Assignment
Part A
Value Chain and CVP analysis for Roman Cements Company
(a) Key Success Factors of Roman Cements Company
Roman Cements has been in operation internationally since 2005. The company is one of the largest producers of cement products. They are so successful in their business activities due to their efficiency and cost-conscious efforts. The top management prioritizes activities in a way that no customer is penalized due to their inefficiency in operations. Their value chain has been so successful. Their operational efficiency has been characterized by their timely supply of finished products to their customers, efficiency in their operations and the value (quality) the product offers to their customers. The following diagram illustrates their operational efficiency:
The top-level management has identified that their value chain and their supply chain management activities are their key success factors which need to be further strengthened in order enjoy monopoly profits in the highly competitive cement industry.
(b) Cost & Inventory Information of Roman Cements for 2017
Roman Cement's cost details for the year 2017 are given as below: (in '000)
|
Information
|
Cost incurred for the year ended 31st Dec 2017 ($)
|
Beginning Inventory (as on 1st January 2017 ($)
|
Closing inventory (as on 31st Dec 2017) ($)
|
|
Inventories
|
|
|
|
|
Inventory - Materials
|
|
40,000
|
50,000
|
|
Inventory - Work - in Progress
|
|
100,000
|
143,000
|
|
Inventory - Finished Goods
|
|
100,000
|
120,000
|
|
Direct Materials purchased
|
1,000,000
|
|
|
|
Direct Labor
|
40% of direct material purchased
|
|
|
|
Indirect Manufacturing overheads
|
|
|
|
|
Materials handling costs
|
70,000
|
|
|
|
Lubricants
|
20,000
|
|
|
|
Indirect manufacturing labour
|
40,000
|
|
|
|
Depreciation on plant & equipment
|
36,000
|
|
|
|
Property taxes and insurance on equipment
|
7,000
|
|
|
|
Other Operating Costs
|
|
|
|
|
Marketing promotions
|
66,000
|
|
|
|
Distribution costs
|
65,000
|
|
|
|
Customer service costs
|
64,000
|
|
|
|
Sales Information
|
|
Number of Units sold
|
50,000 units
|
|
Selling price per unit
|
$ 80 per unit
|
(c) Estimations for the next 3 months for one of its products.
The company has estimated its sales and production cost for one of its products for the three months (Jan, Feb, Mar) in 2018 as below:
|
Particulars
|
Jan
|
Feb
|
Mar
|
|
Units expected to be sold
|
20,000
|
30 % more than January sales units
|
40% more than January sales units
|
|
Selling Price per unit ($)
|
80
|
80
|
80
|
|
Variable cost per unit ($)
|
30 per unit
|
30 per unit
|
40 per unit
|
|
Fixed Cost for this period
|
1,200,000
|
(d) Product A of Roman Cements Company
Roman Cements wants to launch a new product (Product A) in the coming year. Following are some of the budgeted cost details about material, labour and manufacturing costs.
(i) Prime Cost details (Product A)
|
Information
|
Quantity/Hours
|
Cost/Rate per unit/hour
|
|
Materials
|
|
|
|
Material X
|
10 units
|
$ 6 per unit of material
|
|
Material Y
|
10 units
|
$ 4 per unit of material
|
|
Labour
|
|
|
|
Unskilled labour
|
20 hours
|
$ 4 per hour
|
|
Semi- Skilled labour
|
16 hours
|
$ 6 per hour
|
(ii) Manufacturing Overheads (Product A)
Following is manufacturing overheads per quarter (assigned per quarter)
|
1st Quarter
|
2nd Quarter
|
3rd Quarter
|
4th Quarter
|
|
$ 200,000
|
$ 200,000
|
$ 250,000
|
$ 300,000
|
(iii) Expected Level of output (Product A)
|
1st Quarter
|
2nd Quarter
|
3rd Quarter
|
4th Quarter
|
|
40,000 units
|
50,000 units
|
60,000 units
|
80,000 units
|
Required
(1) Roman Cements Company is enjoying the benefits of having certain key success factors due to timely supply, cost consciousness and quality products. It has been able to enjoy monopoly profits with the help of these strategies.
In light of the above, discuss the meaning of key success factors and explain the strategies of Roman Cements which facilitate in strengthening its key success factors.
(2) Prepare Income Statement of Roman Cements Company for the year 2017. Show all calculations clearly (based on information given above in (b)
(3) Based on the information given above in (c), compute the following:
(i) Operating income for the first quarter (contribution approach to be followed) (10 marks)
(ii) BEP in Units and in money value, assuming Fixed costs and selling price same as given and variable cost per unit to be $ 30 per unit.
(4). Using the information given above for Product A in (d), compute the following:
Prime cost (material + labour) and total cost of manufacturing (material + labour + overheads) for the desired output level of Product A in different quarters (assume no inventories) and cost per unit in different quarters.
(15 + 15 + 15 + 15 = 60)
Part B
Job Costing for Nanda Ceramics Company
(a) Job Costing at Nanda Ceramics
Nanda Ceramics Company manufactures three products M, N and O. The direct costs of three products are shows as below:
|
Information/Product
|
M
|
N
|
O
|
|
Budgeted annual production (units)
|
60,000
|
96,000
|
80,000
|
|
Direct Materials
|
$ 140 per unit
|
$ 180 per unit
|
$ 120 per unit
|
|
Direct Labour ($ 20 per hour)
|
$ 160 per unit
|
$ 120 per unit
|
$ 200 per unit
|
In addition to the above direct costs, the company incurs annual indirect production cost of $ 4,176,000. Overheads were allocated to product based on number of direct labour hours
(b) Job K 440
Nanda Ceramics Company executes a job no. K440. The cost and output details of Job No. K440 are given below:
|
Information
|
Costs/hours details for Job No. K 440
|
|
Direct Materials
|
$ 420 per unit of output
|
|
Direct Labor
|
$ 300 per unit of output
|
|
Overhead Absorption Rate (based on direct labor hours) (calculated value)
|
$ 15 per direct labour hour
|
|
Number of direct labor hours to be used for Job K440
|
9,000 hours
|
|
Units to be produced (output)
|
3,000 units
|
Required
(1) Compute the total cost per unit for Nanda Ceramics Company (based on information given above in (a).
(2) Based on information given in (b) above, ascertain the total cost of Job No.K 440.
(3) Explain briefly why over/under absorption of overheads occur?