Full Text Transcript
MAY2~~'tl
Management Accc.untancy
Course' 1-'ai t , Exammatioe
G-I-P-1-Managemen/.t;\.countln&g YOV?r1r;Q
Roll No............................... DecisionMaking
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Total No. of Questions-5] [Total No. of Printed Page~-6
Time Allowed-3 Hours Maximum Marks-100
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Answer all questions.
, All questions carries equal marks.
Marks
1. P, Q, Rand S are the four types of products that appear in the price-list of a
company with a note that a 'particular item or items may not be available on
demand. The demand for the products is more than what the company can supply
and non-supply of any of them will have no effect on the demand for the rest.
For the calendar year 2011, the company has made the following tentative budget
that will use up all the available supplies of materials and labour in that year.
A linear programming was made by the company's accountant who stated that
the opportunity costs or the shadow prices came to Rs. 2.50 per labour hour
and Rs. 16.25 per kg. of material. He also suggested the product-mix vyhich has
since been forgotten. The accountant has left the company. The company now
asks you as their Management Consultant to give your opinion about the
budgeted program. .
Data from Tentative budget for 2011 :
.Products P Q R S
Productions/Sales units 1,000 1,200 1,600 800
Selling price per unit (Rs.) 100 130 120 150
Variable cost per unit (Rs.) 60 80 50 70
Labour hours per unit 3 4 2 5
Material usage per unit (kg.) 2 3 4 5
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"1 , (2 )
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15+5
(a) Determine the optimal Sales mix for the company.
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(b) What difference the Sales mix in (a) will make from that in the Tentative ..
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budget in respect of contribution? ..
2. A company with two production departments has set the following standards for
the forthcoming year:
Departments
S W
Direct' labour hours available per period 6,000 4,000
.
Standard wage rate per hour Rs.6 Rs.5
Expected learning curve 80% 70%
Standard variable overheads per hour Rs.9 Rs.5
Standard fixed overheads per hour Rs. 12 Rs.8
Direct labour hours required for first 100 units 18 9
- The direct materials are introduced in Department S. The company is able to
negotiate the following prices for purchase of direct materials during the year.
Level of output Price of direct materials per
(units) unit of output
100 Rs. 72.00
200 Rs. 64.80
800 Rs. 54.00
Overtime, if required, is paid at time and a half. The overhead rates as given
above does not include overtime premium.
It is the policy of the company to add profit margin as under in quoting the
prIces :
Department Percent~ge on total
labour & overhead cost
S 25%
W 15%
Subcontracted work 5% on subcontract price
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The company has received a special order. Special tooling costs of the order amount
to Rs. 1,200. If this order is for 200 units or less, it will be executed in the
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period which has a workload of 3,840 direct labour hours in Department Sand I
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2,100 direct labour hours in Department W. For the work which is done in Department
W, a subcontract price of Rs. 50 per unit is quoted by an associate company.
Required:
(i) If the company decides to get the work executed entirely within the 8+6+
company, what price, on cost plus basis, should be quoted for the order, if it 6=20
consists of -
100 units
200 units?
(ii) Assuming that the initial order placed by the customer is for 200 units, what
lowest price should be quoted for a repeat order of 600 units? Assume that
this order will be executed when there are no capacity constraints.
(iii) State the output level at which the company should close down Department
W to get the work executed through subcontractors.
3. Neel Ltd. is considering a new product with three-year life. The product can be 20
made with existing machinery which has spare capacity or by a labour saving
specialized new machine which would have zero disposal value at the end of
3 years.
The following estimate have been made at Current price'
Sales volume 10 lakh units per year
Selling price Rs. 150 per, unit
Labour cost (without new machine) Rs. 60 pen unit
Material cost Rs. 20 perl unit
Variable overheads Rs. 20 per unit
Additional fixed overheads for the new product are estimated to be Rs; 3 crores
per year. The new machine would cost Rs. 5 crores and would cut labour costs by
50% per unit. Because of competition, increase in selling price per year will be
only 2%. Increase in labour cost will be 12% p.a. and all other costs 8% p.a.
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The company's cost of capital is 15% and apart from the cost of the machine, all 4
cash flows can be assumed to arise at year-ends.
Give your recommendation, calculating NPV of the new product with existing
machine and new machine.
Given' Discount factor @ 15% :
Year 1 2 3
Discount factor 0.87 0.76 0.66
4. Indigo Fabricators Ltd. have procured an order from the Railways for supply of 20
2,40,000 pieces ofmetal case-bonds of a special design. The supply is to be completed
in not more than 12 months at the rate of 20,000 to 25,000 pieces per month at
a price of Rs. 75 per piece with a bonus/penalty of Rs. 2.75 per piece for supplies
in excess/short of 20,000 pieces per month.
It has promptly purchased a special purpose machine with capacity to produce
20,000 :!:5% pieces per month. The machine which has cost Rs. 2 lakhs is expected
to fetch a residual value of Rs. 50,000 on completion of the contract job. The cost
details of the piece are estimated as follows:
Material (Rs./unit) 50.00
Labour (Rs./unit) 5.00
Variable production overheads-40%
of labour (Rs./unit) 2.00
Variable selling overhead (Rs./unit) 0.25
Fixed production and selling/delivery
expenses (Total) Rs. 3 lakhs
A week before starting the job the suppliers of machine offer an advanced version
of the same capable of 20% more output per hour. There will however be a material
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loss of 0.5%. This new machine costs Rs. 3 lakhs with no residual value. The
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supplier has agreed to take back the original machine for Rs. 1.50 lakhs. Fixed
cost, by way of maintenance will increase by Rs. 1,000 per month. Entire job can
be compeleted in 10 months.
Advise whether they should go in for the improved model of the special purpose
machine.
5. Fancy Apple Mart specialises in gift packs of Apples. Each pack consists 20
100 numbers. It employs 5 labourers in its mart and each of them works for
8 hours a day and 25 days in a month. The general fixed cost per month works
out to Rs. 30,000. The Mart obtains a special order for 250 gift packs each pack
consisting 50 red apples, 30 green apples, 20 yellow apples and a gift box. The
mart normally sells the gift pack at a profit of 10% on the selling price.
Fancy Mart provides the following information.
Apple and Stock on hand Actual Current
Gift Box Qty. Purchase Price Market Price
(Numbers) per Apple per Apple
Rs. Rs:
Red 15,000 20 25
Green 5,000 16 .18
Yellow 6,000 30 40
Light Red 5,000 20 (Salevage values)
Gift Box 500 20 20
Red, Green and Yellow Apples are regularly used by the mart in the normal
course of business. The stock of Light Red Apples represent purchases of another
.order which was cancelled. They can be substituted for Red Apples without any
objection frotn the purchaser. Otherwise with no alternative use they can be
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sold in the market for Rs. 20,000. The Gift boxes on stock were procured for an
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earlier order and are in excess. They can be readily sold in the market for 50% oi
its value.
Each Gift pack would require 30 minutes of labour. The current cost of labour is
Rs. 400 per hour. The mart estimates that it will have 50 hours as idle time when
the special order is carried out. Variable overheads are 50% of labour cost.
You are' Required:
(a) To compute the minimum price per Gift pack assuming the special order is
a one time order.
(b) Would your answer to Part 'a' differ, if the orders are continuous?
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