Final PN-16 Strategic Cost Management Quiz 2

1. Producing more non-bottleneck output:

2. Ankit Ltd., operates throughput accounting system. The details of product A per unit are as under: Selling Price: Rs. 75

Material Cost: Rs. 30 Conversion Cost: Rs. 20

Time to bottleneck resources: 10 minutes

What is the throughput contribution per bottleneck resource per hour?

3. Cost per unit under throughput accounting and marginal costing are mainly different because:

4. Glasso, a manufacturer of large windows, is experiencing a bottleneck in its plant. Setup time at one of its workstations has been identified as the culprit. A manager has proposed a plan to reduce setup time at a cost of Rs. 7,20,000. The change will result in 800 additional windows. The selling price per window is Rs. 18,000, direct labour costs are Rs. 3000 per window, and the cost of direct materials is Rs. 7,000 per window. Assume all units produced can be sold. The change will result in an increase in the throughput contribution of ………………

5. JIT relates to:

6. Which of the following is not suitable for a JIT production system?

7. At KL Company, cost of personnel department has always been charged to production department based upon number of employees. Recently, opinion gathered from the department managers indicate that number of new hires might be better predictor of personnel cost,

Total personnel department cost are Rs. 2,00,000. Department

A             B              C

Number of employees                                                30      270    100

The number of new hires                                          8          12        5

If number of new hires is considered the cost driver, what amount of cost will be allocated to Department A?

8. P operates an activity-based costing (ABC) system to attribute its overhead costs to cost objects. In its budget for the year ending 31st March 2022, the company expected to place a total of 2,895 purchase orders at a total cost of Rs. 1,10,010. This activity and its related costs were budgeted to occur at a constant rate throughout the budget year, which is divided into 13 four- week periods. During the four-week period ended 30 June 2021, a total of 210 purchase orders were placed at a cost of Rs. 7,650. The over- recovery of these costs for the four-week period was:

9. Process of Cost allocation under Activity Based Costing is:

10. ABC Management:

11. Cost Driver is:

12. 120 units of semi-conductors are required to be sold to earn a profit of Rs.1,00,000 in a monopoly market. The fixed cost for the period is Rs.80,000. The contribution in the monopoly market is as high as 3/4th of its variable cost. Determine the target selling price per unit.

13. A company has the capacity of producing 80000 units and presently sells 20000 units at Rs. 100 each. The demand is sensitive to selling price and it has been observed that with every reduction of Rs. 10 in selling price the demand is doubled. What should be the target cost if the demand is doubled at full capacity and profit margin on sale is taken at 25%?

14. The product of XYZ company is sold at a fixed price of Rs. 1,500 per unit. As per company’s estimate, 500 units of the product are expected to be sold in the coming year. If the value of investments of the company is Rs. 15 lakhs and it has a target ROI of 15%, the target cost would be:

15. Target costing is the answer to:

16. A Ltd. Plans to introduce a new product and issuing the target cost approach. Projected sales revenue is Rs. 90,00,000 (Rs. 45 per unit) and target costs are Rs. 64,00,000. What is the desired profit per unit?

17. MN paid Rs. 5,30,000 for a machine used to powder wheat. The machine can be sold for Rs. 1,30,000. The sale value of wheat is Rs. 8,00,000 and its variable cost is Rs. 4,00,000. The opportunity cost of producing wheat flour is:

18. In cost plus pricing, the markup consist of:

19. AP Products sells product A at a selling price of Rs.40 per unit. AP’s cost per unit based on the full capacity of 5,00,000 units is as follows Direct Materials - Rs.6

Direct Labour - Rs.3

Indirect Manufacturing Expense 60% of which is fixed - Rs.10

A one-time only special order offering to buy 50,000 units was received from an overseas distributor. The only other costs that would be incurred on this order would be Rs. 4 per unit for shipping. AP has sufficient existing capacity to manufacture the additional units. In negotiating a price for the special order, AP should consider that the minimum selling price per unit should be:

20. TM Company can make 100 units of a necessary component part with the following costs:

Direct Materials - Rs.60,000 Direct Labour - Rs.10,000 Variable Overhead - Rs.30,000 Fixed Overhead - Rs.20,000

TM Company can purchase the component externally for Rs.1,10,000 and only Rs.5,000 of the fixed costs can be avoided, what is the correct make-or-

buy decision?

21. A company has 2000 units of an obsolete item which are carried in inventory at the original purchase price of Rs. 30,000. If these items are reworked for Rs.10,000, they can be sold for Rs. 18,000. Alternatively, they can be sold as scrap for Rs.3,000 in the market. In a decision model used to analyse the reworking proposal, the opportunity cost should be taken as:

22. A factory can make only one of the three products X, Y or Z in a given production period. The selling price per unit of Product X, Y & Z is Rs.1,500, Rs.1,800 & Rs.2,000 respectively and variable cost per unit is Rs.700, Rs.950 & Rs.1,000 respectively. Assume that there is no constraint on resource utilization or demand and similar resources are consumed by X,Y and Z. The opportunity cost of making one unit of Z is:

23. The shadow price of skilled labour for SD Ltd. is currently Rs. 10 per hour. What does this mean?

24. X Ltd. has 1000 units of an obsolete item which are carried in inventory at the original price of Rs.50,000. If these items are reworked for Rs. 20,000, they can be sold for Rs. 36,000. Alternatively, they can be sold as a scrap for Rs. 6,000 in the market. In a decision model used to analyse the reworking proposal, the opportunity cost should be taken as:

25. If project A has a net present value (NPV) of Rs.30,00,000 and project B has an NPV of Rs.50,00,000, what is the opportunity cost if project B is selected?