Part A Value Chain and CVP analysis for Roman Cements Company (a) Key Success Fa
ID: 2590714 • Letter: P
Question
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:(Source: http://jitpm.com/triple-constraints-project-management) 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. (15 marks) (2) Prepare Income Statement of Roman Cements Company for the year 2017. Show all calculations clearly (based on information given above in (b)(15 marks) (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,(5 marks) (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 marks) (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)(20 marks) (2) Based on information given in (b) above, ascertain the total cost of Job No. 440 (10 marks) (3) Explain briefly why over/under absorption of overheads occur? (10 marks) (20 + 10 + 10 = 40) 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:
(Source: http://jitpm.com/triple-constraints-project-management) 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. (15 marks) (2) Prepare Income Statement of Roman Cements Company for the year 2017. Show all calculations clearly (based on information given above in (b)(15 marks) (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,(5 marks) (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 marks) (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)(20 marks) (2) Based on information given in (b) above, ascertain the total cost of Job No. 440 (10 marks) (3) Explain briefly why over/under absorption of overheads occur? (10 marks) (20 + 10 + 10 = 40) 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:
(Source: http://jitpm.com/triple-constraints-project-management) 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. (15 marks) (2) Prepare Income Statement of Roman Cements Company for the year 2017. Show all calculations clearly (based on information given above in (b)(15 marks) (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,(5 marks) (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 marks) (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)(20 marks) (2) Based on information given in (b) above, ascertain the total cost of Job No. 440 (10 marks) (3) Explain briefly why over/under absorption of overheads occur? (10 marks) (20 + 10 + 10 = 40)
Explanation / Answer
KEY SUCCESS FACTORS:
ROMAN CEMENTS
INCOME STATEMENT 2017
$
$
SALES (50,000 X $80)
4,000,000
Less Cost of Sales
Opening stock ( FG)
100000
Production:
1513000
Less Closing Stock:
120000
1493000
GROSS PROFIT
2507000
LESS:
PROPERTY TAX
7000
MARKETING PROMO
66000
DISTRIBUTION
65000
CUSTOMER SVC
64000
(202,000)
NET PROFIT
2305000
MANUFACTURING A/C
RAW MATERIALS CONSUMED
OP STOCK 40000 X $
40000
PURCHASES
1000000
CL STCK
(50000)
990000
DIRECT LABOUR
400000
PRIME COST
1390000
ADD FACTORY OHDS:
MAT HANDLIN
70000
LUBRICANR
20000
IND LABOUR
40000
DEP PL &EQUIP
36000
166000
1556000
ADD : WIP OP
100000
LESS: CL WIP
143000
-43000
COST OF GOOD PRODUCCED
1513000
C) i
$
$
$
$
JAN
FEB
MAR
TOTAL
SALES
1600000
2080000
2240000
VARIABLE COSTS
600000
780000
1120000
CONTRIBUTION
1000000
1300000
1120000
3420000
LESS: FIXED COSTS
-1200000
NET PROFIT
2220000
C) ii
Fixed costs/ con per unit
400000/50
400000/50
400000/50
BEP units
8000
8000
8000
In value
$640,000
$640,000
$640,000
D) productA
Direct materials DM X
10 X $6
60
DM Y
10 X $4
40
100
DIRECT LABOUR Unskill
20 x $4
80
Semi skill
16 x$6
96
176
PRIME COST
276
000’S
1 QTR
2 QTR
3 QTR
4 QTR
SALES UNITS
40K
50K
60K
80K
VALUE
$3200
4000
4800
6400
VCOSTS
1104
1380
1656
2208
CONTRIBUTION
2096
2620
3144
4192
FIXED COSTS
-200
-200
-250
-300
PROFIT
1896
2420
2894
3892
PART B
$
NANDA
PRODUCTS
M
N
O
PRODUCTION units
60000
96000
80000
Direct Mat @$140/ 180/ 120
8400,000
17280,000
9600,000
Direct labour@$160/120/200
9600,000
11520,000
16000,000
Less produc oh on DLhours
1083,502
1286,660
1805,838
4176000/1850
Total cost
19,083,502
30,086,660
27,405,838
b) JOB K 440
$
$
DM
420
DL
300
OHS
45
TOTAL
765
Over/under absorption takes place when the amounts actually paid are less/ more than the estimated overheads
ROMAN CEMENTS
INCOME STATEMENT 2017
$
$
SALES (50,000 X $80)
4,000,000
Less Cost of Sales
Opening stock ( FG)
100000
Production:
1513000
Less Closing Stock:
120000
1493000
GROSS PROFIT
2507000
LESS:
PROPERTY TAX
7000
MARKETING PROMO
66000
DISTRIBUTION
65000
CUSTOMER SVC
64000
(202,000)
NET PROFIT
2305000
MANUFACTURING A/C
RAW MATERIALS CONSUMED
OP STOCK 40000 X $
40000
PURCHASES
1000000
CL STCK
(50000)
990000
DIRECT LABOUR
400000
PRIME COST
1390000
ADD FACTORY OHDS:
MAT HANDLIN
70000
LUBRICANR
20000
IND LABOUR
40000
DEP PL &EQUIP
36000
166000
1556000
ADD : WIP OP
100000
LESS: CL WIP
143000
-43000
COST OF GOOD PRODUCCED
1513000