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Strategic Cost
Management
June 2021 Examination
1. A motor
manufacturing company is planning to switch from traditional costing method to
Activity based costing system in order to make their business run more
efficiently, a meeting has been called with the management to discuss the
application of Activity based costing. You being the Project manager of the
company guide the management by explaining the following: -
a) Difference between
Traditional costing and ABC system.
b) Steps in
implementation of ABC system.
c) Advantages and
Limitations of an ABC system. (10 Marks)
Answer:
INTRODUCTION:
Traditional costing: The costing
system in which an organization allocates the factory overheads based on
consumed production resource's volume. The factory overhead used here is based
on machine hours used or direct labor hours consumed. It is pretty economical
to use the traditional costing system
2. Ms Shweta is the CEO
of an organization manufacturing Butter. There are two primary divisions: One
unit processing the milk from cattle and the other manufacturing butter. The
Milk unit supplies the milk as Raw material to the other unit manufacturing
Butter.
Ms Shweta is confused
about the profitability of the two divisions and appoints you as the Management
accountant.
Please assist her in
understanding the importance of implementing the importance of Transfer pricing
mechanism to determine the appropriate cost.
She would also like to
know the objectives of Transfer pricing and any two methods of Transfer pricing
adopted by organizations. (10 Marks)
Answer:
INTRODUCTION:
Transfer
pricing: The price at which the related parties of a firm transact is
known as transfer pricing. Transfer pricing is used for the individual entities
of an organization. The company treats these entities as separate from the
firm. Large entity firms use this concept of pricing most of the time. These
companies can also report the entities separately for the purpose of tax. The
transfer price is different from the market price. It gives an advantage to the
entity buying it but
3.a. Exotica Ltd
produces 10,000 masks every month. The company’s expenses to 1 unit of the
product are listed below:
Prepare budget for 70%,
80% and 100% utilization of the capacity if details listed above is for 100%
capacity utilization (5 Marks)
Answer:
INTRODUCTION:
Budget: Budget
means estimating the expenses and revenue of an organization during a specified
time in the future. An organization revalues the budget periodically. Besides
organizations, an individual, group of individuals, government, or anyone else
who earns and spends money can prepare the budget.
3.b. Following data
have been extracted from the books of M Ltd. and N Ltd.
You are required to
calculate for both companies:
(i) P/V Ratio
(ii) Fixed Cost
(iii) Break Even Point
(iv) Contribution (5
Marks)
Answer:
INTRODUCTION:
Strategic
Cost Management: It means improving the
strategic position of an organization by reducing the total costs. The firm can
reduce the total costs by finding out which cost positively affects the firm's
strategic position and which cost negatively impact the company's strategic
position. Strategic cost management is a continuous process as the strategy is
uncertain over time.
Dear students, get latest Solved NMIMS assignments and
case study help by professionals.
Mail us at : help.mbaassignments@gmail.com
Call us at : 08263069601
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