FM11
Financial & Management
Accounting
(For CNM Cases)
Assignment - II
Assignment
Code: 2016FM11A2 Last Date of Submission: 30th
April 2016
Maximum Marks: 100
Attempt all the questions. All the questions are compulsory
and carry equal marks.
Section-A
1. What is Responsibility accounting? How is it associated with
the goal of controllability? Explain
clearly main objectives & features of responsibility accounting.
2. Principal budget factor (or limiting factor) is of vital
significance to management. Comment
on this statement, giving a list of
such principal budget factors.
3. What
are the steps involved in managerial decision making?
4. Explain the concept of relevant cost in managerial decision
making. Also discuss the effects of
changing inventory levels on cost.
Section-B
Case
Study
M/s Precision Company Ltd. (PCL) is
in the business of making Fingertrips’ calculators. Fingertrips brand of
calculators has a good reputation among students, office staff & college
faculty for its quality & price. Its current market price is Rs.310 per
calculator. Its unit cost structure is given as follows:
|
|
Rs.
|
|
Direct material cost
Direct Labour cost
Variable overheads
(including printing cost Rs.2 & packaging cost Rs.5)
Allocated fixed overheads
|
150
40
40
50
|
|
Total
|
280
|
The PCL was started three years ago.
A market research had estimated a demand for 180000 calculators annually. The
PCL was set up with an installed capacity of 200000 calculators. But even after
three years the annual demand for Fingertrip calculators stood at 150000 units.
The CEO of PCL, Bharm Dharan, was concerened about its future prospects.
Meanwhile, he got an export order from Dutch Exim Ltd. (DEL), Netherlands, for
100000 calculators at Rs.260 per calculator.
DEL is in business of marketing
stationery to schools & offices & has planned to start selling
calculators as well. It would import the Fingertrip calculators but put its own
brand name & would also take care of packaging to suit the local market
requirements. Initially, it is one-year contract renewable depending on market
conditions.
The CEO of PCL is interested in the
order as it would help in utilizing the spare capacity of 50000 units. The
marketing manager of PCL, Sonal agarwal, supports the proposal because the
calculator would be sold in Netherlands under a different brand name, & the
sale of Fingertrip calculator in the local market would not be adversely
affected.
According to John Mathew, production manager,
to increase the production capacity of 50000 units, a new machine, similar to
the one being currently used, would have to be acquired. Two alternative
machines are available in the market. The first machine could be leased at an
annual cost of Rs.25 Lakh. The maintenance cost per year is estimated to be
Rs.2 lakh. The second machine uses a new technology. It can be leased at an
yearly rental of Rs.30 lakhs. However, the maintenance cost would be 1.5 lakh
per year. The new technology based machine would also reduce the labour cost
& variable overhead cost by Rs.5 & Rs.2 per calculator respectively.
The CEO asks the finance manager to
carry out a financial analysis of the alternatives.
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