For CA-CMA – Final - SJC Institute

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“Live as if you were to die tomorrow. Learn as if you were to live forever.”

Mahatma Gandhi

© SJC Institute LLP

This book shall not be reproduced or shared by photocopying, recording, or otherwise by any unauthorised person without prior written permission from the

publisher. Any trace of such activity may have legal consequences.

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Not for sale

SCMQUIZ

For CA-CMA – Final

Contents

Sl No. Chapter Name Page No.

1 Activity Based Cost Management 1

2 CVP Analysis 3

3 Divisional Transfer Pricing 4

4 Just in Time and Lean System 7

5 Key Factors 9

6 Learning Curve Theory 12

7 Life Cycle Costing 14

8 Linear Programming 16

9 Make or Buy Decisions 17

10 Other Areas of Decision Making & Service Sector 18

11 Performance Evaluation 19

12 Pricing Strategies 21

13 Relevant Costing 23

14 Standard Costing 26

15 Strategic Analysis of Operating Income 30

16 Sub Contracting or Outsourcing 31

17 Target Costing 32

18 Theory of Constraints 34

19 Total Quality Management 37

Activity Based Cost Management

SCM Quiz| 1


UIZ

1. [5 Marks]

Choose the correct phrases.

Traditional costing system tend to charge too great/too small a proportion of overheads to high volume products and too great/too small a proportion of overheads to low volume prod-ucts.

2. [3 Marks]

Fill in the blanks

The major reasons behind ABC are as follows.

a. Activities cause_______

b. Producing products creates demand for the ___________

c. Costs are assigned to a product on the basis of the product’s consumption of the ___________

3. [3 Marks]

Match the following

SL No Costs SL

No Cost Drivers

1 Machine set-up costs (a) Number of machine hours2 Machine operating costs (b) Number of set-ups3 Materials handling and despatch (c) Number of orders executed

4. [4 Marks]

(a) ABC recognises the complexity of modern manufacturing by the use of multiple cost pools.

True False


2 |SCM Quiz

(b) Direct labour hours or direct machine hours are used to trace cost to products occurs with absorption costing, but not with ABC.

True False

(c) The cost driver for quality inspection is likely to be batch size.

True False

(d) ABC is not a system that is suitable for use by service organisations.

True False

Total Marks Obtained :

CVP Analysis

SCM Quiz| 3

CVP Analysis

UIZ

1. [2 Marks]

Fill in the blanks

Breakeven point in units for a multi-product organisation= Total fixed costs divided by _____________________.

Breakeven point in sales revenue for a multi-product organisation= Total fixed costs divided by _____________________.

2. [1 Mark]

Fill in the blanks

Margin of safety (as %) = _________________________.

3. [1 Mark]

Fixed cost ` 60,000, MOS Ratio 40%. Profit = ___________ .

4. [1 Mark]

Fixed cost upto 32,000 units ` 1,50,000. Extra ` 20,000 over 32,000 units

Contribution per unit ` 7.50

Sale units required to earn a profit of ` 1,00,000 = ___________________ .


Divisional Transfer Pricing

4 |SCM Quiz


UIZ

1. [6 Marks]

In a company, Division A makes product A and Division B makes product B. One unit of B needs one unit of A as input. State the unit transfer price to be adapted by the transferring Division A to B in each of the following independent situations.

(i) There is a ready market for A. There are no constraints for production or demand for A and A does not incur any ex-ternal selling cost.

(ii) Supply is more than demand for A. External market re-sorts to distress price for A and this is expected to last for a temporary period. The product cannot be stocked until better times.

(iii) Product A is highly specialised. Internal specifications are too many that B has to only buy from A.

(iv) A has excess capacity. It can transfer any quantity to B. Goal congruence is to be achieved.

(v) A has no spare capacity, has adequate demand in a com-petitive market.

(vi) A has no spare capacity, and has adequate demand in a competitive market. But on units transferred to B, it incurs ` 10 per unit as additional transport cost and ` 10,000 as fixed expenses irrespective of the number of units trans-ferred.

2. [4 Marks]

G is the transferring division and R, the receiving division in a company. R has a demand for 20% of G’s production capacity which has to be first met as per the company’s policy.

State with reason, which division, G or R enjoys more advantage in each of the following inde-pendent situations, assuming no inventory build up.


SCM Quiz| 5

Sl. No. G Transfers to R at Transfer Price equal to G’s Production level External

Demand

(i) Full cost: No markup 60% 40%(ii) Market Price 80% 60%(iii) Marginal Cost 100% 80%(iv) Market Price 100% 90%

A n s w e r

Serial No. Division having more advantage Reason

(i)

(ii)

(iii)

(iv)

3. [1 Mark]

Choose the correct words from those highlighted.

ROI based on profit as a 5 of net assets employed will (a) increase/decrease as an asset gets older and its book value (b) increase/reduces. The could therefore create an (c) incentive/disincentive to investment centre managers in new or replacement assets.

4. [1 Mark]

An investment centre with capital employed of $ 5,70,000 is budgeted to earn a profit of $ 1,19,700 next year. A proposed fixed asset investment of $50,000, not included in the budget at present, will earn a profit next year of $8,500 after depreciation. The company’s cost of capital is 15%. What is the budgeted ROI and residual income for next year, both with and without the investment?


6 |SCM Quiz

ROI Residual Income

Without investmentWith investment

5. [1 Mark]

The use of residual income in performance measurement will avoid dysfunctional decision-mak-ing because it will always lead to the correct decision concerning capital investment.

True False

6. [1 Mark]

To prevent dysfunctional transfer price decision-making, profit centres must be allowed to make autonomous decision

True False

7. [4 Marks]

Fill in the blanks

Ideally, a transfer price should be set that enable the individual divisions to maximise their prof-its at a level of output that maximises_______________________

The transfer price which achieves this is unlikely to be a __________________ transfer price or a ___________________ transfer price.

If optimum decisions are to be taken, transfer prices should incorporate_______________

8. [1 Mark]

Which of the following is not a disadvantage of using market value as a transfer price?

A. The market price might be a temporary one.

B. Use of market price might act as a disincentive to use up spare capacity.

C. Many products do not have an equivalent market price.

D. The eternal market might be perfect.


Just in Time and Lean System

SCM Quiz| 7


UIZ

1. [4 Marks]

State whether and how the following situations are possible or not on introducing a JIT system or production in an automobile factory

(i) Increase cost of inspection at the production shop floor where suppliers’ components have been delivered.

(ii) Increased in raw materials (purchase) cost

(iii) Reduction in the variety of output produced

(iv) Increase in computerisation cost

Without copying the situation, present your answer in the following format

Sl No. Possibility Yes/No


8 |SCM Quiz

2. [1 Mark]

The standard norm for world class performance for overall equipment efficiency is __________

3. [10 Marks]

True or False

(i) JIT considers setup time as productive time

(ii) Backflush costing reports inventory accurately

(iii) TQM and TPM complement one another

(iv) Performance ratio is same as efficiency ratio

(v) BPR is a costly activity

(vi) Processing time is a waste under lean system

(vii) Six sigma works well even with intangible results

(viii) DMAIC was developed by Motorola

(ix) Corrective maintenance implies maintenance of machineries as and when required

(x) JIT production system is independent of JIT purchase system.

4. [4 Marks]

Choose the correct approach for the following – DMAIC / DMADV

(i) Customer behaviour are changing

(ii) Technology is stable

(iii) Creating a real time system

(iv) Continuous improvement in existing process


Key Factors

SCM Quiz| 9

Key Factors

UIZ

1. [2 Marks]

Fill in the blanks

The shadow price of scarce resources indicates the amount by which contribution would ________________ if an organisation were deprived of one unit of the resource. The shadow price only applies while the extra unit of resource can be obtained at its ___________________ cost.

2. [1 Mark]

Choose the correct word from those highlighted.

When there is just one limiting factor, the product with the biggest/smallest contribution earning ability per unit of limiting factor should be produced first.

3. [1 Mark]

Which of the following is not the example of limiting factor?

A. Sales demand

B. Materials

C. Machine time

D. Profit

4. [4 Marks]

Rohni Steel Company produces three grades of steel - super, good and normal grade. Each of these products (Grades) has high demand in the market and company is able to sell as much as it can produce these products.

The furnace operation is a bottleneck in the process. The company is running at 100 % of capac-ity. The company wants to improve its profitability. The variable conversion cost is ` 100 per

Key Factors

10 |SCM Quiz

process hour. The fixed cost is ` 48,00,000. In addition, the Cost Accountant was able to deter-mine the following information about the three products (grades):

Super Grade Good Grade Normal Grade

Budgeted Units Produced 6,000 6,000 6,000Total process hours per unit 12 12 10

Furnace hours per unit 6 5 4

Unit Selling Price ` 3,600 ` 3,400 ` 3,000Direct Material cost per unit ` 2,100 ` 1,900 ` 1,720

The furnace operation is part of the total process for each of these three products. Thus furnace hours are the part of process hours.

Required(i) DETERMINE the unit contribution margin for each product . [1](ii) Give an ANALYSIS to determine the relative product profitability, assuming that the furnace

is a bottleneck. [1](iii) Managements wishes to improve profitability by increasing prices on selected products. At

what price would super and good grades need to be offered in order to produce the same relative profitability as normal grade steel? [2]

A n s w e r

(i) Contribution per unit Super Good Normal

Key Factors

SCM Quiz| 11

(ii) Relative Profitability Super Good Normal

(iii) Price for same profitability

Super Grade :

Good Grade :


Learning Curve Theory

12 |SCM Quiz


UIZ

1. [4 Marks]

State whether and why the following are valid or not for learning curve theory:

Valid / Invalid

(i) Learning curve theory applies to a division of a company which is fully automated.

(ii) Learning curve theory helps in setting standards.

(iii) Learning curve helps in pricing decisions.

(iv) Experienced workmen are more prone to learning effect.

2. [2 Marks]

For a Learning Curve percentage of 72%, the time to be taken to complete the 4th unit of a 12-unit job involved in the assembly line, if the initial unit requires 80 hours, will be

(a) 43.50 hrs

(b) 41.47 hrs

(c) 46.71 hrs

(d) 40.95 hrs

3. [2 Marks]

S Ltd. manufactures a product whose time for the first unit is 1000 hours. It experience a learn-ing curve of 80%, What will be the total time taken in hours for unit 5 to 8 ?

(A) 4096 hours

(B) 3200 hours

(C) 1536 hours

(D) 2000 hours


SCM Quiz| 13

4. [2 Marks]

An operation has a 90% learning curve and the first unit produced took 28 minutes. The labour cost is ` 20 per hour. How much should the second unit cost?

(a) ` 9.80

(b) ` 7.60

(c) ` 8.40

(d) ` 6.60

5. [2 Marks]

S Ltd. recently sold an order of 50 units having the following costs:

`

Direct materials 1,500Direct labour (1000 hours @ ` 8.50) 8,500Variable overhead (1000 hours @ ` 4.00) 4,000Fixed overhead 1,400

15,400

The company has now been requested to prepare a bid for 150 units of the same product.

If an 80% learning curve is applicable, S. Ltd’s total cost on this order would be

(A) ` 38,500

(B) ` 37,950

(C) ` 26,400

(D) ` 31,790


Life Cycle Costing

14 |SCM Quiz

Life Cycle Costing

UIZ

1. [6 Marks]

Examine the Validity of following statements:

Valid / Invalid

(i) In the introduction stage, usual marketing strategy is to strengthen the supply chain relationships to make the product easily accessible by target customers.

(ii) In the introduction stage, competitors will purchase the product to carry out reverse engineering and understand how the product works, so that they can develop their own similar, but different product.

(iii) In the introduction phase, the firm will seek to avoid this competition by maintaining its selling price at the end of the introduction stage.

(iv) In the growth stage, if the product cannot be differentiated in other ways, the firm may need further reductions in selling price to maintain growth.

(v) In the maturity stage, firms are tempted to engage in costly promo-tional price wars to win away market share from competitors.

(vi) In the decline stage, failing sales may induce firms to slash marketing expenditure. Brand loyalty will be exploited to create profits.

2. [2 Marks]

(i) Life cycle costing is the profiling of costs over a product’s production life.

True False

(ii) Life cycle costing is particularly useful for products with a short expected life cycle.

True False

Life Cycle Costing

SCM Quiz| 15

3. [1 Mark]

When are the bulk of a product’s life cycle costs normally determined?

A. At the design/development stage

B. When the product is introduced in the market

C. When the product is in its growth stage

D. On disposal

4. [1 Mark]

Indicate which of the following items would be included in the calculation of life cycle costs of a product.

A. Planning and concept design costs

B. Preliminary and detailed design costs

C. Testing costs

D. Production costs

E. Distribution and customer service costs


Linear Programming

16 |SCM Quiz

Linear Programming

UIZ

1. [2 Marks]

Put the following steps in the graphical approach to linear programming in the correct order.

Draw a graph of the constraints Establish constraintsDefine variables Construct objective functionEstablish the feasible region Determine optimal product mix

2. [1 Mark]

Unbounded maximisation objective problems can be solved – True / False

3. [1 Mark]

Graphical Solution can be used for solving problems of 3 variables.


Make or Buy Decisions

SCM Quiz| 17

Make or Buy Decisions

UIZ

1. [1 Mark]

What are the relevant cost in make or buy decision?

A. The sum of the relevant costs of the two options

B. The opportunity costs associated with the decision

C. The differential costs between the two options

D. The incremental costs of the two options.

2. [2 + 1 = 3 Marks]

You are the management auditor of XYZ ltd. The Managing Director of the company seeks your advice on the following problem:

The XYZ Ltd produces a variety of products each having a number of component parts. Product B takes 5 hours to produce on a machine no. 99 working at full capacity. Product B has a selling price of ` 50 and a marginal cost of ` 30 per unit. A – 10 a component part could be made on the same machine in 2 hours for a marginal cost of ` 5 per unit. The supplier’s price is ` 12.50 per unit. (a) Should the company make or buy A -10? Assume that machine hour is available in limited

supply. (b) Would your answer differ if there is a spare capacity?


Other Areas of Decision Making & Service Sector

18 |SCM Quiz

Other Areas of Decision Making & Service Sector

UIZ

1. [1 Mark]

In a decision about whether or not to sell a joint product at the split-off point or after further processing joint costs are relevant. – True / False

2. [1 Mark]

An export offer should be given priority over domestic sales – True / False

3. [1 Mark]

The preferred cost unit in a service industry is __________________________ (single cost unit / composite cost unit).


Performance Evaluation

SCM Quiz| 19


UIZ

1. [8 Marks]

Analyse whether goal has been achieved or not

Balanced Scorecard Report

KPI Goal Actual Goal Achieved (Yes or No)

Gross margin growth percentage 15% 16%

Core product line profit as a percentage of core product line sales 5% 4.4%

Number of Customers 15,000 15,600

Percentage of repeat customers 83% 81%

Average replacement time (number of days) 2.0 1.5

Number of plant accidents 0 2

Employees satisfaction rating (1-5, with 1 being the most satisfied) 1 1.2

Employee turnover rate (Number of employees leaving/ Average number of total employees) 2% 3%


20 |SCM Quiz

2. [8 Marks]

Identify the perspectives of each of bellow objectives as per balanced score card.

Improve post-sales service

Increase gross margin

Increase plant safety

Improve employee morale

Increase number of customers

Increase customer retention

Improve employee job satisfaction

Increase profitability of core product line

3. [24 Marks]

Calculate the total points for each of the warehouse – SG, HK, NY and NZ if one point is awarded for achieving the target.

Courier Delivery Services and Customer Care

Particulars Target % ActualSG % HK % NY % NZ %

Measure (% of total):Late collection of couriers 3.00 2.85 3.15 2.70 3.60Misdirected couriers 6.00 6.30 5.85 4.95 7.65Delayed response to complaints 1.50 1.05 1.35 1.20 1.80Delays due to vehicle breakdown 1.50 1.65 2.10 0.45 3.00Measure (% of revenue):Lost items 1.50 0.90 1.35 1.20 2.85Damaged items 3.00 2.25 3.60 2.25 2.70


Pricing Strategies

SCM Quiz| 21

Pricing Strategies

UIZ

1. [4 Marks]

State the Market Entry Strategies of pricing applicable in the following situations:

Situation Pricing Strategy

(i) Inelastic Demand

(ii) Mass Production

(iii) Assured Profit

(iv) Elastic Demand

2. [2 + 8 = 10 Marks]

(i) Name any two competition-based pricing methods.

(ii) RECOMMEND the Pricing Strategy to be adopted with reference to the following situations. You are not required to explain the reasons for your answer.

a. Star Coffee Shop follows the practice of keeping the price of its coffee or service artificially high in order to encourage favourable perceptions among buyers, based solely on the price.

Pricing Strategies

22 |SCM Quiz

b. Sky TV gave away their satellite dishes for free in order to set up a market for them.

c. Princeton Hotels Ltd. follows a competitive pricing method under which it tries to keep its price at an average level charged by the Industry.

d. Eddisson Enterprises has piled up stocks in large quantities and the market price has fallen.

e. Acqua LLP follows a new product pricing strategy through which company makes profitable sales by selling out few units.

f. X Ltd. produces Product X a revolutionary product and as a reward for innovation and for taking first initiative which pricing strategy should X Ltd. adopt?

g. An established company has recently entered the stationery market segment and launched quality paper for printing at home and office.

h. D is a perishable item, with more than 80% of its shelf life is over.

3. [2 Marks]

Name two pricing practices where non cost reasons are important while setting the price


Relevant Costing

SCM Quiz| 23

Relevant Costing

UIZ

1. [5 Marks]

Pick out from each of the following items, costs that can be classified under committed fixed costs or discretionary fixed costs.

(a) Annual increase of salary and wages of administrative staff by 5% as per agreement.

(b) New advertisement for existing products is recommended by the Marketing Department for achieving sales quantities that were budgeted for at the beginning of the year.

(c) Rents paid for the factory premises for the past 6 months and the rents payable for the next six months. Production is going on in the factory.

(d) Research costs on a product that has reached maturity phase in its life cycle and the research costs which may be needed on introducing a cheaper substitute into the market for facing competition.

(e) Legal consultancy fees payable for patent rights on a new product. Patent rights have been applied for.

2. [4 Marks]

ANZB Financial Services Limited is an Indian banking and financial services company head-quartered in Chennai, Tamil Nadu. Apart from lending to individuals, the company grants loans to micro, small and medium business enterprises. Listed below are several costs incurred in the loan division of ANZB Financial Services Limited.

Relevant Costing

24 |SCM Quiz

(i) Remuneration of the loan division manager.

(ii) Cost of Printer Paper, File Folders, View Binders, Ink, Toner & Ribbons used in the loan division.

(iii) Cost of the division’s MacBook Pro purchased by the loan division man-ager last year.

(iv) Cost of advertising in business news-paper by the bank, which is allocated to the loan division.

Cost Classification

Controllable by the loan division manager

Direct cost of the loan division

Sunk Cost

Uncontrollable by the loan division manager

Indirect Cost of the loan division

Out of Pocket Cost

Required

For each Cost, indicate which of the above mentioned Cost Classification best describe the cost.

Note

More than one classification may apply to the same cost item.

3. [4 Marks]

State the type of cost in the following cases :

Cases Type of Cost

(i) Cost associated with the acquisition and conversion of material into finished product.

(ii) Cost arising from a prior decision which cannot be changed in the short run.

(iii) Increase in cost resulting from selection of one alternative in-stead of another.

(iv) Rent paid for a factory building which is temporarily closed.

Relevant Costing

SCM Quiz| 25

4. [4 Marks]

Fill in the relevant costs in the four boxes in the diagram below.

Are the materials already in stock, or

contracted to buy in a purchase

agreement?

Are the materials regularly used,

and replaced with fresh supplies

when stocks run out?

Relevant cost =

Relevant cost = Do the materials have an alternate

use, or would they be scrapped if

not used?

Relevant cost = Relevant cost =

Yes No

Yes No

Scrapped if not used Other use available


Standard Costing

26 |SCM Quiz

Standard Costing

UIZ

1. [4 Marks]

Complete the table below that shows a possible response to each of the traditional perfor-mance measures and a consequence of that response from the given list

Measurement Response Consequence of action

Purchase price vari-ance

Buy in greater bulk to reduce unit price

Labour efficiency variance Encourage greater output

Cost of scrap Rework items to reduce scrap

Scrap factor included in standard costs

supervisor aims to achieve actual scrap = standard scrap

List of actions :

1. Quality and reliability of delivery times ignored

2. Possibly excess stocks of the wrong products

3. Production flow held up by networking

4. No motivation to get it right first time

2. [2 Marks]

Fill in the blanks

The material price variance is the difference between __________________________ and ____________________.

The material usage variance is the difference between __________________________ and ____________________.

Standard Costing

SCM Quiz| 27

3. [4 Marks]

True / False

(a) If closing inventories of raw materials are valued at standard cost, the material price vari-ance is calculated on material purchase in the period

(b) The sales volume variance is valued at the standard selling price per unit.

(c) The total yield variance in quantity is zero

(d) If a planning efficiency variance is valued at an original standard rate, the planning rate variance is valued at the original efficiency level

4. [1 Mark]

Are variable production overhead variances based on hours paid or hours worked?

5. [6 Marks]

Match the following causes of variance to the appropriate variance.

Variances Causes

a Favourable labour efficiency 1 Inexperienced staff in the purchasing de-partment

b Adverse sales volume 2 Materials of higher quality than standardc Adverse material price 3 Unexpected slump in demandd Adverse selling price 4 Production difficultiese Adverse fixed production overhead vol-

ume5 Strike

f Idle time 6 Poor machine maintenance

6. [4 Marks]

Identify the three pairs of interrelated variances.

a Adverse selling price e Adverse materials priceb Favourable labour rate f Favourable materials usagec Adverse materials usage g Adverse sales volumed Favourable sales volume h Idle time

Standard Costing

28 |SCM Quiz

7. [1 Mark]

Choose the appropriate words from those highlighted.

The materials mix variance is calculated as the difference between the standard/actual total quantity used in the standard/actual mix and the standard/actual quantities used in the standard/actual mix, valued at standard/actual costs.

8. [1 Mark]


The materials yield variance is calculated as the difference between the standard/actual quan-tity input for standard/actual output, and the standard/actual total quantity input (in the standard/actual mix), valued at standard/actual costs.

9. [1 Mark]


The sales mix variance is calculated as the difference between the standard/actual quantity sold in the standard/actual mix and the standard/actual quantity sold in the standard/actual mix, valued at standard/actual margin per unit.

10. [1 Mark]


The sales quantity variance is calculated as the difference between the standard/actual sales volume in the budgeted proportions and the budgeted sales volumes, multiplied by the stand-ard/actual margin.

11. [1 Mark]

A Planning variance compares what with what?

12. [2 Marks]

A standard material cost is revised and the standard quantity of the material required per unit is reduced in the revised standard, compared with the original standard. At the same time, stand-ard rate per unit of material is increased in the revised standard.

a. The material price planning variance is _________________(favourable/adverse)

b. The material usage planning variance is _________________(favourable/adverse)

Standard Costing

SCM Quiz| 29

13. [2 Marks]

The standard labour rate per hour in an original standard cost is ` 10. The standard costs is revised, and the revised labour rate is ̀ 12. The labour efficiency variance in hours is 2,000 hours adverse. What is the labour efficiency operational variance in ̀ ? __________________________

A sales volume operational variance is sometimes called a __________________.

14. [2 Marks]

AB Ltd. uses standard cost system. The following information pertains to direct labour for Prod-uct X for the month of March, 2019:

Standard rate per hour ` 8

Actual rate per hour ` 8.40

Standard hours allowed for actual production 2000 hours

Labour Efficiency variance ` 1,600 (Adverse)

What were the actual hours worked?

(A) 1,800

(B) 1,810

(C) 2,200

(D) 2,190

15. [2 Marks]

In a factory where standard costing system is followed, the production department consumed 1100 kgs of a material @ ` 8 per kg for product X resulting in material price variance of ` 2200 (Fav) and material usage variance of ` 1000 (Adv). What is the standard material cost of actual production of product X?

(a) 11,000

(b) 20,000

(c) 14,000

(d) 10,000


Strategic Analysis of Operating Income

30 |SCM Quiz

Strategic Analysis of Operating Income

UIZ

1. [1 Mark]

Select the organisations where customer profitability analysis would be useful

(i) School

(ii) Bank

(iii) Transportation

(iv) Steel industry

(v) Publishing House

2. [5 Marks]

(a) Customer lifetime value is the present value of future cash outflows – True / False

(b) A company should thrive for keeping as many demanding customers – True / False

(c) Market price effect is included in product differentiation effect – True / False

(d) Cost leadership implies productivity – True / False

(e) Head Office cost should be charged to determine the product profitability. – True / False

3. [1 Mark]

Direct product profitability is useful for __________________ organisation.


Sub Contracting or Outsourcing

SCM Quiz| 31

Sub Contracting or Outsourcing

UIZ

1. [5 Marks]

Choose the correct word(s) from those highlighted.

In a situation where a company must subcontract work to make up a short fall in its own in-house capabilities, its total cost will be minimised if those units bought out from a subcontractor/made in-house have the lowest/highest extra variable/fixed cost of buying out/making in house per unit of scarce resources/material.


Target Costing

32 |SCM Quiz

Target Costing

UIZ

1. [5 Marks]

Identify Value Adding / Non-value Adding activities.

(a) Polishing furniture used by a system engineer in a software firm.

(b) Maintenance by a software Co. of receivable management software for a banking company.

(c) Painting of Pencils manufactured by a Pencil Co.

(d) Customer’s Computer keyboard cleaning by a Computer Repair Centre.

(e) Providing brake adjustments in cars for repairs by a Car Service Station.

2. [8 Marks]

Classify the following items under the more appropriate category: Category (CC) – Cost Control Or Category (CR) – Cost Reduction:

Sl. No. Item Category CC/ CR

(i) Costs exceeding budgets or standards are investigated

(ii) Preventive function

(iii) Corrective function

(iv) Measures to standardize for increasing productivity

Target Costing

SCM Quiz| 33

(v) Provision of proper storage facilities for materials

(vi) Continuous comparison of actual with the standards set

(vii) Challenges the standards set

(viii) Value analysis

3. [2 Marks]

Two identical companies, A and B manufacture and sell an identical product with the same cost structure. The selling price is ` 10 per unit and the variable cost is ` 6 per unit – same in both cases. The capacity is 25,000 units in both companies and the Fixed Overhead for both A and B are ` 35,000. Both the companies are aiming at a year end profit of ` 15,000.

The year is almost coming to close. Company A has already sold 10,000 units and can make and sell additional 15,000 unit while Company B has already made and sold 20,000 units. Fortu-nately at this junction, Company C wants 5,000 units of the same product. It invites competitive quotations from Co. A and Co. B

Both Company A and B are keen to get the order from C.

Which Company, in your opinion, has the better chance of getting the offer from Company C?

Reasons

Company A

Company B


Theory of Constraints

34 |SCM Quiz


UIZ

1. [4 Marks]

Classify the following items under three measures used in the theory of constraints:

(i) Research and Development Cost

(ii) Rent / utilities

(iii) Raw materials used for production

(iv) Depreciation

(v) Labour cost

(vi) Stock of raw materials

(vii) Sales

(viii) Cost of equipments and buildings

Three Measures Classification

2. [1 Mark]

A factory has a key resource (bottleneck) of Facility A which is available for 31,300 minutes per week. The time taken by per unit of product X and Y in Facility A are 5 minutes and 10 minuted respectively. Last week’s actual output was 4750 units of Product X and 650 units of Product Y. Actual factory cost was ` 78,250. The throughput cost for the week would be :

(A) ` 75,625

(B) ` 76,225

(C) ` 77,875

(D) ` 79,375

Reference What’s New


SCM Quiz| 35

3. [6 Marks]

Fill in the blanks by choosing the words from the below list:

a. The theory of constraints is an approach to production management which aims to maximise___________________ less __________________. It focuses on factors such as _________________________ which act as _______________________.

b. Throughput contribution = _______________________ minus _____________________

c. TAR ratio = _______________________ per factory hour ÷ __________________per facto-ry hour.

bottlenecks throughput material cost constraintssales revenue factory cost

4. [2 Marks]

The following details relate to three services offered by DSF

V A L

` per service ` per service ` per serviceSelling price of services 120 170 176Direct labour 20 30 20Variable overhead 40 56 80Fixed overhead 20 32 40Total Cost 80 118 140Profit 40 52 36

All three services uses the same direct labour, but in different quantities.

In a period when the labour used on these services is in short supply, the most and least profit-able use of labour is: (choose the correct option)

Most profitable Least profitable

Option A L VOption B L AOption C V AOption D A L


36 |SCM Quiz

5. [1 Mark]

The theory of constraints is an approach top production management, which aims to maximise sales revenue less:

A. Variable overhead costs

B. All production costs

C. Material costs

D. Material and variable overhead costs

6. [1 Mark]

Throughput accounting policy is to hold zero inventories throughout all operations

(i) True

(ii) False


Total Quality Management

SCM Quiz| 37


UIZ

1. [4 Marks]

Quality products can be determined by using a few of the dimensions of quality. Identify the following under the appropriate dimension:

Sl. Quality of Products (Examples) Dimension

(i) Consistency of performance over time

(ii) Primary product characteristics

(iii) Exterior finish of a product

(iv) Useful like of a product

2. [15 Marks]

Classify the costs into cost of quality categories

Re-inspecting Rework

Training

Warranty Repairs

Line Inspection


38 |SCM Quiz

Downtime

Design Engineering

Product Testing Equipment

Litigation cost to defend allegations of defective products

Recording and reporting defects

Supplier evaluation

Storing and disposing waste

Product liability insurance

Expediting

Procedure verification

Recalls


SCM Quiz|

UIZ SCORE CARD

Chapter Marks Obtained

Total Marks

1 Activity Based Cost Management

2 CVP Analysis

3 Divisional Transfer Pricing

4 Just in Time and Lean System

5 Key Factors

6 Learning Curve Theory

7 Life Cycle Costing

8 Linear Programming

9 Make or Buy Decisions

10 Other Areas of Decision Making & Service Sector

11 Performance Evaluation

12 Pricing Strategies

13 Relevant Costing

14 Standard Costing

15 Strategic Analysis of Operating Income

16 Sub Contracting or Outsourcing

17 Target Costing

18 Theory of Constraints

19 Total Quality Management

GRAND TOTAL

Documents

For CA-CMA – Final - SJC Institute