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NMIMS Global Access
School for Continuing Education (NGA-SCE)
Course: Strategic cost management
Internal Assignment Applicable for September 2020 Examination
Assignment Marks: 30
Instructions:
- All Questions carry equal marks.
- All Questions are compulsory
- All answers to be explained in not more than 1000 words for question 1 and 2 and for question 3 in not more than 500 words for each subsection. Use relevant examples, illustrations as far aspossible.
- All answers to be written individually. Discussion and group work is not advisable.
- Students are free to refer to any books/reference material/website/internet for attempting theirassignments, but are not allowed to copy the matter as it is from the source of reference.
- Students should write the assignment in their own words. Copying of assignments from otherstudents is not allowed.
- Students should follow the following parameter for answering the assignment questions.
| For Theoretical Answer | For Numerical Answer | |||
| Assessment Parameter | Weightage | Assessment Parameter | Weightage | |
| Introduction | 20% | Understanding and usage of the formula | 20% | |
| Concepts and Application related to the question | 60% | Procedure / Steps | 50% | |
| Conclusion | 20% | Correct Answer & Interpretation | 30% |
Ques. 1. “Beautiful Masks” is a start-up manufacturing designer masks for men and women set up in April’ 20 post COVID. It is managed by Ms Meher. She is facing a huge demand for her designer masks from Retail outlets and on their Online store as well. She wants to understand the correct approach for pricing the masks. She has appointed you as the management accountant. Please advise her regarding the key factors affecting pricing decisions, both internal and external. Also, suggest any 3 types of pricing methods she can choose from highlighting 2 salient features of each method.
Answer: Pricing
The pricing decision is one of the most crucial decisions which the managementhas to take. The term pricing refers to the assignment of a selling price to aproduct produced or a service provided by a firm. Of course, sometimes theterm price is used for the purchase price of some resource acquired by a firm.However, in such a case, it should more precisely be termed as cost to thepurchasing firm.Pricing is not a onetime affair. It may have to be revised from time to time.It, thus, requires dynamic decision-making, keeping in mind the market behaviour,management needs, legal restrictions and social environment. The price of aproduct may thus vary over time, classes of customers and places. However,while pricing, the basic premise of maximizing contribution towards meeting thefixed costs, does not change.
Ques. 2. Mr Chopra is the CEO of Tasty packaged Foods. They manufacture various products like potato fries, samosas etc. Post covid, the company is under revenue pressure due to the reduced demand for packaged food. Like every other business, the short term decision making process in this business is also a process of selecting the best amongst various alternatives considering the cost benefit factors and impact on overall profitability of the firm. These could involve accepting or rejecting a special order, making or buying decisions, product mix decisions etc. These decisions require different analysis like Contribution margin analysis, relevant and irrelevant cost analysis. Please describe any 3 of these short term decision strategies with salient features.
Answer: Short term decision strategies
Accepting or rejecting order
Both manufacturing and service companies often receive requests to fill special orders. These special orders are typically for goods or services at a reduced price and are usually a one-time order that, in the short-run, does not affect normal sales. When deciding whether to accept a special order, management must consider several factors:
- The capacity required to fulfill the special order
- Whether the price offered by the buyer will cover the cost of producing the products
- The role of fixed costs in the analysis
- Qualitative factors
Ques. 3. Make vs Buy Harish Aggarwal, A management accountant with Car Udyog is evaluating whether a component MTR2000 should continue to be manufactured by Car or purchased from Outside Vendor company. Outside Vendor has submitted a bid to manufacture and supply the 32000 units of MTR 2000 that Car udyog will need for 2021 at a selling price of Rs 173 Harish has gathered the following information regarding Car Udyog’s costs to manufacture 30000 units of MTR-2000 IN 2020
| Direct Materials | 19,50,000 |
| Direct Manufacturing Labour | 12,00,000 |
| Plant space rental | 8,40,000 |
| Equipment leasing | 3,60,000 |
| Other manufacturing overhead | 22,50,000 |
| Total Manufacturing costs | 66,00,000 |
Harish has also collected the following information related to manufacturing MTR 2000: a. Prices of direct materials used in the production of MTR 2000 are expected to increase by 8% in 2021
b. Car Udyog’s direct manufacturing labour contract calls for a 5% increase in 2021
c. Car Udyog can withdraw from the plant space rental agreement without any penalty. Car Udyog will have no need for this space if MTR 2000 is not manufactured
d. The equipment lease can be terminated by paying Rs 60,000/-
e. 40% of the other manufacturing overhead is considered variable. Variable overhead changes proportionately with the number of units produced. The fixed component of other manufacturing overheads is expected to remain the same whether or not MTR 2000 is manufactured
Required:
a. On the basis of the financial information Harish has obtained, calculate the cost of making MTR 2000 inhouse in 2021? Please share calculations
b. Please compare with the cost of outsourcing the product and whether it is profitable to buy or manufacture MT 2000?
Answer: a) Cost of making MTR 2000 inhouse in 2021
Total Costs for 32,000 Units
Direct materials (Rs.19,50,000×1.08)x32,000/30,000 22,46,400
Direct manufacturing labor (Rs.12,00,000×1.05)x32,000/30,000 13,44,000
Factory space rental 8,40,000
Equipment leasing costs 3,60,000
Dear students, get fully solved assignments of NMIMS University for December 2020 batch.
Do send your query at:
Call us at: 08263069601