Strategic Cost Management

September 2021 Examination

 

1. Magnificent Masks is a start up manufacturing embroidered masks for the local market and eventually plan to export to the UAE and Gulf countries. The CEO Shivam Mehra has big plans for the future. He needs to plan ahead and prepare the Budget for the coming year. He hires you as a Management consultant and wants to understand the concept of Fixed Budget, Flexible Budget etc

Please explain to him the difference between the Fixed and Flexible budget.

Which one should Magnificent Masks adopt and why?  (Explain giving any 2points) Also, please explain to the Management the different types of Operating budgets that they will need to implement (Any3) (10Marks)

Ans 1.

 

 

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2. “Elegant Shoes” manufactures 5 varieties of shoes and sandals. While the company is profitable on an overall basis, 1 variant of kids sandals is a loss making product but the Product Manager’s performance gets over looked because of overall profitability. As a management Consultant, you need to explain to the Top Team the importance/ objectives of correct pricing of a product. Also, please share with them the features, advantages and disadvantages of any two types of short term pricing strategies (10Marks

Ans 2.

 

3.Kid Shoe Company produces its famous shoe, the Kiddy Loafer that sells for Rs 700/per pair. Operating income for 2020-21 is as follows:

Sales Revenue(Rs700/-per pair)				35,00,000
Variable cost(Rs300/-per pair				15,00,000
Contribution Margin				20,00,000
Fixed Cost				10,00,000
Operating Income				10,00,000

 

Kids Shoe Company would like to increase its profitability over the next year by at least 20%

To do so, the company is considering the following options:

 

A – Replace a portion of its variable cost with an automated machining process This would result in a 20% decrease in variable cost but a 15% increase in Fixed costs. Sales would remain the same.

B  –        Spend Rs 2,50,000/- on a new advertising campaign which would increase sales by 10%

C –               Increase both, selling price by Rs100 per unit and variable costs by Rs 80/- per unit by using a higher quality leather material in the production of its shoes. The higher price shoe would cause demand to drop by 20% approximately

D –             Add a second manufacturing facility that would double company’s fixed cost but increase sales by 60%

 

 

1. You need to do a Cost Volume Price sensitivity analysis and evaluate all the options being considered by the Company (5Marks)

Ans 3a.

 

1. Evaluate the options being considered by the company. (5Marks)
2. i) Do any of the options meet or exceed the company’s target of 20% operating profit
3. ii) What is the best course of action forth E Company?

Ans 3b.