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Strategic Cost Management-NMIMS-June-17

Strategic Cost Management-NMIMS-June-17

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Q1. Pepsi Co. is planning to replace one of its machines with a new one. The old machine has a purchase value of Rs.10,00,000 and a useful life of 10 years. The machine was bought 5 years back. The company does not expect to realize any returns from scrapping the old machine at the end of 10 years but if it is sold to another company in the industry it would receive Rs.600,000 for it. The new machine has a purchase price of Rs.20,00,000. It has an estimated salvage of Rs.200,000 and useful life of 5 years. The new machine will have a greater capacity and annual sales are expected to increase from Rs.10,00,000 to Rs. 12,00,000. Operating efficiencies with new machine will also produce savings of Rs.200,000 a year. Depreciation is on SLM over a ten year life. Cost of capital is 8% and 50% tax is applicable.

Based on the NPV and PI should the machine be replaced?

 

Q2. A drug manufacturing unit is planning to establish a Total Productive Maintenance for the first time and is confused as to what is the meaning and the objectives of such a system. You being a newly passed out Cost Accountant, is expected to guide the management through the above.

 

Q3A) A newly appointed Independent Director on the Board of Infinity Ltd. has challenged the decision of the existing management to enter a new market as a non-strategic one. To help the management board understand if this is true or otherwise, you are expected to briefly explain the characteristics of Strategic Business Decisions.

Q3B) A new start up with latest technology at its disposal is facing a unique problem of excessive wastage in its production. They have appointed you as a management consultant to explain the various reasons for the wastage that are prevalent and what is the role that the management team can plan in controlling the same.

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