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# CWA Final EPM - Solutions - Dec12

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Solved question paper for Management Accounting - Enterprise performance Management for December 2012 exam attempt by CA Vikrant Rathor, faculty at Takshila Learning

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### CWA Final EPM - Solutions - Dec12

1. 1. TAKSHILA LEARNING PVT. LTD. Solutions For Management Accounting – Enterprises Performance Management December 2012 Syllabus 2008 by CA Vikrant Rathor Faculty @ Takshila Learning Pvt. Ltd.Patel Nagar Office (Corporate Section): Laxmi Nagar Office (Student Section):4/4, East Patel Nagar, 1/56 B, First Floor, Lalita Park, Laxmi NagarNew Delhi – 110 008 Ph: 99581 57000 New Delhi – 110 092 Ph: 97176 86000info@takshilalearning.com www.takshilalearning.com https://twitter.com/#!/TakshilaLearn http://www.facebook.com/#!/takshilalearn
2. 2. TAKSHILA LEARNING PVT. LTD. Answer 1 (a) i. False; Value chain concepts (porter model); Value added concepts (JIT) are fundamentally different. ii. True; Decisions under uncertainly are not always obvious. iii. True; Life costing is a technique to establish the total cost of ownership iv. False; Drum is constraint and therefore sets the pace for the drum only v. True; Theory Y style of management is a highly autocratic style. 1 (b) (i) Target cost per unit = Competitive selling price less target margin per unit Selling price at units demand of 20, 000 Price elasticity = \$10 reduction with double of volume; Hence price for 80,000 units sale is \$ 100 – 10 – 10 = \$ 80 Target cost = \$ 80 – 25% = \$60 per unit. (ii) first unit time = 2 Learning rate is x hence average of two units = 2x Average of first four units = 2x2 Total time of first four units = 8x2 Which is equal to 5.12; hence x = 0.8 hence learning rate is 80%. (iii) Throughput per unit = \$ 75 less 30 = \$ 45 Throughput per hour = \$45/10 x 60 minutes = \$270 per hour. (iv) profit are maximum where MR = MC Hence \$50 - \$ 0.002 x = \$ 20; x = 15,000 units At that level selling price will be = \$50 - \$ 0.001 x (15,000 units) = \$35 per unit. (v) profit volume ratio = Fixed cost/Break even sales % = 40% Sales for profit of \$50,000 = Desired contribution/PV % = \$9,25,000. Answer 1 (c) (i) Not accepting (ii) CRP (iii) ConstantPatel Nagar Office (Corporate Section): Laxmi Nagar Office (Student Section):4/4, East Patel Nagar, 1/56 B, First Floor, Lalita Park, Laxmi NagarNew Delhi – 110 008 Ph: 99581 57000 New Delhi – 110 092 Ph: 97176 86000info@takshilalearning.com www.takshilalearning.com https://twitter.com/#!/TakshilaLearn http://www.facebook.com/#!/takshilalearn
3. 3. TAKSHILA LEARNING PVT. LTD. (iv) Degeneracy (v) S.D. ANSWER 1 (D) (ii) Quality function deployment (QFD) is a “method to transform user demands into design quality, to deploy the functions forming quality, and to deploy methods for achieving the design quality into subsystems and component parts, and ultimately to specific elements of the manufacturing process. (iii) An intranet is a computer network that uses Internet Protocol technology to share information, operational systems, or computing services within an organization. The term is used in contrast to internet, a network between organizations, and instead refers to a network within an organization. (iv) This breakdown is typically in line with the Work Breakdown Structure (WBS); indicating "where" cost are allocated. The breakdown can sometimes be in line with the companys Chart of Accounts, indicating "what" the costs are for. In theory, cost could be in line with "who" is spending the cost, "when" costs are being spent, etc. (v) A quality circle is a volunteer group composed of workers (or even students), usually under the leadership of their supervisor (or an elected team leader), who are trained to identify, analyze and solve work-related problems and present their solutions to management in order to improve the performance of the organization, and motivate and enrich the work of employees. Answer – 2 Life cycle Operating profits Units to be sold & manufacture 50,000 2,00,000 1,50,000 Year I Year II Year III Development costs \$ 8,50,000 \$ 1,50,000 \$0 Production costs Variable \$ 8,00,000 \$ 30,00,000 \$ 22,50,000 Batch level \$ 87,500 \$ 2,40,000 \$ 1,80,000 Fixed \$ 5,50,000 \$ 5,50,000 \$ 5,50,000 Marketing costs Variable \$ 1,80,000 \$ 6,40,000 \$ 4,20,000 Fixed \$ 4,00,000 \$ 3,00,000 \$ 3,00,000 Distribution costs Variable \$ 1,50,000 \$ 5,00,000 \$ 3,75,000 Batch level \$ 30,000 \$ 1,50,000 \$ 1,25,000Patel Nagar Office (Corporate Section): Laxmi Nagar Office (Student Section):4/4, East Patel Nagar, 1/56 B, First Floor, Lalita Park, Laxmi NagarNew Delhi – 110 008 Ph: 99581 57000 New Delhi – 110 092 Ph: 97176 86000info@takshilalearning.com www.takshilalearning.com https://twitter.com/#!/TakshilaLearn http://www.facebook.com/#!/takshilalearn
4. 4. TAKSHILA LEARNING PVT. LTD. Fixed \$ 2,30,000 \$ 2,30,000 \$ 2,30,000 Total costs \$ 32,77,500 \$ 57,60,000 \$ 44,30,000 revenues \$ 22,50,000 \$ 80,00,000 \$ 52,50,000 Margins -\$ 10,27,500 \$ 22,40,000 \$ 8,20,000 Overall life cycle margin is \$ 20,32,500 Life cycle Operating profits Units to be sold & manufacture 55,000 2,20,000 1,65,000 Year I Year II Year III Development costs \$ 8,50,000 \$ 1,50,000 \$0 Production costs Variable \$ 8,80,000 \$ 33,00,000 \$ 24,75,000 Batch level \$ 87,500 \$ 2,40,000 \$ 1,80,000 Fixed \$ 5,50,000 \$ 5,50,000 \$ 5,50,000 Marketing costs Variable \$ 1,98,000 \$ 7,04,000 \$ 4,62,000 Fixed \$ 4,00,000 \$ 3,00,000 \$ 3,00,000 Distribution costs Variable \$ 1,65,000 \$ 5,50,000 \$ 4,12,500 Batch level \$ 30,000 \$ 1,50,000 \$ 1,25,000 Fixed \$ 2,30,000 \$ 2,30,000 \$ 2,30,000 Total costs \$ 33,90,500 \$ 61,74,000 \$ 47,34,500 revenues \$ 23,10,000 \$ 81,40,000 \$ 52,80,000 Margins -\$ 10,80,500 \$ 19,66,000 \$ 5,45,500 Overall life cycle margin is \$ 14,31,000 By reducing selling price and increase volume of 10%, decrease life cycle profitability by 29%. Hence not acceptable. Life cycle costing shall be applied to confirm the overall life viability. However in first year, margins are negative, since costs are more locked up and revenues are shorter, but overall profitability are considerable.Patel Nagar Office (Corporate Section): Laxmi Nagar Office (Student Section):4/4, East Patel Nagar, 1/56 B, First Floor, Lalita Park, Laxmi NagarNew Delhi – 110 008 Ph: 99581 57000 New Delhi – 110 092 Ph: 97176 86000info@takshilalearning.com www.takshilalearning.com https://twitter.com/#!/TakshilaLearn http://www.facebook.com/#!/takshilalearn