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Strategic Cost Management
1) With the following information, calculate: (10 Marks)
a) Contribution
b) PV Ratio
c) BE Ratio (in no. of units and value)
d) MOS at actual sales of Rs. 9, 00,000/-
e) Number of watches to be sold to get a profit of Rs. 18,000/-
Sale Price
Per unit
10,000
Raw Material Per unit 5,000
Power Per unit 500
Factory Wages (variable) Per unit 1,000
Rent Per month 80,000
Salaries Per Month 1,00,000
Telecom and Printing Per month 45,000
Travel Per Month 25,000
Ans:
To calculate the requested values, we want to determine the contribution, PV ratio, BE ratio, MOS, and several gadgets to be sold to reap a target income.
In the context of fee accounting and financial evaluation, contribution refers to the extra income over variable costs associated with producing or selling a product or providing a carrier. It represents the portion of sales that contributes towards covering constant costs and generating profit.
2) Pritam owns a glass factory and is in the business of making cups and glasses. He gets an order to supply 20,000 nos. of a specific type of glass. The variable cost to make the glass totals to about Rs. 45 per glass and the total fixed cost is Rs. 3, 00,000.
How should Pritam price his glasses under?
a. Cost plus Pricing to earn a profit of 10%
b. Variable Cost Plus contribution to earn a contribution margin of 20%.
Compare the results and discuss under what situation each type will be beneficial.
Which of the two methods will Pritam choose if he has surplus capacity to manufacture the glasses without incurring any additional fixed cost? (10 Marks)
Ans:
Introduction:
Effective pricing is critical in the strategic management of groups, impacting profitability, market share, and overall sustainability. Pritam, the owner of a glass factory focusing on cups and glasses, faces a pivotal selection regarding the pricing approach for an order of 20,000 glasses. This scenario allows delving into the concepts and programs of two prominent pricing strategies: cost Plus Pricing and Variable value Plus Contribution Pricing.
Pricing decisions play a pivotal role in determining the success of a business, affecting both short-term economic goals
3)
a) Divya went to Dhanalaxmi Bank to get a loan for her Business Needs. As the Loan approving officer of the Bank, which ratios shall you look at to establish that it is safe to give Divya a loan, considering her capacity to repay the loan back along with the interest? Explain any two ratios along with their formula.
Ans:
Introduction:
Extending loans is a vital aspect of banking, and it demands a thorough assessment of the borrower’s economic fitness and potential to pay off. In the case of Divya seeking a loan from Dhanalaxmi Bank for her business wishes, the loan approving officer wishes to analyze various financial ratios to assess the risk associated with the loan. This entails a comprehensive examination of Divya’s financial statements and performance metrics to ensure she can repay the loan and
b) With the following information, prepare the Budgeted Profit for the year for Company PQR Ltd.
UOM P Q R S
No. of Units Nos. 20 30 40 100
Sales Price Rs./Unit 100 50 25 45
Variable Costs Rs./Unit 40 20 5 25
Fixed Costs Rs. 200,000
In addition to the above, each unit has semi-variable expenses of power, which are Rs. 150,000 for all products put together and @ Rs. 10 per unit of production beyond it.
Ans:
To calculate the Budgeted income for company PQR Ltd., we need to consider the income revenue, variable costs, constant charges, and semi-variable prices. Let us calculate the relevant values for every product (P, Q, R, S) and then decide the overall Budgeted profit.
1. Sales Revenue: Sales Revenue=No. of Units × Sales Price per Unit
2. Total Variable Costs: Variable Costs=No. of Units × Variable Cost per Unit
3. Semi-Variable Expenses: The fixed component is Rs. 150,000.
The variable component
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