Cost Management-final 26
During the year 2006-07 , various steps in value analysis are implemented:
1.Identification of the problem of low labour efficiency; As a result of re-engineering of business processes, the overall direct labour efficiency will increase by 12%, but the wage rate will go up by 5%.
2.Collecting information about function, design, materials, labour, overhead costs, etc., of the product and finding out the availability of the competitive products in the market . It is expected that the materials prices and variable overheads will go up by 10% and 5% respectively.
3.Exploring and evaluating alternatives and developing them as a result fixed overheads are also expected to increase by Rs. 1,25,000.
The VP– Manufacturing states that the same level of output as obtained in 2005-06 should be maintained in 2006-07 also and efforts should be made to maintain the same level of profit by suitable increase the selling price.
The VP–Marketing states that the market will not absorb any increase in the selling price. On the other hand, The proposes that publicity involving advertisement expenses as given below will increase the quantity of sales as under :
Advertisement Expenses (Rs. )80,0001,94,0003,20,0004,60,000
Additional units of Sales2,0004,0006,0008,000
(a)Present an Income Statement for 2005-06.
(b)Find the revised price and the percentage of increase in the price for 2006-07, if the views of the VP–Manufacturing are accepted.
(c)Evaluate the four alternative proposals put forth by the VP–Marketing. Determine the best output level to be budgeted and prepare an over-all Income Statement for 2006-07 at that level of output.
(a)Working notes :
1.Number of units produced and sold for the year ending on 31st March,
Total sales revenue upto 31st March,
Selling price p.u.
= = 20,000 units
Rs. 125 p.u.