Chapter-wise Marks
Distribution
I-5
Chapter Name May 2018 Nov 2018 May 2019 Nov 2019 Nov 2020 Jan 2021 July 2021 Dec 2021 May 2022 Nov. 2022
Previous Exams Trend Analysis
I-7
Year Question No. Compulsory Chapter Topic Name Marks Category
I-8 Year Question No. Compulsory Chapter Topic Name Marks Category
I-9 Year Question No. Compulsory Chapter Topic Name Marks Category-
Year Question No. Compulsory Chapter Topic Name Marks Category I-10
Chapter-wise Comparison with Study Material
I-11
Chapter No. Name of Chapter Study Material Chapter
I-13 Contents Chapter-wise Marks Distribution I-5 Previous Exams Trend Analysis I-7 Chapter-wise Comparison with Study Material I-11 PART A Chapter 1 INTRODUCTION TO STRATEGIC COST MANAGEMENT 1.3 Chapter 2 MODERN BUSINESS ENVIRONMENT 2.1 Chapter 3 LEAN SYSTEM AND INNOVATION 3.1 Chapter 4 COST MANAGEMENT TECHNIQUES 4.1 Chapter 5 DECISION MAKING 5.1 Chapter 6 PRICING DECISION 6.1
PART B
I-14
Chapter 7 PERFORMANCE MEASUREMENT AND EVALUATION 7.3 Chapter 8 DIVISIONAL TRANSFER PRICING 8.1 Chapter 9 STRATEGIC ANALYSIS OF OPERATING INCOME 9.1 Chapter 10 BUDGETARY CONTROL 10.1 Chapter 11 STANDARD COSTING 11.1 Solved Paper: December 2021 (Suggested Answer) P.1 Solved Paper: May 2022 (Suggested Answer) P.26 Solved Paper: Nov. 2022 (Suggested Answer) P.55
MODERN BUSINESS ENVIRONMENT
2.1 COST OF QUALITY
Que. 1. (Components of Cost of Equity)
Classify the following items under appropriate categories of quality costs, viz., Prevention Costs (PC), Appraisal Costs (AC), Internal Failure Costs (IFC) and External Failure Costs (EFC):
(i) Unplanned replacement to customers
(ii) Correction of a bank statement
(iii) Design review
(iv) Equipment accuracy check
(v) Staff training
(vi) Reprocessing of a loan operation
(vii) Product liability warranty
(viii) Product acceptance
(ix) Wastage of material
(x) Planned maintenance of equipment (You may opt for the following format and fill in the appropriate Roman numerals under each column)
Ans. Appropriate Categories of Quality Costs
TAXMANN ®
Cost PC AC IFC EFC Q. Nos. × × × ×
Costs PC AC IFC EFC Q. Nos. iii iv ii i v viii vi x ix vii
CHAPTER
2.1
2
Que. 2. (Cost of Quality) RAX is a market manufacturing organization produces and sells a single product. The cost data per unit for the year 2021 is predicted as below:
RAX has forecast that demand for the product during the year 2021 will be 28,000 units. However, to satisfy this level of demand, production quantity will be increased?
There are no opening stock and closing stock of the product. The stock level of material remains unchanged throughout the period. The following additional information regarding costs and revenue are given:
- 12.5% of the items delivered to customers will be rejected due to specification failure and will require free replacement. The cost of delivering the replacement item is `5 per unit.
- 20% of the items produced will be discovered faulty at the inspection stage before they are delivered to customers.
- 10% of the direct material will be scrapped due to damage while in storage. Due to above, total quality costs for the year is expected to be `10,75,556.
The company is now considering the following proposal:
1. To introduce training programs for the workers which, the management of the company believes, will reduce the level of faulty production to 10%. This training program will cost `4,50,000 per annum.
2. To avail the services of quality control consultant at an annual charges of `50,000 which would reduce the percentage of faulty items delivered to customers to 9.5%.
Required
(
(
i) PREPARE a statement of expected quality costs the company would incur if it accepts the proposal. Costs are to be calculated using the four recognised quality costs heads.
ii) Would you RECOMMEND the proposal? Give financial and non-financial reasons. [MTP Oct. 2018/RTP Nov. 2021]
TAXMANN ®
2.2
` per unit Direct Material 35 Direct Labour 25 Variable Overheads 15 Selling Price 90
(i) Statement of ‘Expected Quality Costs’
TAXMANN ® 2.3 Ans.
Particulars Current Situation (` ) Proposed Situation (`) Workings External Failure Cost Particulars Current Situation Proposed Situation 28,000units28,000units . 87.5%90.5% ` ` ` ` Internal Failure Cost Particulars Current Situation Proposed Situation 32,000units30,939units . 80%90% ` ` ` `
(ii) Recommendation
Que. 3. (Optimal Cost of Quality)
Gaur Hari Ltd. produces and sells a single product. Presently the company is having its quality control system in a small way at an annual external failure and internal failure costs of ` 4,40,000 and ` 8,50,000 respectively. As the company is not able to ensure supply of good quality products upto the expectations of its customers and wants to manage competition to retain market share considers an alternative quality control system. It is expected that the implementation of the system annually will lead to a prevention cost of ` 5,60,000 and an appraisal cost of ` 70,000. The external and internal failure costs will reduce by ` 1,00,000 and ` 4,10,000 respectively in the new system. All other activities and costs will remain unchanged.
Required
(i) EXAMINE the new quality control proposal and recommend the acceptance or otherwise of the proposal both from financial and non-financial perspectives.
(ii) What is your ADVICE to the company, if the company wants to achieve zero defect through a continuous quality improvement program?
(iii) SUGGEST a suitable quality control level at a minimum cost. [May 2018](10 Marks)
TAXMANN ® 2.4 Particulars Current Situation Proposed Situation 40,000units34,377units x10%. x10% 90% 90% ` ` ` ` ` `
`
customer’s satisfaction and organisations profitability
acceptable level of defects
Que. 4. (Cost of Quality; SIT) A manufacturing organization Brain Grain is producing a single product RAXY which require three component. Brain Grain purchases each of these component from three suppliers AZ Ltd, BZ Ltd and CZ Ltd. The following information are available:
TAXMANN ® 2.5 Ans. (i)` `
-` ` ` (ii) (iii) -
AZ Ltd. BZ Ltd. CZ Ltd. Price
supplier (per hundred units) ` 240 ` 234 ` 260 % of Defective of total receipts 3% 5% 2%
quoted by
2.6
If the defectives are not detected they are utilized in production causing a damage of ` 200 per 100 units of the component. Total requirements is 12,000 units of the components. The company intends to introduce a system of inspection for the components on receipt. The inspection cost is estimated at ` 26 per 100 units of the components. Such as inspection will be able to detect only 90% of the defective components received. No payment will be made for components found to be defective in inspection.
Required
(
(
i) ADVICE whether inspection at the point of receipt is justified.
ii) Which of the three suppliers should be asked to supply? [Nov. 2018](10 Marks)
Ans.
(i) A. Statement Showing Effective Cost before Inspection
B. Statement Showing Effective Cost after Inspection
TAXMANN ®
Particulars AZ Ltd. BZ Ltd. CZ Ltd. Add: `253.61 256.84 269.39
Particulars AZ Ltd. BZ Ltd. CZ Ltd.
Add:
ADVICE Whether Inspection at the Point of Receipt is Justified
Note: i.e.
Que. 5. (Cost of Quality) Olive Ware Private Ltd. manufactures electronic components for cars. Car manufacturers are the primary customers of these products. Raw material components are bought, assembled and the electronic car components are sold to the customers.
TAXMANN ® 2.7 Particulars AZ Ltd. BZ Ltd. CZ Ltd. Add: ` 268.16 263.65 287.47
-(ii) -
2.8
The market demand for these components is 500,000 units per annum. Olive Ware has a market share of 100,000 units per annum (20% market share) for its products. Below are some of the details relating to the product:
Selling price ` 2,500 per unit
Raw material cost ` 900 per unit
Assembly & machine cost ` 500 per unit
Delivery cost ` 100 per unit
Contribution ` 1,000 per unit
The customers due to defects in the product return 5,000 units each year. They are replaced free of charge by Olive Ware. The replaced components cannot be repaired and do not have any scrap value. If these defective components had not been supplied, that is had the sale returns due to defective units been nil, customers’ perception about the quality of the product would improve. This could yield 10% increase in market share for Olive ware that is demand for its products could increase to 150,000 units per annum.
Required
(i) ANALYZE, the cost of poor quality per annum due to supply of defective items to the customers.
(ii) The company management is considering a proposal to implement an inspection process immediately before delivery of products to the customers. This would ensure nil sales returns. The cost of having such a facility would be ` 2 crores per annum, this would include materials and equipment for quality check, overheads and utilities, salaries to quality control inspectors etc. ANALYZE the net benefit, if any, to the company if it implements this proposal.
(iii) Quality control investigations reveal that defective production is entirely on account of inferior quality raw material components procured from a large base of 30 suppliers. Currently there is no inspection at the procurement stage to check the quality of these materials. The management has a proposal to have inspectors check the quality control at the procurement stage itself. Any defective raw material component will be replaced free of cost by the supplier. This will ensure that no product produced by Olive Ware is defective. The cost of inspection for quality control (materials, equipment, salaries of inspectors etc.) would be ` 4 crore per annum. ANALYZE the net benefit to the company if it implements this proposal? Please note that scenarios in questions (ii) and (iii) are independent and not related to each other.
TAXMANN ®
(iv) Between inspection at the end of the process and inspection at the raw material procurement stage, ADVISE a better proposal to implement (a) in terms of profitability and (b) in terms of long term business strategy?
[RTP May 2019](20 Marks)
TAXMANN ®
2.9
Ans. (i)` ` ` ` ` ` ` (ii) ` ` ` `` `` ` ` ` ` `
TAXMANN ® 2.10 (iii)i ` ` `` ` (iv) (a)` ` (b)`
Que. 6. (Cost of Quality; TPM; TQM) Star Automobile Group is among top 20 business houses in India. It has been founded in the year 1940, at the height of India’s movement for independence from the British, the group has an illustrious history. Star’s footprint stretches over a wide range of industries, spanning automobiles (two wheelers manufacturer and three wheelers manufacturer). Star’s headquarter is located at Hyderabad. Bike Production is one of segment of Star Group. Management of Star wants to analyse the following actual information for the April:
Additional Information
Due to the quality issues in the month, the bike production line experienced unproductive ‘down time’ which cost ` 7,70,000. Star carried out a quality review of its existing suppliers to enhance quality levels during the month at a cost of ` 1,25,000.
Required
(
(
i) PREPARE a statement showing ‘Total Quality Costs’.
ii) ADVISE any TWO measures to reduce the non- conformance cost. [RTP Nov. 2019][Nov. 2021]
TAXMANN ® 2.11
Cost Data ` Customer Complaints Centre Cost 35 per hr. Equipment Testing Cost 18 per hr. Warranty Repair Cost 1,560 per bike Manufacturing Rework Cost 228 per bike Volume and Activity Data Bikes Requiring Manufacturing Rework 3,200 bikes Bikes Requiring Warranty Repair 2,600 bikes Production Line Equipment Testing Time 1,600 hrs. Customer Complaints Centre Time 2,000 hrs.
TAXMANN ® 2.12 Ans. (i) Particulars of Costs ` Prevention Costs Appraisal Costs ` Internal Failure Costs ` External Failure Costs ` ` Total Quality Costs 57,79,400 (ii) cost of quality activities Total Productive Maintenance (TPM) keeping all equipment in top working condition
Total Quality Management (TQM)
Overall -
2.2 TOTAL QUALITY MANAGEMENT
Que. 7. FIZI is a new banking company which is about to open its first branch in INDIA. FIZI believes that in order to win customers from the market, it needs to offer potential customers a new banking experience. Other banking companies are focusing on interest rates and bank charges, whereas FIZI believes that quality and timely availability of service is an important factor to attract customers.
Required
EXPLAIN how Total Quality Management would enable FIZI to gain competitive advantage in the banking sector. [RTP May 2018] Ans.
TAXMANN ® 2.13 -
TAXMANN ® 2.14 -
Que. 8. (Total Quality Management) Kasan Ltd. is a manufacturing company, which is engaged in production of wide range of consumer products for home consumption. Among its all product CFL lamp are its most efficient and environmental friendly product. Kasan has a quality control department that monitor the quality of the products produce by company.
As per the recent cost of poor quality report, the current rejection rate for CFL lamps is 5% of units input. 5,000 units of input go through the process each day. Each unit that is rejected results in a ` 200 loss to the Kasan Ltd. company. The quality control department has proposed few changes to the inspection process that would enable early detection of defects. This would reduce the overall rejection rate from 5% to 3% of units input. The improved inspection process would cost the company ` 15,000 each day.
Required
(
(
i) ANALYSE the proposal and suggest if it would be beneficial for the Kasan to implement it.
ii) After implementation, ANALYSE the maximum rejection rate beyond which the proposal ceases to be beneficial?
[MTP Oct. 2020; MTP April 2019]
Ans.
(
i) Analysis of the proposal to make changes to the inspection process: -
TAXMANN ® 2.15
` `
(ii) Analysis of maximum rejection rate beyond which the proposal ceases to be beneficial
Que. 9. Delicious Box Ltd. is a manufacturer and supplier of android set up boxes for various DTH operators. This is very popular with the operators as it converts normal TV to a smart TV. To ensure supply of good quality products to meet the expectations of the viewers, it has set up quality control department that regularly conducts quality inspection and submits its report to the management on weekly basis.
TAXMANN ® 2.16 ` `
` ` ` ` ` ` ` `` `
2.17
As per the latest quality inspection report submitted by the department, it reflects that the current rejection rate is 7% of units input into the manufacturing system due to poor quality. 3,000 units of input go through the process every day. As per analysis, for each rejection, there is loss of ` 150 to the company. The management is very much worried due to high rate of rejection of input units.
The management has asked for suggestions from the quality control department in this regard. The department has suggested implementation of new system for inspection for early detection of defective units. This change would result in drop of rejection rate to 4% from earlier 7%. The cost of new system will be ` 12,000 per day.
Required
(
(
i) ANALYSE the Proposed new system for inspection and suggest if it would be beneficial for the company.
ii) Also CALCULATE the minimum reduction in number of rejections each day upto which the proposed system will be beneficial.
[Nov. 2020](5 Marks)
Ans.
(
i) Analysis of the Proposal
TAXMANN ®
` `` ` (ii) ` `
Que. 10. (Cost of Quality, TQM)
ORG is a Smart TV manufacturer. Smart TV is a technological convergence of computers, television sets and set-top boxes provided through traditional broadcasting media. It is relatively a new company in the market and the directors are keen to establish a reputation of high quality.
The CEO of the company has heard that “There is no better cost to eliminate than the cost of poor quality”
The board of directors decided in the board meeting to establish a culture of Total Quality Management at the company. For this purpose they have collected the following actual information for the most recent quarter of the current year:
ORG during the quarter, undertook a quality review of its existing suppliers at a cost of $1,20,000.
The TV production line experienced periods of unproductive ‘down time’ due to the quality issues in the quarter which cost $750,000.
Required:
(
a) PREPARE a Cost of Quality report using four recognized quality cost headings for ORG.
(
b) Explain how a Cost of Quality report would support the development of a TQM culture at ORG.
TAXMANN ® 2.18 ` `
Cost data $ Customer support centre cost per hour 116 Equipment testing cost per hour 60 Manufacturing rework cost per TV 760 Warranty repair cost per TV 5,200 Volume and activity data TVs requiring manufacturing rework 800 TVs TVs requiring warranty repair 650 TVs Customer support centre time 500 hours Production line equipment testing time 400 hours
Additional information
Ans. (a) Cost of Quality Report
Prevention costs
Appraisal costs
Internal failure costs
2.19
Volume Rate $ Cost $
External failure costs
Total quality costs 4,940,000 (b)--
Que. 11. (Total Quality Management)
PRADO is a chocolates manufacturing company however due to some quality reason company has incurred huge losses and fall in market reputation. For the purpose of improvement of profitability the financial manager of PRADO has advise the company to implement TQM.
TAXMANN
®
2.20
The company has provided the following information to the board of director in Extraordinary general meeting. This information contain list of performance measurement before the implementation of a Total Quality Management Programme (Pre-TQM) and after its implementation (Post-TQM).
Required
(
i) CALCULATE how many units must be input to the process to achieve final sales of 2,000 units:
(
a) before the TQM programme
(b) after the TQM programme
ii) COMMENT on the implementation of TQM in PRADO Company. Ans.
(
TAXMANN ®
Pre-TQM performance % Post-TQM performance % Returns by customers due to packaging defects 5 2 Rejections on final inspection 6 4 Losses in production 3 1
(i) (ii)-
STRATEGIC COST MANAGEMENT & PERFORMANCE EVALUATION (SCM & PE/SCMPE) | CRACKER
AUTHOR : K.M. BANSAL , MEENA VERMA
PUBLISHER : TAXMANN
DATE OF PUBLICATION : DECEMBER 2022
EDITION : 3rd Edition
ISBN NO : 9789356224421
NO. OF PAGES : 962
BINDING TYPE : PAPERBACK
DESCRIPTION
Rs. 1195 USD 49
This book is prepared exclusively for the Final Level of Chartered Accountancy Examination requirement. It covers the questions & detailed answers strictly as per the new syllabus of ICAI. The Present Publication is the 3rd Edition for CA-Final | New Syllabus | May/Nov. 2023 Exams. This book is authored by CA (Dr.) K.M. Bansal & CA Meena Verma with the following noteworthy features:
• Strictly as per the New Syllabus of ICAI
• Coverage of this book includes:
• Past Exam Questions, including
• Solved Paper: December 2021 (Suggested Answers)
• Solved Paper: May 2022 (Suggested Answers)
• Solved Paper: November 2022 (Suggested Answers)
• Questions from RTPs and MTPs of ICAI
• [Arrangement of Question] Questions in each chapter are arranged 'topic/sub-topic' wise with additional solved practice questions
• [Examples, Questions, Case Scenarios along with Solutions] are included on various topics based on the Skill Assessment as provided by the ICAI
• [Case Studies] are covered in relevant chapters of this book
• [Marks Distribution] Chapter-wise marks distribution from May 2018 onwards
• [Previous Exam Trend Analysis] Previous exam trend analysis from Nov. 2020 onwards
• [Comparison with Study Material] Chapter-wise comparison with ICAI Study Material