need project statement

Particulars papanas Ponaanutpay otpad Telco 21 2 S15 2 SG4 Likes 2 1242 Las 70 So, Oral Company AZIZA - 11746 Lalo 3. Comparison Contrafora Pune Factory Lucknow Factory Particians From the from Bhopal le mae per m (gen) 71.400 21/100 PC Der MT See Mote below) 100 2 303 2 Other Variable cost per MT (WK 2) 2319 305 303 1340 2 205 TI TV 1 TET I R4 is purchased Cost of PM purchased locally for Ladeon factory 2 Top NTCM-270-980 MT of Output Cost of RM purchased from stod 792 per Mat RM 272 - Per MT of Ospit Maximum FG FM required as 90%) PM available focally d) Production using locally available Raw Material 4. Production Decision as per above ranking (Reguired FG = 18,000 W) Particulars Ludenow Pune Total (Geren) 9,000 MT (Gwen) 1140 MT 20,880 MT 10,000 MT 13,200 XT 2,200 MT (Given) 6,000 MT (Geren) 13.000 MT 19,000 MT 6,000 MT 90% 13.000 MT X 90% 5,400 MT (Rank II) = 11,700 MT (Rank T) 17,100 MT ) Production using Raw Material (balanang figure) (Max 11,780 - 11,750) = 720 MT(Rank IV) = 180 MT (Rank II) Col) 900 MT 6,120 MT 11,820 MT 18,000 MT Total Contribution earned (5,400 MT X? 340) + (720 MT (11,700 MT X?345) + (180 x7260) = ? 20.232 Lakhs MT X? 275) = 740.85 Laliths 361.092 Lakhs 218.000 Lakhs 24.84 Lakhs 342.840 Lakhs 19) Profit 3 2.232 Lakhs 16.02 Lakhs 318.252 Lakhs Additional Profit due to above decision = Revised Profft - Present Profit = 18.252 - 17.46 = 70.792 Lakhs purchased from Bhopal Total Production ( de) Fired Costs M 17 3.4 Purchase Decision - Maximum Price to Supplier Doc Ltd, produces a gadget made up of special Steel Plates. The Company gets an order for supply of 50,000 gadgets at a Srice of 680 per unit She Gadgets are made of two halves (upper part and lower part) and then welded together. Fie Cost structure is: Materials 15 kg per half @ 10 per kg, Labour 60 per half. Welding Charges and Fitting Charges would be * 20 per gadget. The special Steel Plates are in short supply and ABC Ltd has stock of only 750 Tons. A Supplier has only the lower part as offered to supply 50,000 numbers. Transportation and Handling will cost 6 per half. (Consider 1 ton = 1,000 kg) SC Ltd could either execute its order to the extent of material available, or could fulfill the entire order by buying the n from the Supplier. Evaluate both the options and find out the Maximum Price that ABC would be willing to pay the Se T lower part if- It wants to retain the same level of Profit per unit as in own manufacture. If any additional revenue is preferred. Present your calculations to the nearest rupee 9.83 Components CVP Analysis and Decision-Making 9. Evaluation of Alternatives and Decision-Making St. Eraluation et Aternatives and Decision Making - Effect on Operating income N 09 Ltd makes Industrial Power Drills which are made by the use of a components A (Electrical & Mechanical Components) and E Pantic Housing. The following table shows the couny one placed Housing separately from the cost of Electrical & Mechanical A&B B A Particulars Industrial Drills Plastic Housing Electrical & Mechanical Components Tales 1,00,000 units at 100 1,00,00,000 Variable Costs: Direct Material 44,00,000 5,00,000 49,00.000 Direct Labour 4,00.000 3,00,000 7,00,000 Variable Factory Overhead 1,00,000 2,00,000 3,00,000 Other Variable Costs 1,00,000 1,00,000 Sales Commission at 10% of Sales 10,00,000 10,00,000 Total Variable Costs 60,00,000 10,00,000 70,00,000 Contribution 30,00.000 Total Fixed Costs 22,20,000 4,80,000 27,00,000 Operating Income 3,00,000 nswer the following questions independently: During the year, a prospective customer offered * 82,000 for 1,000 Drills. The Drills would be manufactured in addition to the 1,00,000 units sold. B Ltd would pay the regular Sales Commission rate on the 1,000 Drills. The Chairman rejected the order because it was below our Costs Calculate Operating Income of B Led, If it accepts the offer. A Supplier offers to manufacture the yearly supply of 1,00,000 units Plastic Housing Components for ? 13.50 each. Assume that B Ltd would avoid * 3,50,000 of the costs assigned to Plastic Housing if it purchases. Calculate the Operating Income, it B Lid decides to purchase the Plastic Housing from the Supplier. Assuming that B Lid could purchase 1,20,000 units (Plastic Housing Components) for 13.50 each and use the vacaled plant capacity for the manufacture of Deluxe Version of Drill of 20,000 units (and sell them for t 130 each in addition to the sales of the 1,00,000 regular units) at a Variable Cost of 90 each, excusive of Housings & exclusive of the 10% Sales Commission. All the Fixed Costs pertaining to the Plastic Housing would continue, because these costs are related to the manufacturing facilities primarily used. Calculate Operating Income of B Ltd, it it purchases the Plastic Housings & manufactures the Deluxe Version of Drills. olutions Situation 1: Computation of Additional Operating Income Particulars Quantity/ Computation 2 Sales 1000 drills 82,000 Variable Costs Direct Materials ( 49,00,000 - 1,00,000) x 1000 Direct Labour (7,00,000 - 1,00,000) * 1000 7.000 Variable FOH ( 3,00,000 - 1,00,000) x 1000 3,000 Other Variable Cost ( 1,00,000 + 1,00,000) 1000 1,000 Sales Commission 82,000 x 10% 8,200 68,200 Addnl Contribution/ Operating Income 13,800 lote: Total Fored Cost of 27,00,000 remains constant irrespective of additional production of drills Conclusion: Since the offer is in addition to existing production, Revised Operating Income = 3,00.000+13,800=23,13,800. Situation 2: Effect of buying externally and saving Fixed Costs the Components are purchased from the Supplier, there will be no Variable Cost involved for manufacturing plastic housing component by the Company cost of purchasing Components = 1,00,000 units x 13.50 p.u. = 13,50,000 evised Fixed Cost assigned = 4,80,000 - 3,50.000 - 130,000 Total Cost 314 80.000 49,000 9.85 0.000 10. TO0.00 yo 3350 OhOther (+4+1+1 SO 12.50 10.00 73.50 26.50 26,50.000 116.50 13.50 2,70,000 Total Variable Cast p.u. C TO 29,20,000 27,00,000 2,20,000 N 01 Operating Income tione Alternatives - Profitability Analysis CMA Exam question actures two types of herbal products, A and B. Is budget shows overall profit figures after apportioning the Cost oft 15 Lakhs in the ratio of the number of units sold. The budget indicates - Product Losses) *2.10,000 rice per unit * 200 A B 30,000) 120 50% 40% = best option among the following, it the Company expects that the number of units sold would be equal. mo a change in a manufacturing process, the joint fixed cost would be reduced by 15% and the variable cost would be ased by 7.5% A could be increased by 20% as it is expected that the Price Elasticity of Demand would be unity over the range of price. Caneous introduction of both the Options 1 and 2 above. 1. Computation of Present Sale Quantity Total B Particulars 3120 3200 Price per unit 40% 50% tion per unit (a x b) 380 60 Costs per unit (a - C) 120 60 fits (given) 2,10,000 ( 30,000) 1,80,000 Costs (given) 15,00,000 tribution (e +1) 16,80,000 noe Sales Mix is presumed equal, the contribution per set of 1 unit of A and B is 80 + 360 = 140. So, number of sets of 1 unit each, to obtain above contribution = 16,80,000 = 12,000 units. 140 So, the Sale Quantity of A and B are 12,000 units each. 2. Additional Profit under Option 1 i.e. Reduction in Joint Fixed Cost by 15% and increase in Variable Costs by 7.5 % xed Cost 15% of 15,00,000 ble Cost ( 120 + 60) 7.5% x 12,000 units Additional Profit = (a - b) = 2,25,000 - 1,62,000 2,25, 1,62 63, 9.86 B A 2) Sale Quantity CVP Analysis and Decision Making 3. Additional Profit under Option 2. le. Increase in Price of A by 20% Since Price Elasticity of Demand will be unity and to the new price will be offel by reduction in quantity in order to maintain the same Sale Revenue tence, Revised Sale Quantity Present Total Sales Value 200 12,000 units - 10,000 units Revised Sale Price 200+ 20% increase Since the sales roux will be equal, the revised sale quantity of Balso will be 10,000 units f) Revised Total Contribution will be ( 240 - 2120) > 10,000+ * 60 * 10,000 (18,00,000 5) Existing Contribution (WN 1) 16,00,000 (c) Mence, Net Additional Profit = (a - b) = 18,00,000 -16,80,000 11,20,000 dote: If it is presumed that sale of B will still remain at 12,000 units (t.e. existing quantity level), the deitional Profit under Option 2 will be 2,40,000. 4. Additional Profit under Option 3, 1.e. Option 1 and 2 combined Total Particulars 10,000 units 10,000 units 20,000 units (b) Selling Price per unit 200 + 20% - 240 120.00 TC) Variable Cost per unit 120 + 7.5% - 129 60 + 7.5% 61.50 d) Contribution per unit (b-c) * 111 355.50 (e) Total Contribution (a xd) 11,10,000 75,55,000 + 16,65,000 Fixed Costs = 15,00,000 less 15% 12,75,000 (9) Profit 7 3,90,000 So, Additional Profit due to introduction of both Options 1 & 2 are 3,90,000 -- 31,80,000 2,10,000. Note: Alternatively, if it is presumed that sale of B will still remain at 12,000 units (i.e. existing quantity level), the Additional Profits under Option 3 will be R 11,10,000 + 55.50 * 12,000 units) - 712,75,000) 5,01,000. Decision: Option 3 is most preferable due to maximum additional profit. 2.3 . Hiring Out Spare Capacity - Evaluation of Alternatives - ROI Approach Book question M00 AB-Ltd manufactures Product X. The Company operates a single shift of 8 hours for 300 days in a year. The Capital Employed in the business is 18 Crores. The manufacturing operations of the Company comprise of four Production Departments. The Company at present produces 9,000 units of Product X at maximum capacity. However, the capacity utilisations of all the four Departments are not equal and the present individual capacity utilisations are as under - epartment A D Capacity Utilisation 75% 100% 70% 50% The present Return on Capital of the Company has gone down to 10% from the earlier cut-off rate of 15% due to increased cost production. As the Company cannot operate more than one shift, the Management is considering two alternative proposals increase the Return on Capital Employed. Iternative l: To hire out the surplus capacity of departments A, C and D. The cost and revenue projections are -- Department Hire Charges per Hour Incremental Cost per Hour A 2,500 2,000 1,800 1,500 D 1,600 31,200 ternative II: To increase the installed capacity of the Factory to 12,000 units by adding Plant and Machinery in Department B a Capital Cost of 4 Crores. Any balance surplus capacity in other Departments after meeting the increased volume to be red out as per Alternative l. The additional units would fetch an incremental Revenue of 1,600 per unit. B aluate the two proposals and suggest to the Management, which of the two proposals is to be accepted. D lution: 1. ROCE under Alternative I (Output = 9,000 units) Particulars A B 100% Capacity hrs p.a. (300 x8) 2,400 hours 2,400 hours 2,400 hours Present Capacity Utilisation 75% 100% 70% 2,400 hours 50% 9.87 Particulars papanas Ponaanutpay otpad Telco 21 2 S15 2 SG4 Likes 2 1242 Las 70 So, Oral Company AZIZA - 11746 Lalo 3. Comparison Contrafora Pune Factory Lucknow Factory Particians From the from Bhopal le mae per m (gen) 71.400 21/100 PC Der MT See Mote below) 100 2 303 2 Other Variable cost per MT (WK 2) 2319 305 303 1340 2 205 TI TV 1 TET I R4 is purchased Cost of PM purchased locally for Ladeon factory 2 Top NTCM-270-980 MT of Output Cost of RM purchased from stod 792 per Mat RM 272 - Per MT of Ospit Maximum FG FM required as 90%) PM available focally d) Production using locally available Raw Material 4. Production Decision as per above ranking (Reguired FG = 18,000 W) Particulars Ludenow Pune Total (Geren) 9,000 MT (Gwen) 1140 MT 20,880 MT 10,000 MT 13,200 XT 2,200 MT (Given) 6,000 MT (Geren) 13.000 MT 19,000 MT 6,000 MT 90% 13.000 MT X 90% 5,400 MT (Rank II) = 11,700 MT (Rank T) 17,100 MT ) Production using Raw Material (balanang figure) (Max 11,780 - 11,750) = 720 MT(Rank IV) = 180 MT (Rank II) Col) 900 MT 6,120 MT 11,820 MT 18,000 MT Total Contribution earned (5,400 MT X? 340) + (720 MT (11,700 MT X?345) + (180 x7260) = ? 20.232 Lakhs MT X? 275) = 740.85 Laliths 361.092 Lakhs 218.000 Lakhs 24.84 Lakhs 342.840 Lakhs 19) Profit 3 2.232 Lakhs 16.02 Lakhs 318.252 Lakhs Additional Profit due to above decision = Revised Profft - Present Profit = 18.252 - 17.46 = 70.792 Lakhs purchased from Bhopal Total Production ( de) Fired Costs M 17 3.4 Purchase Decision - Maximum Price to Supplier Doc Ltd, produces a gadget made up of special Steel Plates. The Company gets an order for supply of 50,000 gadgets at a Srice of 680 per unit She Gadgets are made of two halves (upper part and lower part) and then welded together. Fie Cost structure is: Materials 15 kg per half @ 10 per kg, Labour 60 per half. Welding Charges and Fitting Charges would be * 20 per gadget. The special Steel Plates are in short supply and ABC Ltd has stock of only 750 Tons. A Supplier has only the lower part as offered to supply 50,000 numbers. Transportation and Handling will cost 6 per half. (Consider 1 ton = 1,000 kg) SC Ltd could either execute its order to the extent of material available, or could fulfill the entire order by buying the n from the Supplier. Evaluate both the options and find out the Maximum Price that ABC would be willing to pay the Se T lower part if- It wants to retain the same level of Profit per unit as in own manufacture. If any additional revenue is preferred. Present your calculations to the nearest rupee 9.83 Components CVP Analysis and Decision-Making 9. Evaluation of Alternatives and Decision-Making St. Eraluation et Aternatives and Decision Making - Effect on Operating income N 09 Ltd makes Industrial Power Drills which are made by the use of a components A (Electrical & Mechanical Components) and E Pantic Housing. The following table shows the couny one placed Housing separately from the cost of Electrical & Mechanical A&B B A Particulars Industrial Drills Plastic Housing Electrical & Mechanical Components Tales 1,00,000 units at 100 1,00,00,000 Variable Costs: Direct Material 44,00,000 5,00,000 49,00.000 Direct Labour 4,00.000 3,00,000 7,00,000 Variable Factory Overhead 1,00,000 2,00,000 3,00,000 Other Variable Costs 1,00,000 1,00,000 Sales Commission at 10% of Sales 10,00,000 10,00,000 Total Variable Costs 60,00,000 10,00,000 70,00,000 Contribution 30,00.000 Total Fixed Costs 22,20,000 4,80,000 27,00,000 Operating Income 3,00,000 nswer the following questions independently: During the year, a prospective customer offered * 82,000 for 1,000 Drills. The Drills would be manufactured in addition to the 1,00,000 units sold. B Ltd would pay the regular Sales Commission rate on the 1,000 Drills. The Chairman rejected the order because it was below our Costs Calculate Operating Income of B Led, If it accepts the offer. A Supplier offers to manufacture the yearly supply of 1,00,000 units Plastic Housing Components for ? 13.50 each. Assume that B Ltd would avoid * 3,50,000 of the costs assigned to Plastic Housing if it purchases. Calculate the Operating Income, it B Lid decides to purchase the Plastic Housing from the Supplier. Assuming that B Lid could purchase 1,20,000 units (Plastic Housing Components) for 13.50 each and use the vacaled plant capacity for the manufacture of Deluxe Version of Drill of 20,000 units (and sell them for t 130 each in addition to the sales of the 1,00,000 regular units) at a Variable Cost of 90 each, excusive of Housings & exclusive of the 10% Sales Commission. All the Fixed Costs pertaining to the Plastic Housing would continue, because these costs are related to the manufacturing facilities primarily used. Calculate Operating Income of B Ltd, it it purchases the Plastic Housings & manufactures the Deluxe Version of Drills. olutions Situation 1: Computation of Additional Operating Income Particulars Quantity/ Computation 2 Sales 1000 drills 82,000 Variable Costs Direct Materials ( 49,00,000 - 1,00,000) x 1000 Direct Labour (7,00,000 - 1,00,000) * 1000 7.000 Variable FOH ( 3,00,000 - 1,00,000) x 1000 3,000 Other Variable Cost ( 1,00,000 + 1,00,000) 1000 1,000 Sales Commission 82,000 x 10% 8,200 68,200 Addnl Contribution/ Operating Income 13,800 lote: Total Fored Cost of 27,00,000 remains constant irrespective of additional production of drills Conclusion: Since the offer is in addition to existing production, Revised Operating Income = 3,00.000+13,800=23,13,800. Situation 2: Effect of buying externally and saving Fixed Costs the Components are purchased from the Supplier, there will be no Variable Cost involved for manufacturing plastic housing component by the Company cost of purchasing Components = 1,00,000 units x 13.50 p.u. = 13,50,000 evised Fixed Cost assigned = 4,80,000 - 3,50.000 - 130,000 Total Cost 314 80.000 49,000 9.85 0.000 10. TO0.00 yo 3350 OhOther (+4+1+1 SO 12.50 10.00 73.50 26.50 26,50.000 116.50 13.50 2,70,000 Total Variable Cast p.u. C TO 29,20,000 27,00,000 2,20,000 N 01 Operating Income tione Alternatives - Profitability Analysis CMA Exam question actures two types of herbal products, A and B. Is budget shows overall profit figures after apportioning the Cost oft 15 Lakhs in the ratio of the number of units sold. The budget indicates - Product Losses) *2.10,000 rice per unit * 200 A B 30,000) 120 50% 40% = best option among the following, it the Company expects that the number of units sold would be equal. mo a change in a manufacturing process, the joint fixed cost would be reduced by 15% and the variable cost would be ased by 7.5% A could be increased by 20% as it is expected that the Price Elasticity of Demand would be unity over the range of price. Caneous introduction of both the Options 1 and 2 above. 1. Computation of Present Sale Quantity Total B Particulars 3120 3200 Price per unit 40% 50% tion per unit (a x b) 380 60 Costs per unit (a - C) 120 60 fits (given) 2,10,000 ( 30,000) 1,80,000 Costs (given) 15,00,000 tribution (e +1) 16,80,000 noe Sales Mix is presumed equal, the contribution per set of 1 unit of A and B is 80 + 360 = 140. So, number of sets of 1 unit each, to obtain above contribution = 16,80,000 = 12,000 units. 140 So, the Sale Quantity of A and B are 12,000 units each. 2. Additional Profit under Option 1 i.e. Reduction in Joint Fixed Cost by 15% and increase in Variable Costs by 7.5 % xed Cost 15% of 15,00,000 ble Cost ( 120 + 60) 7.5% x 12,000 units Additional Profit = (a - b) = 2,25,000 - 1,62,000 2,25, 1,62 63, 9.86 B A 2) Sale Quantity CVP Analysis and Decision Making 3. Additional Profit under Option 2. le. Increase in Price of A by 20% Since Price Elasticity of Demand will be unity and to the new price will be offel by reduction in quantity in order to maintain the same Sale Revenue tence, Revised Sale Quantity Present Total Sales Value 200 12,000 units - 10,000 units Revised Sale Price 200+ 20% increase Since the sales roux will be equal, the revised sale quantity of Balso will be 10,000 units f) Revised Total Contribution will be ( 240 - 2120) > 10,000+ * 60 * 10,000 (18,00,000 5) Existing Contribution (WN 1) 16,00,000 (c) Mence, Net Additional Profit = (a - b) = 18,00,000 -16,80,000 11,20,000 dote: If it is presumed that sale of B will still remain at 12,000 units (t.e. existing quantity level), the deitional Profit under Option 2 will be 2,40,000. 4. Additional Profit under Option 3, 1.e. Option 1 and 2 combined Total Particulars 10,000 units 10,000 units 20,000 units (b) Selling Price per unit 200 + 20% - 240 120.00 TC) Variable Cost per unit 120 + 7.5% - 129 60 + 7.5% 61.50 d) Contribution per unit (b-c) * 111 355.50 (e) Total Contribution (a xd) 11,10,000 75,55,000 + 16,65,000 Fixed Costs = 15,00,000 less 15% 12,75,000 (9) Profit 7 3,90,000 So, Additional Profit due to introduction of both Options 1 & 2 are 3,90,000 -- 31,80,000 2,10,000. Note: Alternatively, if it is presumed that sale of B will still remain at 12,000 units (i.e. existing quantity level), the Additional Profits under Option 3 will be R 11,10,000 + 55.50 * 12,000 units) - 712,75,000) 5,01,000. Decision: Option 3 is most preferable due to maximum additional profit. 2.3 . Hiring Out Spare Capacity - Evaluation of Alternatives - ROI Approach Book question M00 AB-Ltd manufactures Product X. The Company operates a single shift of 8 hours for 300 days in a year. The Capital Employed in the business is 18 Crores. The manufacturing operations of the Company comprise of four Production Departments. The Company at present produces 9,000 units of Product X at maximum capacity. However, the capacity utilisations of all the four Departments are not equal and the present individual capacity utilisations are as under - epartment A D Capacity Utilisation 75% 100% 70% 50% The present Return on Capital of the Company has gone down to 10% from the earlier cut-off rate of 15% due to increased cost production. As the Company cannot operate more than one shift, the Management is considering two alternative proposals increase the Return on Capital Employed. Iternative l: To hire out the surplus capacity of departments A, C and D. The cost and revenue projections are -- Department Hire Charges per Hour Incremental Cost per Hour A 2,500 2,000 1,800 1,500 D 1,600 31,200 ternative II: To increase the installed capacity of the Factory to 12,000 units by adding Plant and Machinery in Department B a Capital Cost of 4 Crores. Any balance surplus capacity in other Departments after meeting the increased volume to be red out as per Alternative l. The additional units would fetch an incremental Revenue of 1,600 per unit. B aluate the two proposals and suggest to the Management, which of the two proposals is to be accepted. D lution: 1. ROCE under Alternative I (Output = 9,000 units) Particulars A B 100% Capacity hrs p.a. (300 x8) 2,400 hours 2,400 hours 2,400 hours Present Capacity Utilisation 75% 100% 70% 2,400 hours 50% 9.87