IMT-84: COST MANAGEMENT

IMT - 84: COST MANAGEMENT

PART - A

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Q1. Define activity based costing (ABC). What are the important characteristics of ABC?

Q2. Write a short note on traditional versus ABC approach to designing a costing system.

Q3. "Recent concepts and ideas must replace traditional concepts". Give some examples to illustrate the above statement.

Q4. When is Transfer Pricing important? What are its objectives?

Q5. Give the impact of Target Costing on profitability.

PART- B

Q1. What are the general steps in Target Costing Process? Give briefly the tools and techniques that facilitate an effective and efficient target costing process.

Q2. Contrast using the balanced scorecard with using only financial measures of success.

Q3. How is Life Cycle Costing model prepared, implemented and monitored?

Q4. Explain how value chain analysis can be performed in an organization.

Q5. Compare value chain analysis from Traditional Management Accounting.

PART - C

Q1. Describe the processes for an effective implementation of TQM.

Q2. Define:

a. a. Financial productivity, b. Operational productivity

b. c. Partial productivity d. Total productivity

Q3. How do centralized and decentralized firms differ? What are the advantages of each?

Q4. What is balance score card? What is the primary objective when using a balanced score card?

Q5. A company manufacturing two products furnishes the following data for a year:

Product	Annual output (Units)	Total Machine hours	Total number of purchase orders	Total number 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 costs Rs. 5,50,000

Setup related costs Rs. 8,20,000

Purchase related costs Rs. 6,18,000

Calculate cost per unit of each product A and B based on

l Traditional method

l Activity based costing method

CASE STUDY-1

Best Brand Lighting Inc.,(BBL) manufactures lighting fixtures. The two major markets for BBL products are the major retailers including Home Depot, Wal Mart and Kmart, and speciality lighting stores. The former sell primarily to homeowners, and the latter primarily to electric contractors. While standard sizes and models typically are sold to the large retailers, BBL's products with more specialized features and sizes are sold only to the speciality stores. The products in both markets have similar sales life cycles of about two years.

Because of the difference in consumers, BBL has a larger marketing cost for the product sold to the large retailers -advertising in major media to attract home owners. In contrast the marketing for the speciality shops consists mainly of catalogs and advertisements in trade publication resulting in a lower overall marketing cost. BBL management is interested in an in-depth analysis of the profitability of its two markets. As a first step it has asked for the average cost and other data for all BBL products:

	Major Retailers ($)	Speciality Stores ($)
Design costs	0.80	1.10
Manufacturing costs	5.20	5.90
Marketing costs	0.95	0.10
Returns	0.05	0.95
Discounts	0.10	0.95
Average price	10.55	12.50
Total market ($000) in BBL's sales region	188,000	32,000
Current unit sales	56,000	14,000

1. Using the methods of cost management, develop an analysis of BBL's two market segments.

2. What questions would you want to ask management?

3. Which cost management technique would be appropriate for the analysis and why?

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