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Course: Strategic Cost Management
.Internal Assignment Applicable for December 2020 Examination
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.
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.
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 Manufacturing Labour||12,00,000|
|Plant space rental||8,40,000|
|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 in house in 2021? Please share calculations (5 Marks)
b. Please compare with the cost of outsourcing the product and whether it is profitable to buy or manufacture MT 2000? (5 Marks)