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Strategic Cost Management
1. X Ltd has to replace its machine and the production manager has to decide
between Machine A and Machine B. Machine A is having installation cost of 160
and annual electric bill 200. Machine B has installation cost of 760 and annual
electric bill of 80. If both have life of 8 years which machine will you
recommend if interest rate is 9 % for five years. P/V factor @ 9 % for 8 years
is 5.5348 (10 Marks)2. A company manufacturing two products furnishes the following data for a year.
Product
Annual Output Units
Total machine hours
Total No. of purchase orders
Total No. of setups
A
5,000
20,000
160
20
B
60,000
1,20,000
384
44
The annual Overheads are as under:
Volume related activity cost ( Activity driver-Machine hours )
5,50,000
Setup related cost
8,20,000
Purchase related cost
6,18,000
You are required to calculate cost per unit of each product A & B based on
i. Traditional method of charging overhead and
ii. Activity based costing method (10 Marks)
3. Project X Involves an initial outlay of Rs 32,400.Its working life is 3 years. The cash streams are as follows Year Inflows P .V Factor @ 14% P .V Factor @ 16% 1 16,000 0.877 0.862 2 14,000 0.769 0.743 3 12,000 0.675 0.641
Calculate a. NPV at 14 % & 16%
b. IRR
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