CA. B.

Saravana Prasath, FCA

July 13, 2013

Category 1:
1. CVP Analysis Marginal Costing
2. Budgetary Control
3. Variance AnalysisStandard Costing
4. Relevant Cost Analysis
5. Pricing Concepts, Methods, Strategies
6. Transfer Pricing

Category 2:
8. Activity Based Costing
9. Target Costing
10.Life Cycle Costing
11.Total Quality Management
12.JIT, MRP, Performance Measurement etc.
13.Costing of Service Sector

Category 3:
16.Linear Programming
17.Transportation
18.Assignment
19.Simulation
20.Learning Curve
21.Network Analysis CPM & PERT

PVR, BEP and MOS

Indifference Point
Shut Down Point
Effect of SP / VC not being constant pu
Effect of Step Fixed Costs
Effect of Key Factor Resource Shortage
Effect of NonCost Factors in Decisions

Production Budget
Material Usage and Cost Budget
Material Purchase and Cost Budget
Manpower Budget in terms of Hours, Cost and Number of Workers
OH Fixed & Flexible Budgets
Zero Base Budgeting
Performance Budgeting

Analysis of Cost Variances Material, Labour, VOH, FOH

Analysis of Sales Variances Total and Margin Approaches

Reconciliation between Standard, Budgeted and Actual Profits

Accounting and Disposition of Variances Single & Partial Plans

Special Variances Market Size, Market Share,Current conditions, etc.

Relevant & Irrelevant Costs

Relevant Cost Analysis of Materials, Labour and Other Costs

Lowest Price Quotation for new orders / contracts

Evaluation of two or more options using Relevant Cost Principles

Pricing Methods and its linkage to Costs

Pricing in different market forms

Pricing Strategies w.r.t. New Product Pricing,
Discounts, Price Discrimination, etc.
Pareto Analysis Business Applications

Objectives of Transfer Pricing

Types of Transfer Pricing
Optimal Transfer Price Range Minimum & Maximum Transfer Prices
Handling Conflicts in Transfer Pricing
International Transfer Pricing
Effects of Transfer Pricing on Company and Divisional Profits

For Uniform Costing and Inter-Firm Comparison

Meaning & Objectives
Pre-requisites
Merits & Demerits

Activity, Cost Driver, Cost Object

Activity Classification
Steps in ABC and ABM
Value Added & Non Value Added Activities
Activity Based Budgeting
Activity Based Variance Analysis
Income Statements using ABC

Steps in Target Costing

Merits & Demerits of Target Costing
Data Sources and Control Points
Value Analysis and Value Engineering
Kaizen Costing
Cost Reduction vs Cost Control vs Cost Management

Stages / Phases in Product Life Cycle

Merits & Demerits of Life Cycle Costing
Features of Life Cycle Costing

Concepts of Quality Control, Quality Assurance, Quality Management

Steps in TQM
PRAISE Process in TQM
6 Cs of TQM
4 Ps of TQM
Continuous Process Improvement

JIT Concept, Benefits, Objectives, Performance Measurement in JIT, Backflush

Costing, etc.
MRP Objectives, Benefits, Data needs, Stages,etc.

Production Concepts CAM, BPR, Synchronous Manufacturing

Balanced Score Card Concept

Benchmarking

Responsibility Budgeting

Peculiarities involved in Costing of Service Sector.

Methods applied by Service Sector Entities to
determine their Unit Costs.
Performance Measurement in Service Sector

Concept of Value Chain

Forms of Competitive Advantage

Different Types of Analysis under Value Chain
Concept
Value Chain Analysis vs Traditional Accounting Systems

Throughput Accounting Concept

Key Measure under TOC Concept

Management of Bottleneck Resources, & Allocation using TOC Concept

Formulation of LPP & Types

Trial & Error Method of solving LPP

Graphical Method of solving LPP

Simplex Method Maximisation, Minimisation, Equality Constraints,

Degeneracy, Multiple Optimal Solutions, Infeasible Solution, Infinite Solution, etc.

Primal vs Dual Relationship

Methods of obtaining IBFS

Optimality Test for IBFS
Dealing with Degeneracy, Multiple Optimal Solutions, etc.
Special Situations Prohibited and Preferred Routes
Minimum Transportation Cost

Hungarian Algorithm for Assignment

Dealing with Maximisation Objective, Multiple Optimal

Solutions, Prohibited and Preferred Assignment, etc.

Computation of Result Minimum Cost or Maximum

Revenue, etc.

Meaning, Merits & Demerits

Steps in Monte Carlo Simulation

Application of Simulation in different business situations

Inventory Management, Capital Budgeting, etc.

Meaning, Merits & Demerits

Learning Curve Equation, Learning Co-efficient

Application of Learning Curve in different business

situations Incremental Order Pricing, Cumulative Cost
Computation, etc.

Basic Terms Activity, Event, Time Duration, Start

and Finish Times, Different Types of Float, etc.
Critical Path, Project Time & Cost
Program Evaluation Review Technique Use of
Probability in estimating project completion date, etc.
Special Aspects Project Crashing, Resource
Levelling, Resource Allocation, etc.

Question:
If Moonlite Limited operates its Plant at normal capacity it produces 2,00,000
units from the Plant Meghdoot. The unit cost of manufacturing at normal
capacity is as under

Direct Material - ` 65, Direct Labour - ` 30, Direct Overhead - ` 33, Fixed
Overhead - ` 7.

Direct Labour Cost represents the compensation to highlyskilled workers,

who are permanent employees of the Company. The Company cannot afford
to lose them. One labour hour is required to complete one unit of the
product.

The Company sells its product for ` 200 per unit with Variable
Selling Expenses of ` 16 per unit. The Company estimates
that due to economic down turn, it will not be able to operate
the Plant at the normal capacity, at least during the next year.
It is evaluating the feasibility of shutting down the Plant
temporarily for one year.
If it shuts down the Plant, the Fixed Manufacturing Overhead
will be reduced to ` 1,25,000. The Overhead Costs are
incurred at a uniform rate throughout the year. It is also
estimated that additional cost of shutting down will be ` 50,000
& cost reopening will be ` 1,00,000.

Required: Calculate the minimum level of production at

which it will be economically beneficial to continue to operate
the Plant next year, if 50% of the Labour hours can be utilized
in another activity, which is expected to contribute at the rate
of ` 40 per Labour hour. The additional activity will relate to a
job which will be offloaded by a Sister Company, only if the
Company decided to shut down the Plant. (Assume that the
cost structure will remain unchanged next year. Ignore
Income Tax and Time Value of Money).

Solution:
Note: Direct Labour Cost is committed & irrelevant, since
the Company cannot afford to lose the highly skilled
permanent workers.
1M
Effective Contribution p.u. = Selling Price p.u. Variable
Cost p.u.
= ` 200 ` 65 Material ` 33 VOH ` 16 SOH = ` 86 1 M
Let required Minimum Output to justify Operation = Q units.

Particulars
1. Benefit = Contribution

Continue
Close down
Q units ` 86 50% 2,00,000 hrs
1M
` 40 p.h
= ` 40,00,000

2. Costs
(a) Fixed Overhead

` 7 p.u. 2,00,000
1,25,000 1/2 M
units = ` 14,00,000
(a) Shut down and Re

` 50,000, + ` 1/2 M
opening Costs
1,00,000 = ` 1,50,000
Net Benefit
86Q 14,00,000
37,25,000

Solving for Q:
86Q 14,00,000 = 37,25,000. 86Q = 51,25,000.
So, Q = 51,25,000 86 = 59,593 Units

1M

Inference: Plant can be continued, if expected sales 59,593 units.

Total = 5 Marks