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Strategic Cost Management-NMIMS June18

Strategic Cost Management-NMIMS June18

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Q1. X Ltd has to replace its machine and the production manager has to decide between Machine A and Machine B. Machine A is having installation cost of 160 and annual electric bill 200. Machine B has installation cost of 760 and annual electric bill of 80. If both have life of 8 years which machine will you recommend if interest rate is 9 % for five years. P/V factor @ 9 % for 8 years is 5.5348 (10 Marks)


Q2. A company manufacturing two products furnishes the following data for a year.


Annual Output Units


Total machine hours

Total No. of purchase orders

Total No. of setups












The annual Overheads are as under:

Volume related activity cost (Activity driver-Machine hours )      5,50,000

Setup related cost           8,20,000

Purchase related cost    6,18,000

You are required to calculate cost per unit of each product A & B based on

i. Traditional method of charging overhead and

ii. Activity based costing method (10 Marks)


3. Project X Involves an initial outlay of Rs 32,400.Its working life is 3 years. The cash streams are as follows Year Inflows P .V Factor @ 14% P .V Factor @ 16% 1 16,000 0.877 0.862 2 14,000 0.769 0.743 3 12,000 0.675 0.641


a. NPV at 14 % & 16%

b. IRR

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