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Activity Technology Development 2. Description The activities to Process Automation, use of Enterprise Resource Planning (ERP) Stos, ty Management Systems, etc. The Company uses an effective ERP to handle its IT Procurement Systems, and also in real time Thus the entire flow of products from an order placement to the delivery to customer can be This imones areas of recruiting, managing, training, developing and rewarding people within an Entity the competitive advantage in this area is built up in terms or- (a) low employee turnover (1) high level of employee motivation. (c) generous rewards schemes for all its employees, a mototeroning and development proorammens This meances that the employees are highly This includes the physical infrastructure as well as all departments of Management, Finance, Legal which are required to keep the Company's Store operational. All these are important for organisation's performance in primary activities Human Resource Management 2. Be Farm Intra- structure and Administration Case Study Questions for Practice 1. Primary Activities - Value Chain Analysis God Garments Ltd (GGL) is engaged in business of manufacturing branded readymade garments. It has a single manufacturing facility at Tirupur in Tamilnadu Raw Material is supplied by various Suppliers from across the Country Mejony of GGL's Revenue comes from export to US and European Countries. To strengthen its position further in the Global Market, GG is planning to enhance quality and provide assurance through long term warranty. For the next year, GGL has set an objective to reduce the quality costs in each of the Primary Activities in its Value Chain Required: Describe the Primary Activities as per Porter's Value Chain Analysis for GGL with brief description 2 Industry Structure Analysis - 5 Forces Model Ayodhya Cartons Limited (ACL) is a family owned business. The Family owns 80% of the Shares and the remaining 20% is owned by six non-family Shareholders. ACL manufactures Cardboard Boxes for customers which are mainly manufacturers of shoes, cloths, crackers etc. Now, ACL's Board is considering joining the Paper Tubes market as well. Paper Tubes, also known as Cardboard Tubes are cylinder-shaped components that are made with Cardboard. Paper Tubes can be used for a wide range of functions. Paper Tubes are usually ordered in bulk by many industries. Industries that rely on Paper Tubes indude Food Processing, Shipping and Postal Service, Automotive Manufacturing, Material Handling, Textile, Pulp and Paper Packaging, etc. Paper Tubes cost approximately 1% - 3% of the total cost of the customer's finished goods. The information about Paper Tubes is as follows: 1. Paper Tubes are made in machines of different size. The lowest cost machine is of ? 1, 89,000 including GST @ 5% and only one operator is required to run this machine. Two days training program is required to enable untrained person to run such a machine efficiently and effectively. A special paper is used in making Paper Tubes and this paper remains in short supply. 2. Presently, five major manufacturers of Paper Tubes have a total market share of 75%, offer product ranges which are similar in size and quality. The Market Leader currently has 24% share and the four remaining competitors hold on average 12.75% Share. The annual market growth is 3% per annum during recent years. 3. A current report "Insight on Global Activities of Foreign Based MNCs" released the news that now MNC's are planning to expand their packaging operations in overseas market by installing automated machines to produce Paper Tubes of any size. Another Company, HEG, manufactures a small , however increasing, range of Plastic Tubes which are capable of housing smal products such as foils and paper-based products. Currently, these tubes are on an average 15% more costly than the equivaler sized Paper Tubes Equired: Evaluate whether ACL should join the Paper Tubes market as a performance improvement strategy. 2.12 Nature of Any Present sementa ne valuation - CA FIMA Interpretation of existence stack vare the optimalTable of a maximation LPP Nature NER Interpretation / Remarks how that to every reduction in the his or that constraint, the profit will Les per unit of RHS of that constraint Key Resource. (Note: This contribution less who called Shadow Price (c) Marginal Value of that Resource This means that the Resource has no contribution Loss, and is hence not fully NERO Resource led The extent of Stackness / Idleness / Unused Resources is equal to the Quantity Column of the concerned Program Slack Variable, Interpretation of peculiarities in the Graph (Note: Number of Variables - 2 only) Degeneracy The feasible region may be defined by a single point which satisfies all conditions. A Rede Solution There is no feasible region which satisfies all the constraints given in the LPP. 3. Unbounded Solution The Feasibile Region is not finite. The upper bound (in case of Maximisation LPP) or the lower bound (In case of Minimisation LPP) is not identifiable. Multiple Optimal The Iso-Profit (or Iso-Cost) Line has the same Slopes that of a constraint, lethe Objective Solutions) Function and any one of the Constraints have the same Slope. (Note: Slope = Ratio of Co efficient of the Variables.] FTR 18 Learning Curve Issue Learning Effect Learning Curve Application in Cost & Mgmt Accounting Uses of Learning Curve Points to remember Phenomenon of improvement in the performance of a job because of the skill acquired by a person in doing that job repeatedly. Geometrical progression, which reveals the steadily decreasing costs for the accomplishment of a given repetitive operation, as the identical operation is increasingly repeated. 1. CVP Analysis 4. Product Design 2. Budgeting and Profit Planning 5. Contract negotiations 3. Pricing Decisions 6. Setting Standards 1. Areas of Application: (a) Aircraft Industry, (b) Manufacturing Industry with Labour-oriented Operations, (c) Jobs which are repetitive in nature particularly with same Machinery and Tools. 2. Impact on Costs: Direct Labour Cost, Variable Overhead Cost, and sometimes Material Cost. 3. Management Accounting Areas: (a) Analysis of Variable Overheads, (b) Standard Costing and Variance Analysis, (c) Pricing Decision for Incremental Orders, (d) Output Capacity and Impact on Costs, (e) Preparation of Direct Labour Budget. 1. Non pervasive 3. Non-Availability of data 2. Differential Rates of decrease 4. Differential circumstances Average Labour Time (or) Costs for first 2N units Average Labour Time (or) Costs for first N units 1. Y = AXB where - Y = Cumulative Average Time (or) Cost of 'X' Units or Lots X = Cumulative Number of Units or Lots produced A = Average Time (or) Cost of the first Unit or Lot Logarithm of Learning Ratio B = Learning Co-efficient (or) Index of Learning = Logarithm of 2 When written as a Linear Equation in its logarithmic form, the Equation is Log Y = Log A + B Log X. Limitations Learning Ratio Learning Curve Equation 2. The above two equations define the Cumulative Average Cost. Either of them can be converted to a formula for the Total Labour Cost of all units produced upto a given point. Total Cost can be foun out by the formula - Total Cost = X (units) * Y (Avg Cost pu) = AX X X = AXB+1 FTR.46 MODULE WE Padukas - Students book or Swotek Cost Management Performance Evaluation) - Caminal Suitability in urmare, Backflush Cresting is better than Sequential Tracking method, due to forge transaction volumes. However, the following lists must be corrected before effective implementation of Backflush Costing Accurate Production Reports: The total production figure entered into the system must be absolutely correo ende, sono component types and quantities will be subtracted from stock. Errors in Production Reportin can be reduced by proper stall training and reducing staff turnover. (0) Proper Scrap Reports: An abnormal scrap must be diligently tracked and recorded. Otherwise, these material prochaction process, lack of attention by any of the Production Staff can result in an inaccurate inventory in (Lot Tracing Lot Tracing is impossible under Backhushing System. It is required when a Manufacturer needs to Only a Picking System can adequately record this information. Some computer systems allow Picking ang Serp records of which production lots were used to create a product in case all the items in a lot must be recalled Backflushing System to co-exist. (d) Inventory Accuracy: The inventory balance may be too high at all times because the Backlushing Transaction there relieves inventory usually does so only once a day, during which time other inventory is sent to the production process. This makes it difficult to maintain an accurate set of inventory records in the warehouse. The success of a Backflushing System is directly related to the Company's willingness to invest in a well-paid, well experienced, well-educated production staff that undergoes little turnover. Effect ymar Ente To img The ne Raw The C The Insur Pres Sch dep Du USE her Slut Concept Illustration: B Ltd uses a Backflush Costing System with three trigger points, viz. - (1) Purchase of Direct Materials, (2) Completion of Finished Units of product, and (3) Sale of Finished Goods. There are no beginning inventories. Data for a month is - Direct Materials Purchases 4,40,000 Conversion Costs Allocated Direct Materials Used 4,25,000 Cost transferred to Finished Goods Conversion Costs incurred 2,11,000 Cost of Goods Sold Required: 1. Prepare Journal Entries for the month (without disposing off under-allocated or over-allocated Conversion Costs) Assume there are no Direct Materials Variances. 2. Under an ideal JIT Production System, how would the amounts in your Journal Entries differ from the Journal Entries requirement in Question 1 above? 2,00,000 36,25,000 35,95,000 RTP Dr. () 4,40,000 Cr.) 4,40,000 2,11,000 2,11,000 Solution: 1. Journal Entries Particulars 1. Inventory (Materials and In-Process) Control A/C Dr. To Accounts Payable Control A/C (Being Direct Materials Purchased) 2. Conversion Costs Control A/C Dr. To Various Accounts (such as Wages Payable Control A/C) (Being Conversion Costs incurred) 3. Finished Goods Control A/C To Inventory (Materials and In-Process) Control A/C To Conversion Costs Control A/C (Being Standard Cost of Finished Goods completed, i.e. Materials + Conversion) 4. Costs of Goods Sold (or) Cost of Sales A/C To Finished Goods Control A/C (Being Standard Cost of Finished Goods Sold during the period) 6,25,000 4,25,000 2,00,000 5,95,000 5,95,000 2. Effect of Ideat JIT System: Under an ideal JIT Production System, if the manufacturing lead time per unit is very short, there could be zero inventories at the end of each day. So, Entry (3) would be for 35,95,000 Finished Goods Production (to match Finished Goods Sold in Entry (4). This is because, if the Marketing Department could only sell goods costing 5,95,000, the JIT Production System would call for Direct Material Purchases and Conversion Costs of lower than 4,40,000 and 2,11,000 respectively in Entries (1) and (2) (called as Pull System). 6.8 Duits Direct Total Total lumt Cost Padukas - Students' Handbook on Stratek Cost Management Performa The Car Transporters have forecast to make a total of 640 deliveries in the year and carry 10 cars each time. The transporter will always carry its maximum capacity of 10 cars. Total Annual Distance travelled by Car Transporters is expected to be 2,25,000 kms. 50,000 kms of this is for the delivery of Mo Royal Cars only. Al 1.000 Model Royal Cars that will be produced will be delivered in the year using the Car Transporters 1. Calculate the Forecast Total Cost of producing and delivering a Model Royal Car, using Activity Based Costing Principles to assign the Overhead Costs. 2. Calculate the cost gap that currently exists between the Forecast Total Cost and Target Total Cost of a Model Royal Car Solution: 1.Computation of Overhead using Activity Based Costing Resource required for ABC Rate Activity Cost Particulars Cost Pool Lakhs) Driver Driver Qty (*) Royal (1,000 Cars) Production Line Machine +3,850 per Cast 2310 Hours M/c Hours M/c Hour = 6,000 M/c Hours Transportation (0) 60% related 1,000 Cars No. of. 384,375 900x60%= 540 640 = 100 Deliveries to Deliveries Deliveries Deliveries Per Delivery 10 Cars (6) 4096 related No. of. 2,25,000 7160 Per 900x40% = 360 to Distance Given = 50,000 Km Kms km km Total OH for 1,000 Cars of Model Royal So, OH Cost per Car = Total OH Cost = 1,000 Cars OH for Royal() 2,31,00,000 6 x 1,000 60,000 84,37,500 80,00,000 3,95,37,500 39,537.50 per Car 9,75,000.00 2,43,750.00 7,31,250.00 Less: 2. Target Cost, Forecast Total Cost and Cost Gap Particulars Target Selling Price per Car Target Profit on the above Selling Price (9,75,000 x 25%) Target Total Cost Forecast Total Costs: Material 4,75,000.00 Labour 2,50,000.00 OH (WN 1) 39,537.50 Cost Gap between Forecast Total Cost and the Target Cost (1-2) (Cost reduction required) 1. 2. 7,64,537.50 33,287.50 3. 10. Target Costs using ABC System, Effect of product-design changes on Product Costs Kala Ltd manufactures many products. To compute Manufacturing Cost, it uses a Costing System with one Direct-Cost category (Direct Materials) and three Indirect-Cost categories - Batch-related Set-up, Production Order, and Materials-Handling Costs, all of which vary with the number of batches. Manufacturing Operations costs that vary with machine-hours. Costs of Engineering Changes that vary with the number of engineering changes made. . In response to competitive pressures at the end of year 1, Product Designers at the Company employed Value Engineerin techniques to reduce Manufacturing Costs. Actual Information for Year 1 and Year 2 follow - Particulars Actual Results for Year 1 Actual Results for Year 72,00,000 75,00,0 Total Setup, Production-Order, and Material Handling Costs 900 Total Number of Batches 1, 1,21.00,000 Total Manufacturing Operations Costs 1,25,00 Total Number of Machine Hours worked 220,000 250 Total Costs of Engineering Changes 26,40,000 20,00 Total Number of Engineering Changes made 220 The Company wants to evaluate whether Value Engineering has succeeded in reducing the Target Manufacturing Cost pe of one of its main products, KL-69, by 12%. Actual Results for Year 1 and Year 2 for KL-69 are - 7.22