Final PN-16 Strategic Cost Management Quiz 1

1. What is the opportunity cost of making a component part in a factory given no alternative use of the capacity?

2. A particular job required 800 kgs of material – P. 500 kgs. of the particular material is currently in stock. The original price of the material – P was Rs.300 but current resale value of the same has been determined as Rs.200. If the current replacement price of the material – P is Rs.0.80 per kg., the relevant cost of the material – P required for the job would be:

3. H Group has two divisions, Division P and Division Q. Division P manufactures an item that is transferred to Division Q. The item has no external market and 6000 units produced are transferred internally each year. The costs of each division:

Variable Cost: Rs.100 per unit & Rs.120 per unit for Division P & Q respectively.

Fixed cost each year: Rs.1,20,000 & Rs.90,000 for Division P & Q respectively. Head Office management decided that a transfer price should be set that provides a profit of Rs. 30,000 to Division P. What should be the

transfer price per unit?

4. A company makes components and sells internally to its subsidiary and also to external market. The external market price is Rs.24 per component, which gives a contribution of 40% of sales. For external sales, variable costs include Rs.1.50 per unit for distribution costs. This is, however not incurred in internal sales. There are no capacity constraints. To maximize company profit, the transfer price to subsidiary should be:

5. The Tech Company has fixed costs of Rs.400,000 and variable costs are 75% of the selling price. To realize profits of Rs.100,000 from sales of 5,00,000 units, the selling price per unit:

6. A company has a breakeven point when sales are Rs. 3,20,000 and variable cost at that level of sales are Rs. 2,00,000. How much would p/v ratio increase or decrease if variable expenses are dropped by Rs.30,000?

7. Excel Products Ltd. manufactures four products e.g. Product E, Product F,

Product G and Product H

using same raw materials. The input requirements for Products E, F, G and H are 1kg, 2kgs, 5kgs and

7kgs, respectively. Product-wise Selling Price and Variable Cost data are given hereunder:

Selling Price of Products E, F, G & H are Rs.100, Rs.150, Rs.200 & Rs.300 respectively and variable costs are Rs.50, Rs.70, Rs.100 & Rs.125 respectively. Assuming raw material availability is a limiting factor, the correct ranking of the products would be:

8. T Ltd. produces and sells a product. The company expects the following revenues and costs in 2024:

Revenues (400 sets sold @ Rs.600 per product) = Rs. 2,40,000 Variable costs = Rs. 1,60,000

Fixed costs = Rs. 50,000

What amount of sales must T Ltd. have to earn a target net income of Rs.63,000 if they have a tax rate of 30%?

9. XYZ Ltd. has the following alternative planned activity levels: Total cost (Rs.): 1,00,000 (Level E)

1,50,000 (Level F)

2,00,000 (Level G)

No. of units produced: 5,000 (Level E)

10,000 (Level F)

15,000 (Level G)

If fixed overhead remains constant, then fixed overhead cost per unit at Level E is:

10. The higher the actual hours worked:

11. The break-even point of a manufacturing company is Rs.1,60,000. Fixed cost is Rs.48,000. Variable cost is Rs.12 per unit. The PV ratio will be:

12. The cost incurred to ensure that failures do not happen:

13. Cost of Rework is a cost related to:

14. Pareto analysis recognizes:

15. DMIADV is a methodology associated with:

16. PRAISE stands for:

17. Four Ps of Total Quality Management:

18. TQM stands for:

19. There are three core areas to consider when developing the supply chain strategy and business case. These are:

20.                          is defined as the real and permanent reduction in the unit costs of goods manufactured or services rendered without impairing their suitability for the use intended.

21. Which of the following important pillars of Strategic Cost Management determines the company’s comparative position in the industry in terms of performance?

22. A company has forecast sales and cost of goods sold for the coming year as Rs. 25 lakhs and Rs. 18 lakhs respectively. The inventory turnover has been taken as 9 times per year. In case the inventory turnover increases to 12 times and the short-term interest rate on working capital is taken as 10%, what will be the saving in cost?

23. Which of the following is not a term normally used in value analysis?

24. Which of the following is not a secondary activity of Value Chain?

25. Which of the following is not a primary activity of Value Chain?