0 A ² 1: B ² 4: C ² 3: D ² 2: Total Profit Rs 13 Rs 20 Rs 11 Rs 0 Rs 44 Answer to Question No.80 0. Muralidharan. Grad.00 Rn.90 1.65 0.25 0. 32 I Random Number coding Time Assembly A1 Prob Cum prob 1-3 1-4 2-4 3-4 4-5 0. CWA.20 0.20 0.25 0.40 0..20 0.95 1.COST MANAGEMENT .10 0.40 0. No 00-09 10-24 25-64 65-89 90-99 Assembly A2 Prob Cum prob 0.60 0. FCA.10 0.05 0.00 RN. 57 Sreeram Coaching Point ..15 0.1 0. 266 minutes Answer to Question No.79 80-99 00-09 10-39 40.00 0.1 0.5 Cumulative Probability 0.6 0.00 0.5 0.COST MANAGEMENT .2 0.2 0.49 50-69 L.. 33 I Random number coding Activity A time 3 4 5 D 45 Probability 0.8 1.3 0.00 0.5 1. CWA.2 0. Total Expected process time = 304/15 = 20.8 0. Grad. No 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 41 83 36 75 74 74 11 94 60 34 49 19 54 08 93 Time 12 13 12 13 13 13 11 14 10 12 12 11 12 10 14 Assembly A2 R.. no.69 20-99 00.1 0.2 E 3 5 F 5 7 H 2 3 0.8 0. No 34 43 02 05 28 76 83 11 89 24 43 15 15 80 09 Time 11 12 10 10 11 12 13 11 13 11 11 10 10 13 10 23 25 22 23 24 25 24 25 23 23 23 21 22 23 24 304 S.TEST QUESTIONS & SOLUTIONS II Simulation worksheet Assembly A1 R.2 1.4 0.8 1. Muralidharan.2 0.00 Random number 00-19 20-79 80-90 00. FCA. 58 Sreeram Coaching Point . COST MANAGEMENT . No Time B R. No Time D R. No Time C R. No Time F R. CWA. No Time E R.. 34 I 2 9 1 15 5 Path Table 4 2 5 8 3 L. No R. Grad. No 12 29 00 91 59 Time G Time 3 2 2 3 3 1 2 3 4 5 68 99 57 57 77 4 5 4 4 4 13 93 33 12 37 4 4 4 4 4 09 18 49 31 34 1 1 1 1 1 20 24 65 96 11 4 4 4 4 4 73 22 92 85 27 6 4 6 6 4 7 7 98 92 10 5 5 7 7 5 III Critical path and duration Path 1 2 3 4 5 Network E C A D F A-C-D-F-G A-C-D-F-G A-C-D-F-G A-C-D-F-G A-C-D-F-G Duration 18 17 18 20 17 G B Critical path and duration A+C (OR) B Whichever is greater E (0R) F Whichover is greater +D+ +G Answer to Question No..TEST QUESTIONS & SOLUTIONS II Simulation worksheet A R. Muralidharan. 10 59 Sreeram Coaching Point . FCA. 1-4 and 1-2 by 1 day 1x150=150 670 . 1-4 and 2-4 by 2 days 2x130=260 520 Crash 1-3.COST MANAGEMENT ..TEST QUESTIONS & SOLUTIONS No of days crashed Paths 1-2-4-5 1-4-5 1-3-4-5 II Slash Table Activities 1-2 1-3 1-4 2-4 3-4 4-5 III Cost Table Project duration 20 17 16 15 13 12 IV Evaluation Table Stage A Activities 1-3 3-4 4-5 B 1-3 3-4 4-5 1-4 C 1-3 3-4 1-4 D 1-3 1-4 1-2 2-4 E 1-3 1-4 1-2 L. 60 Sreeram Coaching Point 0 16 17 20 3 16 17 17 4 15 16 16 5 15 15 15 7 13 13 13 8 12 12 12 Crash days available 9-6=3 8-5=3/1 15-10=5/4/2 5-3=2/0 10-6=4/1/10 2-1=1/0 Crash cast per day 40 50 60 20 30 80 Indirect cost 2300 1955 1840 1725 1495 1380 Crash cost 90 170 260 520 670 Total cost 2300 2045 2010 1985 2015 2050 Remarks Crash 3-4 By 3 days Crash cost 3 x 30 = 90 Crash cost 90 Crash 4-5 by 1 day 80 x 1 = 80 170 Crash 1-4 and 3-4 by 1 day 1 x 90 = 90 260 Crash 1-3. CWA. Grad. Muralidharan.. FCA. .COST MANAGEMENT . 2) While selecting the activity to be crashed. FCA. CWA. 3) While considering number of days to be crashed take into account two factors:² crash days available (see slash table) ² maximum no of days by which the activity can be crashed without making the path noncritical 4) in case of more than one critical path:² crash that activity common to both the paths (or) ² crash one activity from each path Solutions:a) normal project length = 20 days b) minimum project length = 12 days c) optimal project length= 15 days Answer to Question No. select the activity with least crash cost. 61 Sreeram Coaching Point .TEST QUESTIONS & SOLUTIONS Points to be considered 1) Crash only the activities in critical path. Grad.. 35 L = 18 E=5 5 L = 10 E = 10 10 6 3 E = 10 L = 20 Activities 1-2 1-3 1-5 2-3 2-6 3-4 4-7 5-6 6-7 Note i) EST = earliest start time LST= latest start time Duration 10 6 5 0 8 10 10 7 5 10 4 E = 20 L = 20 E 0 0 0 10 10 10 20 5 18 l 0 4 13 10 17 10 20 18 25 10 2 0 5 7 8 6 L = 25 E = 18 5 7 E = 30 L = 30 L=0 E=0 1 Total Float 0 4 13 0 7 0 0 13 7 L. Muralidharan. FCA.TEST QUESTIONS & SOLUTIONS Halt Time Available 0 R1 to R4 Activities 1-2 1-3 1-5 1-5 2-6 3-4 5-6 3-4 6-7 4-7 4-7 TF 0 4 13 7 7 0 13 0 7 0 0 Men 1 2 3 3 1 2 1 2 2 3 3 Days Rank Allocation Idle resource 10 I R1 6 II R2 & R3 R4 5 III 5 NR R2. 62 Sreeram Coaching Point . Grad..Not Possible 3) NR:. of days required to complete this project with 4 persons is (23+10) = 33 days 2) Ranking of jobs has been done in accordance with the total float of the job. CWA.Not Required Comments:1) Total no. Muralidharan. R3 & R4 Nil 8 II R1 Nil 10 I NP 10 II R4 Nil 7 I R2 & R3 5 NR R1 & R4 Nil 10 NR NP R2 & R3 10 NR R1 to R3 R4 6 10 11 18 21 23 R2..COST MANAGEMENT . Loading Chart All the Best L. R3 & R4 R1 R2. R3 & R4 R1 & R4 R2 & R3 R1 to R4 NOTE: 2) NP:.