Академический Документы
Профессиональный Документы
Культура Документы
Management
By KAPP Edge Solutions
Exam Pattern
Section A 50 marks Five compulsory medium
answer questions, each worth
ten marks.
Short scenarios may be given,
to which some or all questions
relate.
Section B 50 marks One or two compulsory
questions. Short scenarios
may be given, to
which questions relate.
Exam strategy
KAPP Edge Solutions
Question requirements and presentation
Start a new page for each of the questions.
Layout your answers neatly and show all your workings.
Discussion answers must be broken down into small paragraphs with a space after each relevant
point.
Make sure you present your answer in the format that is requested, e.g. report format.
Where questions require the use of a formula, write out the formula first and then insert the figures.
Make sure you read all the requirements before attempting the question.
Let the question requirement drive your headings.
Examine any information in the scenario (if provided) constantly to generate ideas.
Ensure you deal with all aspects to a question requirement, reread the question two or three times to
ensure you have fully understood it.
Have a separate page for your workings and make sure your final answer makes reference to these.
If you get stuck on a certain part of the question, dont spend too long on that part.
KAPP Edge Solutions
Syllabus structure
A: Pricing and Product Decisions (30%)
B. Cost Planning and Analysis for Competitive
Advantage (30%)
C: Budgeting and Management Control (20%)
D: Control and Performance Measurement of
Responsibility Centres (20%)
Pricing and
Decision
Making
Budgeting and
Management
Control
Responsibility
Centres
KAPP Edge Solutions
Important Topics
Pricing Decision
Decision Making
Transfer Pricing
Learning Curve
Budgeting
KAPP Edge Solutions
Decision Making
Topics Covered
Relevant and non-relevant cost
Opportunity cost
Decision making
Relevant and Non-Relevant cost
Relevant cost- which changes as a direct result of decision taken.
o These are future costs.
o They are incremental/differential /avoidable costs.
o They are cash flows.
Note-variable costs are relevant cost.
Example, if I am deciding whether to buy a Toyota Camry or a Maruti Swift, and if my auto insurance will be
the same no matter which car I buy, my consideration of insurance costs will not affect my decision.
Non- Relevant cost- these are not relevant in decision making.
o Sunk costs
o Fixed costs
o Committed cost
o Depreciation
o Notional cost
Opportunity cost
Meaning-It is benefit sacrificed due to choosing one alternate .
Example:
K ltd has occupied the building itself . The market rent of such property is $ 2,000
p.m.
This $ 2,000 is an opportunity cost.
Relevant cost of Material
Relevant cost of Labor
Relevant cost of Overheads
Relevant cost of Non Current Assets
Current Replacement
Cost
If machinery is to
be replaced at the
end of its useful
life.
Higher of sale proceeds or
the net cash flow
arising from
the use.
If machinery is
not to be replaced
at the end of its
useful life.
Decision making
Limiting factor decisions-
Limiting factor- which prevents a company from achieving the desired output or
sales.
Situation1-single limiting factor
= Contribution per unit
Scarce resource
The product with highest contribution per scarce resource will be selected.
Decision making
Make or buy
Contribution per unit
Scarce resource
The product with highest contribution per scarce resource will be selected.
Any product which comes last in priority and cant not be allotted the scarce
resources, will be purchased from outside.
Decision making
Accept or reject
Any order which gives highest contribution per unit/ contribution per scarce
resource if any. Will be accepted.
Decision making
Shut down decision
Whether or not to close down a factory, department, product line or other activity,
either because it is making losses or because it is too expensive to run.
If the decision is to shut down, whether the closure should be permanent or
temporary. Shutdown decisions often involve long term considerations, and capital
expenditures and revenues.
A shutdown should result in savings in annual operating costs for a number of years in
the future.
Closure results in release of some fixed assets for sale.
Employees affected by the closure must be made redundant or relocated, perhaps even
offered early retirement.
Minimum pricing Decision
Minimum price is equal to incremental cost plus opportunity cost.
Practice Questions
EXAMPLE
A summary of the cost estimates used for the purposes of arriving at the tender price is as follows:
Cost Estimates Grain Silo 000s
Direct Materials Steel 600
Direct Materials Wiring and ancillaries etc. 100
Direct Labour-Engineering-3000 hours@100 per hr. 300
Direct Labour - Unskilled 10000 hours @ 40 per hr. 400
Variable Overheads 150
Fixed Overheads Absorbed 150
Total Estimated Cost 1,700
K ltd. tendered at a price of 2.04 million by adding on a mark-up of 20% to the above costs. It has just
been informed that its tender was unsuccessful.
engineering hours were in short supply and earn a contribution per hour of 10
due to the recent cancellation of an order the company expects to have available 6,000 idle unskilled hours
available to work on the job. Any additional unskilled labour required is employed on a casual basis
the wiring was already in stock for the previous job that was cancelled. The wiring has no other use and was
to be scrapped at a cost of 10,000.
fixed overheads represent an allocation of Ks central fixed overhead. The proposed tender would have
incurred specific fixed costs of 20,000
Solution
K ltd.- Relevant Cost of Grain Silo: