\n| Budgeted Profit<\/td>\n | \u20b9 1,50,000<\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n The Management of Royal Ltd. is not happy with the budgeted profit as it is almost equal to the previous year\u2019s profit. Therefore, it asks the Panel to prepare a budget to earn at least a profit of \u20b9 3,00,000. To achieve the target profit, the Panel reports back with the following suggestions:
\n(a) The unit selling price should be raised to \u20b9 55.
\n(b) The sales volume should be increased by 5,000 units.
\n(c) To attain the above said increase in sales, the Royal Ltd. should spend \u20b9 40,000 for advertising.
\n(d) The production time per unit should be reduced.
\n(e) To win the acceptance of the workers in this regard the hourly rate should be increased by \u20b9 3 per unit besides an annual group bonus of \u20b9 30,000.
\n(f) There is no change in the amount and rates of other expenses. The Royal Ltd. has sufficient production capacity.
\nAs the implementation of the above proposal needs the acceptance of the work force to increase the speed of work and to reduce the production time per unit, the Board wants to know the extent of reduction in per unit production time.
\nRequired:
\n(1) Calculate the target production time per unit and the time to be reduced per unit.
\n(2) Identify the other problems that may arise in production due to decrease in unit production time and also suggest the remedial measures to be taken.
\n(3) State the most suitable situation for the adoption of Target Costing [Nov. 2018] (14 + 4 + 2 Marks)
\nAnswer:
\n(1) Target Production Time per unit and Time to be Reduced per unit<\/p>\n \n\n\n| Alternative<\/td>\n | 1<\/td>\n | 2<\/td>\n | 3<\/td>\n<\/tr>\n | \n| Target Production Time per unit<\/td>\n | (\u20b9 12 + \u00a0\u20b9 2 \u00d7 hrs.) \u00d7 30,000 units = \u20b9 5,10,000 Hrs. = 2.50<\/td>\n | <\/td>\n | <\/td>\n<\/tr>\n | \n| Time to be reduced per unit<\/td>\n | = 3 hrs. – 2.50 hrs.
\n= 0.50 hrs.\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0 ‘<\/td>\n | <\/td>\n | <\/td>\n<\/tr>\n | \n| Verification<\/td>\n | Labour Rate per unit = \u20b9 12<\/td>\n | <\/td>\n | <\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n ![\"Cost](\"https:\/\/gstguntur.com\/wp-content\/uploads\/2021\/10\/GST-Guntur.png\") <\/p>\n
\n\n\n| Alternative 1<\/td>\n | Alternative 2<\/td>\n | Alternative 3<\/td>\n<\/tr>\n | \nTarget Production Time per unit
\n(\u20b9 12 + \u20b9 2 \u00d7 hrs.) \u00d7 30,000 units
\n= \u20b9 5,10,000 Hrs. = 2.50<\/td>\n | Target Production Time per unit
\n(\u20b9 3 + \u20b9 3 + \u20b9 2) \u00d7 hrs. \u00d7 30,000 units
\n= \u20b9 5,10,000 Hrs. = 2.125<\/td>\n | Target Production Time per unit
\n[(\u20b9 9 + \u20b9 3)\/3 + \u20b9 2] \u00d7 hrs. \u00d7 30,000 units
\n= \u20b9 5,10,000 Hrs. = 2.833<\/td>\n<\/tr>\n | \nTime to be reduced per unit
\n= 3 hrs.- 2.50 hrs.
\n= 0.50 hrs.Verification Labour Rate per unit = \u20b9 12<\/td>\n | Time to be reduced per unit
\n= 3 hrs. – 2.125 hrs.
\n= 0. 875 hrs.Verification Labour Rate per unit
\n= \u20b9 6 \u00d7 2.125 hrs.
\n= \u20b9 12.75<\/td>\n | Time to be reduced per unit
\n= 3 hrs. – 2.83 hrs.
\n= 0. 17 hrs.Verification Labour Rate per unit
\n= \u20b9 4 \u00d7 2.83 hrs.
\n= \u20b9 11.32<\/td>\n<\/tr>\n<\/tbody>\n<\/table>\nWorkings
\nStatement Showing Target Cosi (Direct Labour and Variable Overhead)<\/p>\n \n\n\n| Particulars<\/td>\n | Amount (\u20b9)<\/td>\n<\/tr>\n | \n| Target Sales (\u20b9 55 \u00d7 30.000 Units)<\/td>\n | 16,50,000<\/td>\n<\/tr>\n | \n| Less: Target Profit<\/td>\n | 3,00,000<\/td>\n<\/tr>\n | \n| Less: Direct Material Cost (\u20b9 9 \u00d7 30,000 Units)<\/td>\n | 2,70,000<\/td>\n<\/tr>\n | \n| Less: Budgeted Fixed Costs<\/td>\n | 5,00,000<\/td>\n<\/tr>\n | \n| Less: Proposed Advertising<\/td>\n | 40,000<\/td>\n<\/tr>\n | \n| Less: Proposed Annual Group Bonus<\/td>\n | 30,000<\/td>\n<\/tr>\n | \n| Target Cost (Variable Overhead and Direct Labour) for 30,000 units<\/td>\n | 5,10,000<\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n (i) Problem
\nThe target-costing method is applicable particularly for repetitive manufacturing. It should however be recognised that some products often bear a high degree of repetition and that there often are considerable repetitions where reduction targets could come into play as a framework for improving design. Working under pressure to finish new design assignments in a short time .may take development resources away from efforts to optimise or re-engineer production ; processes. If approaching product design as an activity to be optimised independently there is a risk that target costing may not succeed to j satisfactorily addressing overall performance, so in short decrease in unit production time may lead to unwanted pressure on design and 5 its implementation stage.<\/p>\n Remedial Measures
\nAs a remedial action organisation should retain strong control over the design teams headed by a good team leader. This person must have an exceptional knowledge of the design process, good interpersonal skills, and a commitment to staying within both time and cost budgets for a design project. If the time is too short even an organisation may reject a project for the time being. Later, it can be tried out with new cost reduction methods or less expensive materials to achieve target cost and control overall production activities.<\/p>\n (ii) Target costing is most useful in situations where the majority of product costs are locked in during the product design phase. This is the case for most manufactured products, but few services. In the services area, such as consulting, the bulk of all activities can be reconfigured for cost reduction during the \u201cproduction\u201d phase, which is when services are being provided directly to the customer. In the services environment, the \u201cdesign team\u201d is still present but is more commonly concerned with streamlining the activities conducted by the employees providing the service, which can continue to be enhanced at any time, not just when the initial services process is being laid out.<\/p>\n Question 2.
\nXstream Industries Ltd. manufactures standard heavy duty steel storage racks for industrial use. Each storage rack is sold for \u20b9 750 each. The company produces 10,000 racks per annum. Relevant cost data per annum are as follows:
\n![\"Cost](\"https:\/\/gstguntur.com\/wp-content\/uploads\/2023\/04\/Cost-Management-Techniques-\u2013-CA-Final-SCMPE-Study-Material-1.png\")
\nThe actual and budgeted operating levels are the same. Actual and standard rates of material procurement and hourly labour rate are also the same. Any variance in cost is solely on account of difference in the material usage and hours required to complete production. Aggressive pricing from competitors has driven down sales. A comparable rack is available in the market for \u20b9 675 each. Vishal, the marketing manager has determined that in order to maintain the company\u2019s existing market share of 10,000 racks, Xstream Industries must reduce the price of each rack to \u20b9 675. Required
\n(i) CALCULATE the current cost and profit per unit. IDENTIFY the non-value added activities in the production process.
\n(ii) CALCULATE the new target cost per unit for a sales price of \u20b9 675 if the profit per unit is maintained.
\n(iii) RECOMMEND what strategy Xstream Industries should adopt to attain target cost calculated in (ii) above. [RTP-May 2018]
\nAnswer:
\n(i) Calculation of current cost and profit per unit:<\/p>\n \n\n\n| Cost Component<\/td>\n | Units<\/td>\n | Actual Cost p.a. for 10,000 racks (\u20b9)<\/td>\n | Actual Cost per rack (\u20b9)<\/td>\n<\/tr>\n | \n| Revenue<\/td>\n | 10,000 racks<\/td>\n | 75,00,000<\/td>\n | 750<\/td>\n<\/tr>\n | \n| Direct Material<\/td>\n | 5,20,000 sq. ft.<\/td>\n | 20,00,000<\/td>\n | 200<\/td>\n<\/tr>\n | \n| Direct Labour<\/td>\n | 1,00,000 hrs.<\/td>\n | 10,00,000<\/td>\n | 100<\/td>\n<\/tr>\n | \n| Machine Setup<\/td>\n | 15,000 hrs.<\/td>\n | 1,50,000<\/td>\n | 15<\/td>\n<\/tr>\n | \n| Mechanical Assembly<\/td>\n | 200,000 hrs.<\/td>\n | 30,00,000<\/td>\n | 300<\/td>\n<\/tr>\n | \n| Total Cost<\/td>\n | 61,50,000<\/td>\n | 615<\/td>\n<\/tr>\n | \n| Profit<\/td>\n | 13,50,000<\/td>\n | 135<\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n Identification of Non-Value Added Activities:
\nMachine setup is the time required to get the machines and the assembly line ready for production. In this case, 15,000 hours spent on setting up does not add value to the storage racks directly. Hence, it is a non-value added activity.<\/p>\n (ii) Calculation of New Target Cost per unit:<\/p>\n \n\n\nNew sale price per rack.
\nLess: Required Profit per unit<\/td>\n | \u20b9 975 per unit
\n\u20b9 135 per unit<\/td>\n<\/tr>\n | \n| New target cost per unit<\/td>\n | \u20b9 540 per unit<\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n (iii) Strategy to attain target cost of \u20b9 540 per unit:
\nReduction in cost required:
\nThe comparison of calculations of above two parts reveals that the current cost per unit is \u20b9 615 while the target cost per unit is \u20b9 540. Hence, the cost has to be reduced at least by \u20b9 75 per unit.<\/p>\n Analysis of the cost data:
\nIt shows the variances between the budget and actual material usage and labour hours. It is given that the material procurement rate and labour hour rate is the same for budgets and actuals. Hence, the increments in both the costs are due to inefficient use of material and labour hours to complete the same level of production of 10,000 storage racks.<\/p>\n Corrective action to address these inefficiencies could result in the following savings:
\n(a) Cost component: Direct Material
\nExtra usage of Material due to inefficiencies = 20,000 sq. ft
\nMaterial cost per sq. ft. = \\(\\frac{\\text { Actual Cost }}{\\text { Actual Labour Usage }}=\\frac{\u20b9 20,00,000}{5,20,000 \\mathrm{Sq} \\cdot \\mathrm{ft}}\\) = 13.85 per sq.ft.
\nExtra material cost due to inefficiencies = 20,000 \u00d7 \u20b9 3.85 = \u20b9 77,000
\nIf corrective action is taken, for 10,000 racks this translates to a saving of \u20b9 7.70 per unit<\/p>\n (b) Cost component: Direct Labour
\nExtra labour hrs spent in production due to inefficiencies = 10,000 hrs.
\nLabour cost per hr. = \\(\\frac{\\text { Actual Cost }}{\\text { Actual Labour Hrs. }}=\\frac{\u20b9 10,00,000}{10,000 \\mathrm{hrs} .}\\) = \u20b9 10 per hr.
\nExtra labour cost due to inefficiencies = 10,000 \u00d7 \u20b9 10 = \u20b9 1,00,000
\nIf corrective action is taken, for 10,000 racks this translates to a saving oft 10 per unit<\/p>\n (c) Cost component: Machine Setup
\nMachine setup cost is a non-value added cost. Value analysis can be done to determine if the setup time of 15,000 hrs. can be reduced. However, since these activities have been carried out for a reason, care should be taken to ensure that this change should not adversely impact the production activity later down the stream.<\/p>\n (d) Cost component: Mechanical Assembly
\nMechanical assembly cost is almost half of the total cost. These are costs incurred during the production process on the assembly line. Value analysis can be done to determine if the production process can be made more efficient. For example, the process can be streamlined, such that steps can be combined that can be handled by fewer people (process centering). Similarly, value analysis\/value engineering can focus on the product design.
\nWhile target costing is a dynamic and corrective approach, care must the taken the product quality, characteristics and utility are maintained.<\/p>\n Some questions to rise may be:
\n– Can the product be designed better to make the production more efficient?
\n– Can the design be minimized to include fewer parts and thus make it easier and efficient to manufacture?
\n– Can be substitute parts to make it more efficient? or
\n– Is there simply a better way of producing the same product?<\/p>\n While target costing is a dynamic and corrective approach, care must the taken the product quality, characteristics and utility are maintained.<\/p>\n Question 3.
\nHam leys Toy Company is planning to launch a toy \u201cDonald\u201d based on a Disney character. Hamleys must pay 15% royalty on the selling price to the Disneyland. Hamleys targets a selling profit of 25% on selling price.
\nThe following are the cost data forecast:<\/p>\n \n\n\n| <\/td>\n | \u20b9 per Toy<\/td>\n<\/tr>\n | \n| Component M1<\/td>\n | 8.50<\/td>\n<\/tr>\n | \n| Component M2<\/td>\n | 7.00<\/td>\n<\/tr>\n | \n| Labour : 0.40 hr. @ \u20b9 60 per hr.<\/td>\n | 24.00<\/td>\n<\/tr>\n | \n| product Specific Overheads<\/td>\n | 13.50<\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n In addition, each toy requires 0.6 kg. of other materials, which are supplied at a cost of \u20b9 16 per kg. with a normal 4% substandard quality, which is
\nnot useable in the manufacture. Required
\nDETERMINE if the above cost structure is within the target cost. If not, what should be the extent of cost reduction?
\nAnswer:
\nCalculation of Target Cost per Toy \u201cDonald\u201d<\/p>\n \n\n\nTarget Selling Price
\nLess: Royalty @15%<\/td>\n | 100 per Toy
\n15 per Toy<\/td>\n<\/tr>\n | \n| Less: Profit @ 25%<\/td>\n | 25 per Toy<\/td>\n<\/tr>\n | \n| Target cost (\u20b9)<\/td>\n | 60 per Toy<\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n Calculation of current total manufacturing cost per toy:<\/p>\n \n\n\n| Cost Structure \u201cDonald\u201d<\/td>\n | \u20b9 per Toy<\/td>\n<\/tr>\n | \n| Component M1<\/td>\n | 8.50<\/td>\n<\/tr>\n | \n| Component M2<\/td>\n | 7.00<\/td>\n<\/tr>\n | \n| Labour : 0.40 hr. @ \u20b9 60 per hr.<\/td>\n | 24.00<\/td>\n<\/tr>\n | \n| Product Specific Overheads<\/td>\n | 13.50<\/td>\n<\/tr>\n | \n| Other Material (0.6 Kg.\/96% \u00d7 \u20b9 16)<\/td>\n | 10.00<\/td>\n<\/tr>\n | \n| Total cost of manufacturing<\/td>\n | 63.00<\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n Cost Reduction required:
\nCost Gap = Actual Total Cost of Manufacturing – Target Cost = \u20b9 63 – \u20b9 60
\n= \u20b9 3 per toy
\nThe company should make efforts to reduce its manufacturing cost by \u20b9 3 to achieve Target Selling Price of \u20b9 100 per toy.<\/p>\n <\/p>\n Question 4.
\nSuppa Ltd. was one of the leading Ceiling fan company in country \u201cyu\u201d however due to atmospheric changes temperature of the Country \u201cYu\u201d has increased much. Resulted in increased use of AC at home which somehow effected the sale of Suppa Ltd. The CEO has observed that Suppa Ltd. manufacture a ceiling fan through two consecutive processes; assembly and finishing. Blades and Motor are Raw material used as input at the commencement of the assembly process. For the absorption of product specific conversion cost activity based costing approach is being used.<\/p>\n The following estimated information of Suppa Ltd. is available for current period.<\/p>\n \n\n\n| Production\/sales units<\/td>\n | 12,000<\/td>\n<\/tr>\n | \n| Selling price per unit<\/td>\n | \u20b9 750<\/td>\n<\/tr>\n | \n| Direct material cost per unit<\/td>\n | \u20b9 200<\/td>\n<\/tr>\n | \n| Suppa Ltd variable conversion cost per unit:<\/td>\n | <\/td>\n<\/tr>\n | \n| Assembly<\/td>\n | \u20b9 200<\/td>\n<\/tr>\n | \n| Finishing<\/td>\n | \u20b9 120<\/td>\n<\/tr>\n | \n| Product specific fixed costs<\/td>\n | 117,00,000<\/td>\n<\/tr>\n | \n| Company fixed costs<\/td>\n | \u20b9 5,00,000<\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n The CEO of Suppa Ltd. wishes to achieve an overall net profit of 12% on sales in order to meet return on capital target and to survive in the market. Required:
\n(a) CALCULATE the extent of cost reduction required by Suppa Ltd.
\n(b) LIST specific areas of investigation to identify potential areas of cost reduction that will not compromise the quality of the products.
\nAnswer:
\n(a) Calculation of extent of cost reduction required:
\nCalculation of Target Cost per Ceiling Fan<\/p>\n \n\n\nTarget Selling Price
\nLess: Profit @1296<\/td>\n | 750 per Fan 90 per Fan<\/td>\n<\/tr>\n | \n| Target cost<\/td>\n | 660 per Fan<\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n Calculation of expected current cost per Fan:<\/p>\n \n\n\n| Cost Structure \u201cDonald\u201d<\/td>\n | \u20b9 per Toy<\/td>\n<\/tr>\n | \n| Direct materials<\/td>\n | 200.00<\/td>\n<\/tr>\n | \n| Suppa Ltd. conversion cost Assembly<\/td>\n | 200.00<\/td>\n<\/tr>\n | \n| Finishing<\/td>\n | 120.00<\/td>\n<\/tr>\n | \n| Product specific fixed cost<\/td>\n | 141.70<\/td>\n<\/tr>\n | \n| Company fixed cost<\/td>\n | 41.70<\/td>\n<\/tr>\n | \n| Total expected current cost per unit<\/td>\n | 703.40<\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n Cost Reduction required:
\nCost Gap = Actual Total Cost of Manufacturing – Target Cost
\n= \u20b9 703.40 – \u20b9 660
\n= \u20b9 43.40<\/p>\n (b) Identification of potential areas of cost reduction:
\nThe company Suppa Ltd. is falling considerably short of its 12% net profit margin target. CEO of Suppa Ltd. observed that if sales quan-tities and prices are to remain unchanged, costs must be reduced if the required return is to be reached.
\nExercise of Cost reduction methods must be concentrated particulariy on this product if its production is to continue to be seen to be ss worthwhile.
\nExamine designed specification for product and the production methods for potential areas of cost reduction that will not compromise the quality of the products. It includes:<\/p>\n \n- Is it possible to eliminate any material, e.g. cut down on packing materials?<\/li>\n
- Is it possible to substitute a cheaper material without effecting quality?<\/li>\n
- Is it possible that a part assembled components be bought in to save on assembly time?<\/li>\n
- Check if there is any overlap between the product related fixed costs that could be eliminated from the organization by combining j service department or resources?<\/li>\n
- Is it possible to reduce the incidence of cost drivers?<\/li>\n<\/ul>\n
Question 5.
\n(Value Chain Analysis\/Target Costing) Intelligent inc. is a leading educational gaming toy manufacturing company operating since 1990, the firm has a state-of-the-art manufacturing facility in India. It sells its
\nproduct through company\u2019s website and through retail outlets. Intelligent inc. has been pioneering the concepts of quality and safety in toys and has been instrumental in raising the quality standards of toys in the Indian Market. Intelligent inc\u2019s mission is to influence parents to spend on toys that enable every child to grow with quality toys that contributes to his\/ her wholesome development.
\nIntelligent inc. procures the materials from a number of different suppliers. All of the purchased material are dispatched to its warehouse located at its factory and are held there unless they are moved to production. After production is completed, finished toys are moved to Intelligent inc\u2019s retail outlets by its own vehicles. Each week, the vehicles follow the same time schedule regardless of the weight they are carrying. Finished toys that are sold through the Intelligent inc\u2019s website are dispatched to its distribution centre.
\nIntelligent has recently got the contract to manufacture a new gaming toy that is \u2018ToZ\u2019, a mini cartoon based on a character from a famous Hulk film. Intelligent has not been given any target price, hence is free to set the selling price of \u2018ToZ\u2019, however, must pay a royalty of 10% of the selling price to the film director. Intelligent is also planning to sell \u2018ToZ\u2019 through its retail outlets.
\nIntelligent has decided to follow a target costing technique for \u2018ToZ\u2019. Marketing manager has determined the selling price to be around \u201c1,750 per ‘ToZ’. Intelligent needs a margin of 26% of the selling price of \u2018ToZ\u2019. The following is the estimated costs per \u2018ToZ\u2019:<\/p>\n \n\n\n| <\/td>\n | \u20b9<\/td>\n<\/tr>\n | \n| Material C<\/td>\n | 150.50<\/td>\n<\/tr>\n | \n| Material D<\/td>\n | 122.50<\/td>\n<\/tr>\n | \n| Other Material<\/td>\n | See note below<\/td>\n<\/tr>\n | \n| Labour (0.4 hours at 1,050 per hour)<\/td>\n | 420.00<\/td>\n<\/tr>\n | \n| \u2018ToZ\u2019-specific production overhead cost<\/td>\n | 132.30<\/td>\n<\/tr>\n | \n| \u2018ToZ\u2019-specific selling and distribution cost<\/td>\n | 166.60<\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n Note- Each \u2018ToZ\u2019 requires 0.70 kg. of \u2018other materials\u2019. These \u2018other materials\u2019 are procured from a supplier at a cost of 1280 per kg and around 5% of all purchased materials are found to be downgraded.
\nRequired
\nDISCUSS three primary activities of value chain through which Intelligent can minimize gap if any. [RTP Nov. 2020]
\nAnswer:
\nStatement Showing Computation of Cost GAP<\/p>\n \n\n\n| <\/td>\n | <\/td>\n<\/tr>\n | \n| Sales Price<\/td>\n | 1,750.00<\/td>\n<\/tr>\n | \n| Less: Royalty @1096<\/td>\n | 175.00<\/td>\n<\/tr>\n | \n| Less: Profit @26%<\/td>\n | 455.00<\/td>\n<\/tr>\n | \n| Target Cost \u2018ToZ\u2019<\/td>\n | 1,120.00<\/td>\n<\/tr>\n | \n| Material C<\/td>\n | 150.50<\/td>\n<\/tr>\n | \n| Material D<\/td>\n | 122.50<\/td>\n<\/tr>\n | \n| Labour (0.40 hours at \u20b9 1,050 per hour)<\/td>\n | 420.00<\/td>\n<\/tr>\n | \n| Other Material (0.70 kg. \u00d7 \u20b9 280 per kg.)\/0.95<\/td>\n | 206.32<\/td>\n<\/tr>\n | \n| Production Overheads Cost<\/td>\n | 132.30<\/td>\n<\/tr>\n | \n| Distribution and Sales Cost<\/td>\n | 166.60<\/td>\n<\/tr>\n | \n| Estimated Cost \u2018ToZ\u2019<\/td>\n | 1,198.22<\/td>\n<\/tr>\n | \n| Cost Gap<\/td>\n | 78.22<\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n The Cost gap of \u20b9 78.22 can be removed by reducing the cost over all the Value Chain through the development of the spirit co-operation and understanding among all members of organizations associated with the product from suppliers, producers, customers, agents and service providers. In Intelligent inc\u2019s Value Chain, three primary activities are:-<\/p>\n Inbound
\nlogistics These are activities concerned with receiving, storing and distributing the inputs (raw material) to the production process. The relationship with supplieris akey component in this process. Currently, Intelligent inc procures materials from multiple suppliers and stores these materials in its store. Shifting to a just-in-time (JIT) system technique in procurement of materials could possibly save substantial storage costs provided the JIT supplier must agree to take the responsibility for the good quality of materials supplied. This will also become a source of savings because downgraded items will be removed. However, Intelligent inc might have to pay additional payout to a supplier for JIT purchasing to work.<\/p>\n Outbound
\nlogistics These activities involve collecting, storing and distributing the products to the customers. At Intelligent, scheduled transportation of toys to retail outlets is outbound logistics activity. Potentially, the scheduled transportation of toys to retail outlets every week is not an efficient way. Such deliveries do not consider whether toy is required at retail outlets or not, hence Intelligent inc. may possibly deliver toys to retail outlets those do not need toys and suffer unnecessary transportation costs.<\/p>\n Intelligent should plan to implement EDI system that will help it to improve warehousing and logistics by automatically tracking inbound shipments as well as outbound products. Adopting EDI, Intelligent can not only improve processes but also streamline inventory management across many channels. However, it will require setup time and a learning curve to implement the same.<\/p>\n Marketing and sales
\nMarketing and sales provide the means by which the customers are made aware of the product. At Intelligent inc, the sales of toys via its retail outlets and website are marketing and sales activities.
\nIntelligent is planning to sell ToZ\u2019 via retailers. If Intelligent sales \u2018ToZ\u2019 through its website rather than through retail outlet, significant cost could easily be avoided. Simultaneously, Intelligent inc. will be able to expose itself to attract international customers to buy \u2018ToZ\u2019 as product is based on character from a famous international animated film.
\nOverall, Intelligent inc. may create a cost advantage by reconfiguring the Value Chain. Reconfiguration means structural changes such a new production process, new distribution channels or a different sales approach as discussed above.<\/p>\n Question 6.
\nAjay Furniture Ltd. is a leading manufacturer and supplier of furniture for students of pre-primary classes. The full cost of one set (comprising one Table and one chair) is \u20b9 900 per set. The company has fixed its selling price so as to earn 30% return on investment of \u20b9 45,00,000. The company produces and sells 6,000 sets per annum. Relevant cost data per annum are as follows:<\/p>\n \n\n\n| Cost Component<\/td>\n | Budget<\/td>\n | Actual<\/td>\n | Actual Cost p.a. (\u20b9)<\/td>\n<\/tr>\n | \n| Direct Material<\/td>\n | 90,000 sq. ft.<\/td>\n | 1,00,000sq.ft.<\/td>\n | 16,50,000<\/td>\n<\/tr>\n | \n| Direct Labour<\/td>\n | 35,000 hrs.<\/td>\n | 40,000 hrs.<\/td>\n | 10,32,000<\/td>\n<\/tr>\n | \n| Mechanical Assembly<\/td>\n | 60,000 hrs.<\/td>\n | 60,000 hrs.<\/td>\n | 12,00,000<\/td>\n<\/tr>\n | \n| Machine Setup<\/td>\n | 5,000 hrs.<\/td>\n | 5,000 hrs.<\/td>\n | 1,68,000<\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n It has been revealed that the actual and budgeted operating levels are the same, Actual and standard rates of material purchase and labour rate per hour are also the same. Any variance in cost is solely on account of difference in the material usage and hours required to complete the production. A competitor has introduced a product very similar to product of the company at an aggressive price of \u20b9 820 per set which has resulted in downtrend, in the sales volume the company. The management has called urgent meeting of the marketing team. After the meeting, following recommendations of the marketing team are approved by the management:
\nTo maintain the company\u2019s existing sales volume and amount of present return on investment, reduce the selling price by 10%.
\nTo make slight improvement in design to have edge over the competitors which will also reduce the direct material cost by \u20b9 30 per set.
\nTo make the table and chair more attractive, print picture of Disney character on them, which will cost \u20b9 5 per set.
\nRequired
\n(i) CALCULATE the present selling price and profit per unit from the above. Also CALCULATE the mark-up % on the full cost per unit.
\n(ii) IDENTIFY the non-value-added activities in the production process.
\n(iii) (a) CALCULATE the new target cost per unit and new revised cost per unit after implementation of above recommendations.
\n(b) How much reduction in cost is required to achieve the new target cost?
\n(iv) RECOMMEND what strategy the company should adopt to attain the target cost calculated above. [Nov. 2020] (4 + 2 + 2 + 2 Marks)]
\nAnswer:
\n(i) Calculation of Present Selling Price and Profit per unit:<\/p>\n \n\n\n| Full cost per set<\/td>\n | \u20b9 900<\/td>\n<\/tr>\n | \n| Desired return per set [(30% of \u20b9 45,00,000)\/6,000 sets]<\/td>\n | \u20b9 225<\/td>\n<\/tr>\n | \n| Present selling price per unit (set)<\/td>\n | \u20b9 1, 125<\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n Calculation of mark-up on full cost per unit:
\nMark-up = \\(\\frac{\\text { Profit perset }}{\\text { Full cost per set }}\\) \u00d7 100 = \\(\\frac{\\text { Rs. } 225}{\\text { Rs. } 900}\\) \u00d7 100 = 25% on cost or 20% on sales.<\/p>\n (ii) Non-Value Added Activities:
\nMachine setup is the time required to get the machines and the assembly line ready for production. Ajay furniture limited spent 5,000 hours on setting up, which does not add value to the furniture set directly. Hence, it is a non-value added activity.<\/p>\n (iii) (a) New Target Cost per unit (set)<\/p>\n \n\n\n| Particular<\/td>\n | Amount (\u20b9)<\/td>\n<\/tr>\n | \nTarget Price (1,125 – 10% of 1,125)
\nLess: Desired Return per set<\/td>\n | 1,012.50
\n225.00<\/td>\n<\/tr>\n | \n| Target Cost per unit (set)<\/td>\n | 787.50<\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n Revised Cost per unit (set)<\/p>\n \n\n\n| Particular<\/td>\n | Amount (\u20b9)<\/td>\n<\/tr>\n | \nPresent cost per unit (set)
\nLess: Reduction in material cost
\nAdd: Incremental Cost to print picture<\/td>\n | 900.00
\n(30.00)
\n5.00<\/td>\n<\/tr>\n | \n| Revised Cost per unit (set)<\/td>\n | 875.00<\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n (b) Cost Reduction Target<\/p>\n \n\n\n| Particular<\/td>\n | Amount in \u20b9<\/td>\n<\/tr>\n | \nRevised Cost per unit (set)
\nLess: Target Cost per unit (set)<\/td>\n | 875.00
\n787.50<\/td>\n<\/tr>\n | \n| Cost Reduction Target per unit (set)<\/td>\n | 87.50<\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n (iv) The cost has to be reduced at least by \u20b9 87.50 per unit. Critical aspects at which Ajay furniture limited shall focus-wastage in term of productivity i.e. usage of material and efficiency in labour; design of product in term of quality and function it renders, and material or components used as input; design of processes including lay-out through which product will be manufactured i.e. machine set-up and mechanical assembly. Value analysis\/ value engineering shall be applied (by answering following questions) to focus on the above stated aspects in order to attain the target cost-<\/p>\n \n- Can the product be designed better to make the production more efficient?<\/li>\n
- Is reduction of design (reduce features only, not functions) possible?<\/li>\n
- Can the design be minimized to include fewer parts and thus make it easier and efficient to manufacture?<\/li>\n
- Can any process eliminate or reduced?<\/li>\n
- Can be substitute parts to make it more efficient? Or<\/li>\n
- Is there simply a better way of producing the same product?<\/li>\n<\/ul>\n
It is important to note that target costing is a dynamic and corrective approach, care must be taken for product quality, characteristics, and utility.<\/p>\n Analysis of the cost data:
\nThe analysis of the cost data shows the variances between the budget and actual material usage and labour hours. It is given that the material procurement rate and labour hour rate is the same for budgets and actuals. Hence, the increment in cost of direct materials and labour is due to inefficient use of material and labour hours to complete the same level of production of 6,000 sets of furniture.<\/p>\n Corrective action to address these inefficiencies could result in the following savings:
\n(a) Cost component: Direct Material
\nExtra usage of Material due to inefficiencies = 10,000 sq. ft
\nMaterial cost per sq. ft. = \\(\\frac{\\text { Actual Cost }}{\\text { Actual Material Usage }}\\)
\n= \\(\\frac{\u20b9 15,50,000-(\u20b9 30 \\times 6,000)}{1,00,000 \\mathrm{Sq} \\cdot \\mathrm{ft}}\\) = \u20b9 14.70 per sq. Ft.
\nExtra material cost due to in efficiencies = 10.000 \u00d7 \u20b9 14.70 = \u20b9 1,47,000
\nIf corrective action is taken, for 6,000 sets of Furniture this translates to a saving of \u20b9 24.50 per unit<\/p>\n (b) Cost component: Direct Labour
\nExtra labour hrs. spent in production due to inefficiencies = 5,000 hrs.
\nLabour cost per hr. = \\(\\frac{\\text { Actual Cost }}{\\text { Actual Labour Hrs. }}=\\frac{\u20b9 10,32,000}{\u20b9 40,000 \\text { hrs. }}\\) = \u20b9 25.80 per hr.
\nExtra labour cost due to inefficiencies = 5,000 \u00d7 \u20b9 25.80 = \u20b9 1,29,000
\nIf corrective action is taken, for 6,000 sets of Furniture this translates to a saving of \u20b9 21.50 per unit<\/p>\n (c) Cost component: Machine Setup
\nMachine setup cost is a non-value-added cost. Value analysis can be clone to determine if the setup time of 5,000 hours\/\u20b9 1,68,000\/- can be reduced. However, since these activities have been carried out for a reason, care should be taken to ensure that this change should not adversely impact the production activity later down the stream.<\/p>\n (d) Cost component: Mechanical Assembly
\nMechanical assembly costs are costs incurred during the production process on the assembly line. Value analysis can be done to determine if the production process can be made more efficient. For example, the process can be streamlined, such that steps can be combined that can be handled by fewer people (process centering).<\/p>\n <\/p>\n Question 7.
\n(Pricing Strategy; Target Costing) Ujjala Pvt. Ltd. manufactures multicolour glow bulb (GCM8) used for lighting and decoration. GCM8 considered as reliable product in market due to zero-defect. Ujjala company sells GCM8 through retail-chains and individual shopkeeper apart from factory outlet. GCM8 has demand throughout the year but there is high demand during festival seasons especially ahead of Diwali. Company follows the lot purchase system and manufacture the product ahead of peak season of festivals. Presently the Ujjala is working at 80% of capacity and manufacture 4,00,000 bulbs annually, at following per unit cost:<\/p>\n \n\n\n| Particulars<\/td>\n | Behaviour<\/td>\n | Amount (In \u20b9)<\/td>\n<\/tr>\n | \n| Direct Material<\/td>\n | Variable<\/td>\n | 22<\/td>\n<\/tr>\n | \n| Direct Labour<\/td>\n | Variable<\/td>\n | 6<\/td>\n<\/tr>\n | \n| Factory Overhead<\/td>\n | <\/td>\n | <\/td>\n<\/tr>\n | \n| 1. Engineering Cost<\/td>\n | Fixed<\/td>\n | 10<\/td>\n<\/tr>\n | \n| 2. Machining Cost<\/td>\n | Fixed<\/td>\n | 5<\/td>\n<\/tr>\n | \n| 3. Inspection Cost<\/td>\n | Variable<\/td>\n | 5<\/td>\n<\/tr>\n | \n| Administration Overheads<\/td>\n | Fixed<\/td>\n | 12<\/td>\n<\/tr>\n | \n| Selling and Distribution Overheads<\/td>\n | Fixed<\/td>\n | 12<\/td>\n<\/tr>\n | \n| <\/td>\n | Total Cost<\/td>\n | 72<\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n Recently the competition in decorative light & electronic markets has escalated, due to goods imported from Chinese manufactures at cheap rates. Such imported light bulbs are also sold through same shops at which GCM8 is available for sale. Due cheaper in rate customer prefer imported light bulb rather GCM8.
\nTo be competitive in market, the marketing department of Ujjala Company conducted applied research and suggested that price should be 12.5% lower than the current price. Ujjala company during last three financial years and during current year records the pre-tax profit @ 10% rate of sale, management of Ujjala company wish to earn the same rate of profit (margin) in upcoming years too.
\nProduction and operation manager is of opinion that cost reduction, in order to be competitive in market may result .in reduction in quality, whereas Manager – Quality control suggest, if number of inspection staff increased, then inspection can be performed at each stage and defect can be curtailed at the earliest stage to eliminate rework cost.
\nManagement accountant is of opinion that since GCM8 is mature product, hence majority of cost associated in production of GCM8 are committed in nature, prince cutting seems difficult; it may hit the top line and bottom line adversely. In response to him, Chief engineer suggest product (GCM8) can be redesigned; but marketing manager shown his resistance on the suggestion of redesigning of product because according to him ‘existing product appearance and features are key reasons for popularity of product in market and leads to sale\u2019.
\nRequired
\n(i) CALCULATE the price suggested by marketing department.
\n(ii) COMPUTE the target cost and new margin, appraise percentage decline in margin.
\n(iii) If proportionate cost reduction plan is applied, then
\n(a) CALCULATE planned cost reduction for each cost category.
\n(b) EXPLAIN proportionate cost reduction plan.
\n(vi) Based upon discussion taken place among the functional manager, EVALUATE the possibility of cost reduction in order to analyse the possibility of application of target costing. Also suggest course of action to adopt.
\nAnswer:
\n(i) Price suggested by marketing department (Target Price)
\nCurrent cost per unit – \u20b9 72 p.u.
\nProfit (Margin) @10% of sale price
\nSale Price = \u20b9 72 + 10% of Sale
\nPrice So, let presume sale price is \u2018x\u2019
\nX = \u20b9 72 + 10% of
\nXX = \u20b9 72 + 0.1X
\nX – 0.1X = \u20b9 72
\n0.9X = \u20b9 72
\nX = \u20b9 72\/0.9
\nX = \u20b9 80
\nNew price will be 12.5% less than current price \u20b9 80 – 12.5% of \u20b9 80
\n\u20b9 80 – \u20b9 10 = \u20b9 70<\/p>\n (ii) Target cost and new margin
\nTarget Price – Margin (i.e. 10% of sale price) = Target Cost
\nTarget Cost = \u20b9 70 – 10% of \u20b9 70
\n\u20b9 70 – \u20b9 7 = \u20b9 63
\nNew Margin (under target costing) is \u20b9 7
\nPercentage decline in margin
\n= \\(\\frac{\\text { Existing Margin }- \\text { New Margin (under target costing) }}{\\text { Existing Margin }}\\) \u00d7 100
\n= \\(\\frac{8-7}{8}\\) \u00d7 100
\n= 12.5% Note
\nThere is decline in margin in absolute term, whereas in relative term the margin remains same i.e., 10% of sale price.<\/p>\n (iii) Planned cost reduction for each cost category under proportionate reduction plan<\/p>\n \n\n\n| Particulars<\/td>\n | Existing Cost<\/td>\n | Target Cost<\/td>\n<\/tr>\n | \n| Direct Material<\/td>\n | 22<\/td>\n | 19.25<\/td>\n<\/tr>\n | \n| Direct Labour<\/td>\n | 6<\/td>\n | 5.25<\/td>\n<\/tr>\n | \n| Factory Overhead<\/td>\n | <\/td>\n | <\/td>\n<\/tr>\n | \n| 1. Engineering Cost<\/td>\n | 10<\/td>\n | 8.75<\/td>\n<\/tr>\n | \n| 2. Machining Cost<\/td>\n | D<\/td>\n | 4.375<\/td>\n<\/tr>\n | \n| 3. Inspection Cost<\/td>\n | 5<\/td>\n | 4.375<\/td>\n<\/tr>\n | \n| Administration Overheads<\/td>\n | 12<\/td>\n | 10.5<\/td>\n<\/tr>\n | \n| Selling and Distribution Overheads<\/td>\n | 12<\/td>\n | 10.5<\/td>\n<\/tr>\n | \n| Total Cost<\/td>\n | 72<\/td>\n | 63<\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n Under proportionate reduction plan cost for each category is propor-tionately reduced in proportion of existing weight. Here, a presumption is needed to be taken that all the cost are avoidable in nature, where as in case of every business; there are some of cost categories which are true sense unavoidable and committed in such a way that, these continue to occur even in shut down situation (e.g. salary to guard, minimum rental for electricity and water meter etc.); same is pointed by Management Accountant, that product is matured in nature (means not in designing or research phase) hence committed cost may be unavoidable in nature.<\/p>\n Note
\nStudent must note that fixed costs are not as same as unavoidable cost. Fixed cost may be avoidable in nature.<\/p>\n (iv) Possibility of cost reduction & Suggested course of action for Ujjala Company
\nTarget costing comprises four stages. First being determining the product target price, quality, and functionality; second determine the target cost; thirdly designing the product and production process to achieve the target costing, and fourth use pilot project to evaluated feasibility. Based upon discussion taken place among the functional managers, it is evidential that Ujjala Company is presently moving towards third stage.
\nAs stated by management accountant that product GCM8 is mature nature hence majority of cost are of committed nature, hence may be unavoidable in nature. Product GCM8 is material-oriented product and raw material cost is around 30% of total cost. So, if gain sharing arrangement can be entered with vendor then surely Ujjala Company can save some portion of material cost.<\/p>\n As said by production and operation manager, cost reduction may lead to compromise with quality. He may be right, but he needs to look for scientific way to reduce the cost of operations like change in batch size (if required can shift to JIT) or outsource some part of operations; scientific management can also be applied in order to curtail motion time and reduction in labour cost.<\/p>\n Quality Manager is of opinion with extra inspection staff, quality can be assured, but appointment of additional inspector and supervisor will also lead to increase in cost; hence effective way to ensure quality while reducing cost of application of practice of TQM and Kaizen. U Kaizen costing will be great help to management of Ujjala to cut the cost, with support and participation from worker.<\/p>\n Chief engineer suggestion is appreciable, because target costing is most beneficial in those case where the product is in designing and planning phase. As per research around 70-80% of cost is committed at stage of designing of product. It is important to note that the word ‘committed\u2019 is used as \u2018not incurred; therefore, cost being committed (i.e., not incurred cost) will be incurred when it became due in course j of production. But redesigning is not feasible from the prospects | of marketing of product as per the statement made by marketing manager.
\nMarketing manager can conduct applied research in order to develop understanding the temperament of customer of GCM8, whether they are price sensitive or conformance to need is their priority. If customer found price sensitive (existing recommendation of marketing team shows high possibility of this, because marketing team feels customers can be retained is price is reduced by 12.5%) then product redesign may be opted. But if conformance to need is their (customers) priority, then value chain analysis can be used to identify the activities which creates value to customer and other than these activities (which are not creating the value) can be eliminated in order to reduce the cost.
\nSo, there are possibility to reduce the cost, even if not in all the cost category then surely in some of categories; so that target cost can be achieved.<\/p>\n <\/p>\n Question 8.
\n(Target Costing and JIT) Mxl Limited is a toy manufacturing company. It sells toys through its own retail outlets. It purchases materials needed to manufacture toys from a number of different suppliers. Recently, due to the entity of few reputed foreign brands in the toy market and particularly in the segment in which Mxl Ltd. is doing business, it is facing a threat to operate profitably.
\nEach toy requires 4 kg. of materials at \u20b9 19 per kg. and 5% of all materials supplied by the suppliers are found to be sub-standard. Labour hour requirement for each toy is 0.4 hour at \u20b9 120 per hour.
\nMarket research has determined that the selling price will be \u20b9 240 per toy. The company requires a profit margin of 15% of the selling price. Expected demand for toy in the coming year will be 50,000 toys. Sales and variable overhead per unit for the four quarters of the year will be as follows:
\n![\"Cost](\"https:\/\/gstguntur.com\/wp-content\/uploads\/2023\/04\/Cost-Management-Techniques-\u2013-CA-Final-SCMPE-Study-Material-2.png\")
\nThe production manager has decided to produce 12,500 units in each quarter. Inventory holding costs will be \u20b9 18 per unit of average inventory per quarter. Inventory holding costs are not included in above.
\nNormal production capacity per quarter is 15,000 toys. The company can produce further up to 6,000 units per quarter by resorting to overtime working. Overtime wages will be at 150% of normal wage rate. Assume zero opening inventory.
\nRequired
\n(a) (i) CALCULATE the cost gap that exists between the total cost per toy as per the production plan and the target cost per toy.
\n(ii) DISCUSS howjust-in-time purchasing and just-in-time production will remove the cost gap calculated in (i) above. Show calculations in support of your answer.
\n(b) EXPLAIN, how implementation of JIT production method can be a major source of competitive advantage and success of the company. [NOV 2019 Exam.] (9+7+4 Marks)
\nAnswer:
\n(a) (i) Cost gap between Total Cost per toy as per the production plan and the Target Cost per toy
\nTarget Cost per toy<\/p>\n \n\n\n| Sr.No.<\/td>\n | Particulars<\/td>\n | \u20b9 per unit<\/td>\n | For Annual Sales of 50,000 units<\/td>\n<\/tr>\n | \n| A<\/td>\n | Selling Price per toy<\/td>\n | 240<\/td>\n | 1,20,00,000<\/td>\n<\/tr>\n | \n| B<\/td>\n | Required Profit Margin (15% of selling price = 15% \u00d7 \u20b9 240 per unit)<\/td>\n | 36<\/td>\n | 18,00,000<\/td>\n<\/tr>\n | \n| C<\/td>\n | Target Cost per annum (Step A-B)<\/td>\n | <\/td>\n | 1,02,00,000<\/td>\n<\/tr>\n | \n| D<\/td>\n | Target Cost per toy (C\/ 50,000 units)<\/td>\n | <\/td>\n | 204.00<\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n Therefore, Target Cost is \u20b9 204 per toy.<\/p>\n Total Cost as per production plan
\nMxl Ltd. has an annual production requirement of 50,000 toys, which is also its annual sales. Given that opening inventory for the first quarter is nil. The production manager wants to produce 12,500 units per quarter irrespective of the sales demand for the quarter. This implies that during some quarters, there might be unsold inventory, for which inventory holding cost has to be borne. This type of production is called \u201cproduce to stock\u201d.<\/p>\n Production Schedule and Inventory Holding Cost for the year
\n![\"Cost](\"https:\/\/gstguntur.com\/wp-content\/uploads\/2023\/04\/Cost-Management-Techniques-\u2013-CA-Final-SCMPE-Study-Material-3.png\") <\/p>\n Total Cost of Production per toy as per production plan
\n![\"Cost](\"https:\/\/gstguntur.com\/wp-content\/uploads\/2023\/04\/Cost-Management-Techniques-\u2013-CA-Final-SCMPE-Study-Material-4.png\")
\nNote 1
\nEach toy requires 4 kg. of material, 596 of all materials is sub-standard.
\nTherefore, procurement should factor this sub-standard quality.
\nMaterial required per unit= 4 kg.\/95% = 4.21 kg.
\nMaterial Cost per toy produced = 4.21 kg. \u00d7 \u20b9 19 per kg. = \u20b9 80 per unit<\/p>\n Note 2
\nEach toy requires 0.40 hours. Rate per hour is \u20b9 120 per hour.
\nTherefore, Cost per toy = 0.40 \u00d7 \u20b9 120 = \u20b9 48 per unit<\/p>\n Cost Gap
\n= Total Cost per toy as per production schedule – Target Cost per toy
\n= \u20b9 208.09 – \u20b9 204.00 per toy
\n= \u20b9 4.09 per toy<\/p>\n JIT System
\n(ii) Just in Time Purchasing and Just in Time Production is aimed at eliminating inventory holding of raw material and finished goods respectively. Components are purchased only when there is a requirement in the production process. Si milarly, finished goods are produced oniv when there is a demand for them. This type of production is called \u201cproduce to order’\u2019. Hence, there is neither any opening inventory nor any closing inventory, thereby no inventory holding cost.<\/p>\n In the given problem, this savings is off-set by the extra payment to be made to labour for overtime. Production capacity is 15,000 toys per quarter. This can be increased by 6,000 toys per quarter by incurring additional overtime cost.<\/p>\n The Production Plan under the Just in Time System
\n![\"Cost](\"https:\/\/gstguntur.com\/wp-content\/uploads\/2023\/04\/Cost-Management-Techniques-\u2013-CA-Final-SCMPE-Study-Material-5.png\") <\/p>\n Total Cost of Production under JIT System
\n![\"Cost](\"https:\/\/gstguntur.com\/wp-content\/uploads\/2023\/04\/Cost-Management-Techniques-\u2013-CA-Final-SCMPE-Study-Material-6.png\") <\/p>\n Note 1
\nCarefully selected suppliers of delivering high quality materials in a timely I manner directly at the shop floor, reducing the material receipt time and loss due to sub-standard material.<\/p>\n Note 2
\nOvertime wages are 15096 of normal wage rate. Therefore, for every toy ) produced over the quarterly production capacity of 15,000 toys, 50% extra 1 wage over and above the hourly rate has to be paid as overtime wages. Each toy needs 0.40 hours for production. Therefore, overtime cost for excess production = excess production units \u00d7 0.40 \u00d7 50% \u00d7 \u20b9 120 per hour.<\/p>\n Cost Gap
\nThe cost of production per toy under the JIT system is \u20b9 199.38 per toy as compared to the target cost of \u20b9 204 per toy and save t 4.62 per toy.
\nThe savings primarily comes from eliminating the inventory holding cost of \u20b9 3,42,000 per annum and sub-standard material cost of \u20b9 2,00,000 per 1 annum under the previous production system. This is slightly offset by the additional cost of \u20b9 84,000 per annum that has to be paid towards overtime s labour charges and \u20b9 22,500 towards additional variable overheads. However, by switching to the JIT system, Mxl Ltd. could reduce its production cost below the target cost per toy.
\nThis question can also be solved by assuming \u201ccontinued material wastage\u201d due to substandard material from suppliers.<\/p>\n (b) JIT system aims at:<\/p>\n \n- Meeting customer demand in a timely manner.<\/li>\n
- Providing high quality products and<\/li>\n
- Providing products at the lowest possible price. The main features of the JIT production system are:<\/li>\n
- Material handling cost is reduced<\/li>\n<\/ul>\n
Materials move from one machine to another in an organized sequence. The production process is grouped into to manufacturing cells. These can be managed with minimal labour. This reduces material handling costs as also any pile I up of inventory in the form of work-in-progress. In JIT procurement process, the raw material is received only when needed. Due to significant reduction in inventory, inventory holding costs, normal wastage cost and spoilage can be avoided. Optimum arrangement of cells can lead to lesser floor space requirement, thereby reducing factory rental and overhead cost.<\/p>\n Multi-skilled labour: Hire and retain multi-skilled workers who are capable of performing a variety in operations including repairs and maintenance. Therefore, a worker is not confined to only one process in the production process. He can contribute towards other processes as well. This reduces the workforce requirement and labour idle time, The company can have a more efficient workforce, with lesser number j of workers. There is potential to reduce labour cost on account of this,<\/p>\n Minimizing defects rework and scrap: Each stage of the production process is tightly linked in a sequential manner. Defective output from one stage will stop the work at the next stage. Due to this, workers can identify and correct errors or defects instantaneously. JIT creates urgency for eliminating defects as quickly as possible since the downstream work also stops due to error in any workstation. Production process efficiency improves and reduces rework or scrap. The overall j quality of production improves. There are other benefits to streamlining production process: lesser need for inspection of final output I and lesser sales returns due to defects. This would contribute to the | product\u2019s brand value.<\/p>\n Reduced set-up time: Streamlined production process under JIT reduces set-up time at the workstations. When the production process has to change to make the product per the customers\u2019 demands, set-up time is incurred at the workstation. By streamlining operations, JIT system aims at reducing the set-up time, so that production can continue with the least possible interruption. This brings flexibility in the operations since the company can quickly change the production requirement, to make products to meet the customer\u2019s demand. Quick turnover improves productivity of the machine, thereby increasing the production capacity. Lesser time is spent on set-up which is not a value adding activity.<\/p>\n Question 9.
\n(Value Analysis & Functional Analysis) A family-run business Raghav Furniture Co. began 29 years ago, supplying customized home furniture. Now RFC has grown into a thriving hub of experts specialized in either customized, locally sourced or high quality imported commercial grade furniture.
\nThe newly appointed CFO is concerned about trends in dropping sales volumes, increasing costs, and hence falling profits over the last three years. He observed that these observed trends may increased cut-throat competition that has emerged over the last three years. For many years, RFC has been known for high quality but now this quality is being matched by the competitors. RFC\u2019s share of the market is declining due to equivalent products being sold by competitors at lower prices. It is considered that, to offer such low prices, the furniture\u2019s production costs of the competitors must be lower than RFC\u2019s.
\nRequired
\nADVISE how RFC can improve its sales volumes, .costs and profits using Value Analysis and Functional Analysis.
\n[MTP October 2018] (10 Marks)
\nAnswer:
\nVALUE ANALYSIS – (Notation – Cost Reduction, Removal of Non-Value Added Activities, Emphasis on Value Added Activities)
\nValues Analysis is a method of identifying and removal of all non-value added activity which further helps to reduce the cost. This technique analyze the process of existing product to identify and eliminate any cost which is waste, which do not provide any contribution to performance or value.<\/p>\n VA is a scientific, planned approach which reviews the material composition of a product and production design, so that modification and improvements can be made to reduce the cost and improving the value of the product to the customer (i.e. quality for purpose should not be compromised.).<\/p>\n FUNCTIONAL ANALYSIS – (Notation – Reducing Cost by eliminating unnecessary features, adding cost effective new features)
\nFunctional analysis is applied to the design of new products and breaks the product down into functional parts. For example, a new furniture j chair may have the movable feature. The value that the customer places on each feature is considered and accordingly value is added to give a target cost. Thus, functional analysis aims to improve profits by reducing costs through elimination of unnecessary features and\/ or by adding cost- effective new features that are so attractive to customers that the product becomes more lucrative.<\/p>\n The result of the above analysis is to enhance the value of the furniture while maintaining costs and\/or cutback the costs of the furniture without compromising with value. It is clear from the scenario that RFC needs to cut back its selling prices to compete in the market. This selling price reduction can only be possible by a reduction in RFC\u2019s unit costs; however, such reduction must not be accomplished by compromising with quality. Both value analysis and functional cost analysis may be used for RFC; however, value analysis is likely to be a more useful technique because office tables and chairs are such items which are demanded more on the basis of considering their use value rather than their esteem value.<\/p>\n Reduces lead time for receiving materials since the suppliers of raw material are capable of delivering high quality materials in a timely manner directly at the shop. Proper selection of such suppliers is imperative for the JIT system to be successful. If this can be achieved, then it is beneficial for the company since inventory holding of material is eliminated along with receiving better quality of raw material in a timely manner.<\/p>\n Eliminating inventory holding, scrap, material wastage, flexibility in operations by reducing set-up time, better response time to customer\u2019s demands, better skilled workforce, better quality of production, lower workforce requirement, lower floor space requirement all of these contribute towards lowering working capital requirements. These contribute to a company\u2019s competitive edge and success.<\/p>\n <\/p>\n Question 10.
\nRegain Ltd. has developed a new product \u2018axy\u2019 which is about to be launched into the market. Company has spent \u20b9 30,00,000 on R&D of product \u2018axy\u2019. It has also bought a machine to produce the product \u2018axy\u2019 costing \u20b9 11,25,000 with a capacity of producing 1,100 units per week. Machine has no residual value. The company has decided to charge price that will change with the cumulative numbers of units sold:<\/p>\n \n\n\n| Cumulative Sales (units)<\/td>\n | Selling Price Rs. per unit<\/td>\n<\/tr>\n | \n| 0 to 2,200<\/td>\n | 750<\/td>\n<\/tr>\n | \n| 2,201 to 7,700<\/td>\n | 600<\/td>\n<\/tr>\n | \n| 7,701 to 15,950<\/td>\n | 325<\/td>\n<\/tr>\n | \n| 15,951 to 59,950<\/td>\n | 450<\/td>\n<\/tr>\n | \n| 59,951 and above<\/td>\n | 300<\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n Based on these selling prices, it is expected that sales demand will be as shown below:<\/p>\n \n\n\n| Weeks<\/td>\n | Sales Demand per week (units)<\/td>\n<\/tr>\n | \n| 1-10<\/td>\n | 220<\/td>\n<\/tr>\n | \n| 11-20<\/td>\n | 550<\/td>\n<\/tr>\n | \n| 21-30<\/td>\n | 825<\/td>\n<\/tr>\n | \n| 31-70<\/td>\n | 1,100<\/td>\n<\/tr>\n | \n| 71-80<\/td>\n | 880<\/td>\n<\/tr>\n | \n| 81-90<\/td>\n | 660<\/td>\n<\/tr>\n | \n| 91-100<\/td>\n | 440<\/td>\n<\/tr>\n | \n| 101-110<\/td>\n | 220<\/td>\n<\/tr>\n | \n| Thereafter<\/td>\n | NIL<\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n Unit variable costs are expected to be as follows:<\/p>\n \n\n\n| <\/td>\n | \u20b9 per unit<\/td>\n<\/tr>\n | \n| First 2,200 units<\/td>\n | 375<\/td>\n<\/tr>\n | \n| Next 13,750 units<\/td>\n | 300<\/td>\n<\/tr>\n | \n| Next 22,000 units<\/td>\n | 225<\/td>\n<\/tr>\n | \n| Next 22,000 units<\/td>\n | 188<\/td>\n<\/tr>\n | \n| Thereafter<\/td>\n | 225<\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n Regain Ltd. uses just-in-time production system. Following is the total contribution statement of the product \u2018axy\u2019 for its Introduction and Growth stage:
\n![\"Cost](\"https:\/\/gstguntur.com\/wp-content\/uploads\/2023\/04\/Cost-Management-Techniques-\u2013-CA-Final-SCMPE-Study-Material-7.png\")
\nRequired:
\n(i) PREPARE the total contribution statement for each of the remaining two stages of the product\u2019s life cycle.
\n(ii) DISCUSS Pricing Strategy of the product \u2018axy\u2019.
\n(iii) FIND possible reasons for the changes in cost during the life cycle of the product \u2018axy \u2019.
\nNote: Ignore the time value of money. [Nov. 2017 RTP\/March 2018 MTP] (4+6+4 Marks)
\nAnswer:
\n(i) Total Contribution Statement<\/p>\n \u201cTotal Contribution- for remaining two stages\u201d
\n![\"Cost](\"https:\/\/gstguntur.com\/wp-content\/uploads\/2023\/04\/Cost-Management-Techniques-\u2013-CA-Final-SCMPE-Study-Material-8.png\") <\/p>\n (ii) Pricing Strategy for Product \u2018axy\u2019
\nRegain Ltd. is following the skimming price strategy that\u2019s why it has planned to launch the product axy initially with high price tag. A skimming strategy may be recommended when a firm has incurred ) large sums of money on research and development for a new product. I
\nIn the problem, Regain Ltd. has incurred a huge amount on research and development. Also, it is very difficult to start with a low price and then raise the price. Raising a low price may annoy potential customers.
\nPrice of the product axy is decreasing gradually stage by stage. This is happening because Regain Ltd. wants to tap the mass market by lowering the price.<\/p>\n (iii) Possible Reasons for the changes in cost during the life cycle of the product \u2018axy\u2019
\nProduct life cycle costing involves tracing of costs and revenues of each product over several calendar periods throughout their entire life cycle. Possible reasons for the changes in cost during the life cycle of the product are as follows:
\nRegain Ltd. is expecting reduction in unit cost of the product axy over the life of product as a consequence of economies of scale and learning\/experience curves.
\nLearning effect may be the possible reason for reduction in per unit cost if the process is labour intensive. When a new product or process is started, performance of worker is not at its best and learning phenomenon takes place. As the experience is gained, the performance of
\nworker improves, time taken per unit reduces and thus his productivity goes up. The amount of improvem ent or experience gained is reflected in a decrease in cost.
\nTill the stage of maturity, Regain Ltd. is in the expansion mode. The % Regain Ltd. may be able to take advantages of quantity discount
\noffered by suppliers or may negotiate the price with suppliers.
\nProduct axy has the least variable cost ? 188 in last phase of maturity stage; this is because a product which is in the mature stage may
\nrequire less marketing support than a product which is in the growth stage so, there is a saving of marketing cost per unit.<\/p>\n Again, the cost per unit of the product axy jumps to \u20b9 225 in decline stage. As soon as the product reaches its decline stage, the need or demand for the product disappear and quantity discount may not be available. Even Regain Ltd. may have to incur heavy marketing expenses for stock clearance.<\/p>\n Workings
\nCumulative Sales along with Sales Price and Variable Cost
\n![\"Cost](\"https:\/\/gstguntur.com\/wp-content\/uploads\/2023\/04\/Cost-Management-Techniques-\u2013-CA-Final-SCMPE-Study-Material-9.png\") <\/p>\n Question 11.
\n[Pricing Decision, PLC Costing] RAL has recently research and develop a new product which has cost $800,000. It has also bought a machine for production of this new product costing $ 300,000, it is capable of producing 1,000 units of the product per month and due to its specialized nature, it is not expected to have any residual value.
\nThe company has decided that selling price it charges for the units will change with the cumulative numbers of units sold as follows:<\/p>\n \n\n\n| Cumulative sales units<\/td>\n | Selling Price $ per unit in this band<\/td>\n<\/tr>\n | \n| 0 to 2,000<\/td>\n | 200<\/td>\n<\/tr>\n | \n| 2,001 to 7,000<\/td>\n | 160<\/td>\n<\/tr>\n | \n| 7,001 to 14,500<\/td>\n | 140<\/td>\n<\/tr>\n | \n| 14,501 to 54,500<\/td>\n | 120<\/td>\n<\/tr>\n | \n| 54,501 and above<\/td>\n | 80<\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n Based on the changes in these selling prices, sales demand w ill be expected as shown below: .<\/p>\n \n\n\n| Sales demand per month<\/td>\n<\/tr>\n | \n| Months<\/td>\n | (units)<\/td>\n<\/tr>\n | \n| 1-10<\/td>\n | 200<\/td>\n<\/tr>\n | \n| 11-20<\/td>\n | 500<\/td>\n<\/tr>\n | \n| 21-30<\/td>\n | 750<\/td>\n<\/tr>\n | \n| 31-70<\/td>\n | 1,000<\/td>\n<\/tr>\n | \n| 71-80<\/td>\n | 800<\/td>\n<\/tr>\n | \n| 81-90<\/td>\n | 600<\/td>\n<\/tr>\n | \n| 91-100<\/td>\n | 400<\/td>\n<\/tr>\n | \n| 101-110<\/td>\n | 200<\/td>\n<\/tr>\n | \n| Thereafter<\/td>\n | NIL<\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n Unit variable costs are expected to be as follows:<\/p>\n \n\n\n| <\/td>\n | $ per unit<\/td>\n<\/tr>\n | \n| First 2,000 units<\/td>\n | 100<\/td>\n<\/tr>\n | \n| Next 12,500 units<\/td>\n | 80<\/td>\n<\/tr>\n | \n| Next 20,000 units<\/td>\n | 60<\/td>\n<\/tr>\n | \n| Next 20,000 units<\/td>\n | 50<\/td>\n<\/tr>\n | \n| Thereafter<\/td>\n | 60<\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n RAL follows a Just in Time (JIT) purchasing and production system and operates its business on a cash basis.
\nAfter the completion of Introduction and Growth stages; a columnar statement showing the cumulative cash flow of the product is set out below:<\/p>\n \n\n\n| <\/p>\n i<\/td>\n | Introduction<\/td>\n | Growth<\/td>\n<\/tr>\n | \n| Months<\/td>\n | 1-10<\/td>\n | 11-30<\/td>\n<\/tr>\n | \n| Number of units produced and sold<\/td>\n | 2,000<\/td>\n | 5,000<\/td>\n | 7,500<\/td>\n<\/tr>\n | \n| Selling price per unit<\/td>\n | $200<\/td>\n | $160<\/td>\n | $140<\/td>\n<\/tr>\n | \n| Unit variable cost<\/td>\n | $100<\/td>\n | $80<\/td>\n | $80<\/td>\n<\/tr>\n | \n| Unit contribution<\/td>\n | $100<\/td>\n | $80<\/td>\n | $60<\/td>\n<\/tr>\n | \n| Total contribution<\/td>\n | $200,000<\/td>\n | $850,000<\/td>\n<\/tr>\n | \n| Cumulative cash flow<\/td>\n | ($900,000)<\/td>\n | ($50,000)<\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n Requirements
\n(a) Complete the cash flow statement for each of the remaining two stages of the product\u2019s life cycle. Ignore the time value of money.
\n(b) Explain, the possible reasons for the changes in costs and selling prices during the life cycle of the product.
\nAnswer:
\n(a)
\n![\"Cost](\"https:\/\/gstguntur.com\/wp-content\/uploads\/2023\/04\/Cost-Management-Techniques-\u2013-CA-Final-SCMPE-Study-Material-10.png\") <\/p>\n (b) Reduction in unit costs over time might occur due to economies of scale, or might be due to the impact of learning curve and the benefits of bulk purchase discounts. It is noted though that the unit variable cost of the product rises in the decline stage and this is consistent with the diseconomy of scale, say material purchase prices increases due to reduce volume. Other costs also start to increase, possibly as a consequence of the reducing efficiency of the equipment being used, The reduction in selling prices over time is typical of the product life cycle. Market skimming in the introduction stage reflects high unit prices paid by a select few customers. The company\u2019s competitors enter the market in the growth phase and selling prices reduce (a) to stimulate demand, (b) to compete with new market entrants, and (c) to reflect the effect of economies of scale on costs.
\nIt is observed that selling prices stabilise at $ 120 per unit that is at the g maturity stage, this may reflects an established oligopolistic market \u00a7 price.
\nAt declining stage sales volume decline, prices fall to attract what f demand is still available, as of better and less costly substitute in the (market accounts for the arrival of this stage.<\/p>\n <\/p>\n Question 12.
\n(Pricing Decision, PLC Costing) Fossill. Ltd. Makes fashionable high quality digital watches. Fossill Ltd. now is preparing a product life cycle budget for a new watch. Development on the new watch is to start shortly. Estimates for new watch are as under:<\/p>\n \n\n\n| Life Cycle Units Manufactured and Sold<\/td>\n | 2,40,000<\/td>\n<\/tr>\n | \n| Selling Price Per Watch<\/td>\n | (\u20b9) 500<\/td>\n<\/tr>\n | \n| Life Cycle Costs:<\/td>\n | <\/td>\n<\/tr>\n | \n| R&D and Design Cost<\/td>\n | (\u20b9) 80 Lakh<\/td>\n<\/tr>\n | \n| Manufacturing:<\/td>\n | <\/td>\n<\/tr>\n | \n| Variable Cost Per Watch<\/td>\n | (\u20b9) 120<\/td>\n<\/tr>\n | \n| Variable Cost Per Batch<\/td>\n | (\u20b9) 4,000<\/td>\n<\/tr>\n | \n| Watches Per Batch<\/td>\n | 300<\/td>\n<\/tr>\n | \n| Fixed Costs<\/p>\n Customer Service Cost Per Watch<\/td>\n | (\u20b9) <\/strong>112 lakh (\u20b9) 10<\/td>\n<\/tr>\n\n| Marketing:<\/td>\n | <\/td>\n<\/tr>\n | \n| Variable Cost Per Batch<\/td>\n | (<\/strong>\u20b9 ) 24<\/strong><\/td>\n<\/tr>\n\n| Fixed Costs<\/td>\n | (\u20b9) 8 Lakh<\/td>\n<\/tr>\n | \n| Distribution:<\/td>\n | <\/td>\n<\/tr>\n | \n| Variable Cost Per Watch (Batch)<\/td>\n | (\u20b9) 240<\/td>\n<\/tr>\n | \n| Watches Per Batch<\/td>\n | 96<\/td>\n<\/tr>\n | \n| Fixed Costs<\/td>\n | (\u20b9) 45 Lakh<\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n Required
\n(i) CALCULATE the budgeted life cycle operating income for, the new watch. OR
\nSUGGEST the strategies to be adopted by the Fossil Ltd. to develop a new watch.
\n(ii) What percentage of the budgeted total product life cycle costs will be incurred by the end of the R&D and design stage?
\n(iii) An analysis reveals that 75% of the budgeted total life cycle costs of new watch will be locked in at the R&D and design stage. What are the implications for managing costs of the new watch? [May 2018] (5+2+3 Marks)
\nAnswer:
\n(i) Statement Showing Budgeted Life-Cycle Operating Income
\n![\"Cost](\"https:\/\/gstguntur.com\/wp-content\/uploads\/2023\/04\/Cost-Management-Techniques-\u2013-CA-Final-SCMPE-Study-Material-11.png\")
\nOr
\n![\"Cost](\"https:\/\/gstguntur.com\/wp-content\/uploads\/2023\/04\/Cost-Management-Techniques-\u2013-CA-Final-SCMPE-Study-Material-12.png\")
\nWe can see from the above figure that approximately 80% of a prodnet\u2019s cost are committed during the planning and design stage. At j this stage product designers determine the product’s design and the production process. In contrast, the majority of costs are incurred at the manufacturing stage, but they have already become locked in at the planning and design stage and are difficult to alter.
\nThe pattern of cost commitment and incurrence will differ based on the industry and specific product introduced. For developing a watch, Fossill Ltd. needs to commit around 80,00,000 for its R&D and design Cost. So, Cost Management of Fossill Ltd. can be most effectively exercised during the planning and design stage of its new watch and not at the manufacturing stage when the product design and processes have already been determined and costs have been committed. At this latter stage the focus is more on cost containment rather than on Cost Management. An understanding of life-cycle costs and how they are committed and incurred at different stages throughout a product\u2019s life
\ncycle of the watch will also led to the emergence of target costing, a technique that focuses on managing costs during a product’s planning and design phase.<\/p>\n (ii) % of Budgeted Total Product Life-Cycle Costs incurred till the R & D and Design Stages:
\n= \\(\\frac{\u20b9 80,00,000}{\u20b9 11,65,60,000}\\) x 100 = 6.86%<\/p>\n (iii) Implications:
\nAn analysis reveals that 75%* of the total product life-cycle costs of the new watch will be locked in at the end of the R&D and design stages when only 6.8696 of the costs are incurred (as calculated in the above case). The implication is that it will be difficult to alter or reduce the costs of Fossill digital vcatches once the design is finalised. To reduce and manage total costs, Fossill must act to modify the design before costs get locked in. (Question states 75%, hence 75% is taken)
\n*This question can be solved by taking appropriate assumption in respect of Marketing Costs and Distribution Costs,<\/p>\n Question 13.
\nShrivastav Pvt, Ltd. is a manufacturing organization, they are following Life Cycle Costing. Its four products X4, X3, X2 and X1 are in the market respectively in Introduction, Growth, Maturity and Decline stages (phases). The Management wants to analyse the marketing challenges faced by the products to take strategical measures to stabilise the products in the market. For this purpose, the Board directed the Secretary to get a product-wise report from the marketing chief of each product. The chiefs were asked to give one characteristic possessed by the product because of which the product is being classified in the respective stage and two strategical measures to be taken to overcome the market challenges faced at that stage (phase). The Secretary received the report from all the chiefs and handed them over to the computer operator to get it printed in a tabulated form. But the operator, without understanding the significance of the products, phases, characteristics and strategies, mixed all the twelve items [(1 + 2) X 4] and got it printed as a list as given below:
\n(i) Over capacity in the industry.
\n(ii) The company can continue to offer the product to our loyal customers at a reduced price.
\n(iii) Few competitors produce basic version of our product.
\n(iv) Product features may be improved or enhanced to differentiate our product from that of the competitors.
\n(v) Attracting customers by raising awareness about our product through promotion activities.
\n(vi) High volume of business and increase in competition.
\n(vii) Use the present product as replacement product for launching another new product successfully in the market.
\n(viii) Value-based pricing strategies may be considered.
\n(ix) Profits start declining and at times become negative
\n(x) Maintain control over product quality to assure customer satisfaction.
\n(xi) Strengthening or expanding channel and supply chain relationships.
\n(xii) Prices may have to be reduced to attract the price-sensitive customers. The items are required to be TABULATED as in the format given below:
\nRequired
\n(i) Complete the table given below by entering the twelve items under appropriate category columns. You need not rewrite the items. Write the serial numbers of the items only in columns (3) and (4).<\/p>\n \n\n\n| Products (1)<\/td>\n | Phases (Stages) (2)<\/td>\n | Characteristics (3)<\/td>\n | Strategies (4)<\/td>\n<\/tr>\n | \n| X4<\/td>\n | Introduction<\/td>\n | <\/td>\n | <\/td>\n<\/tr>\n | \n| X3<\/td>\n | Growth<\/td>\n | <\/td>\n | <\/td>\n<\/tr>\n | \n| X2<\/td>\n | Maturity<\/td>\n | <\/td>\n | <\/td>\n<\/tr>\n | \n| X1<\/td>\n | Decline<\/p>\n <\/td>\n | <\/td>\n | <\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n (ii) LIST down the importance (any four) of Product Life Cycle Costing.
\n(iii) STATE the benefits (any four) of Product Life Cycle Costing. [Nov 2018](12 + 4+4 Marks)
\nAnswer:
\nPart (i) and (ii) are missing
\n(i) Statement Showing Product Life Cycle Characteristics and Strategies<\/p>\n \n\n\n| Products (1)<\/td>\n | Phases (Stages) (2)<\/td>\n | Characteristics (3)<\/td>\n | Strategies (4)<\/td>\n<\/tr>\n | \n| X4<\/td>\n | Introduction<\/td>\n | (iii)<\/td>\n | (v), (xi)<\/td>\n<\/tr>\n | \n| X3<\/td>\n | Growth<\/td>\n | (vi)<\/td>\n | (x), (viii)<\/td>\n<\/tr>\n | \n| X2<\/td>\n | Maturity<\/td>\n | (i)<\/td>\n | (iv), (xii)<\/td>\n<\/tr>\n | \n| X1<\/td>\n | Decline<\/td>\n | (ix)<\/td>\n | (ii). (vii)<\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n (ii) Importance of Product Life Cycle (PLC) Costing<\/p>\n | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
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