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

Minimum Transportation Cost

Special Situations Prohibited and Preferred Routes

Dealing with Degeneracy, Multiple Optimal Solutions, etc.

Optimality Test for IBFS

Methods of obtaining IBFS

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.

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.

Question:

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. Effective Contribution p.u. = Selling Price p.u. Variable Cost p.u. = ` 200 ` 65 Material ` 33 VOH ` 16 SOH = ` 86 Let required Minimum Output to justify Operation = Q units.

1 M

1 M

Particulars Continue Close down 1. Benefit = Contribution Q units ` 86 50% 2,00,000 hrs

` 40 p.h = ` 40,00,000

2. Costs (a)Fixed Overhead ` 7 p.u. 2,00,000

units = ` 14,00,000 1,25,000

(a)Shut down and Reopening Costs

` 50,000, + ` 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 Inference: Plant can be continued, if expected sales 59,593 units.

1 M

1/2 M

1/2 M

1 M

Total = 5 Marks

Webcast on Strategy to Qualify & Excel in CA Final Course P 5: Advanced Management AccountingBasic Classification of TopicsBasic Classification of TopicsBasic Classification of Topics1. Marginal Costing Learning Areas2: Budgeting Learning Areas3: Standard Costing Learning Areas4: Relevant Cost Analysis Learning Areas5: Pricing Concepts Learning Areas6: Transfer Pricing Learning Areas7: Uniform Costing and Inter Firm Comparison Learning Areas8: Activity Based Costing Learning Areas9: Target Costing Learning Areas10: Life Cycle Costing Learning Areas11: TQM Learning Areas12: JIT, MRP, Performance Measurement Learning Areas13: Costing of Service Sector Learning Areas14: Value Chain Analysis Learning Areas15: Theory of Constraints Learning AreasChapter 16: Linear Programming Learning AreasCh. 17: Transportation Learning AreasChapter 18: Assignment Learning AreasChapter 19: Simulation Learning AreasChapter 20: Learning Curve Learning AreasChapter 21: Network Analysis Learning AreasSample Presentation for 5 Mark QuestionSample Presentation for 5 Mark QuestionSample Presentation for 5 Mark QuestionSample Presentation for 5 Mark QuestionSample Presentation for 5 Mark QuestionThank You