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Strategic Cost Management

1) Siya had a surplus of Rs. 1, 00,000/- which she wanted to invest in the Equity Stock market. She was considering stocks of 3 companies for which the following information is available.

 A B C

Profit before Tax 10,000 15,000 29,000

Tax @ 30% 3,000 4,500 8,700

No. of Equity Shares 5,000 6,000 10,000

Market Price 300 400 800

Analyse the information and help Siya take her call in which Company to invest. Explain the basis of your decision with the help of financial ratios. (Any 2) (10 marks)

2) Megha is the Finance Manager of Trinity Ltd. She was given the following information regarding one set up in her company.

Sales Price of the product = Rs. 10,000

Variable Cost of Production = Rs. 6,000

Fixed Cost of production = Rs. 2,00,000/-

Megha calculated the BEP for the department using CVP analysis.

Her manager asked her to explain why she used CVP Analysis. Discuss how Megha could convince her manager of uses of CVP Analysis. (10 marks)

3)

a) In the instances given below, identify whether the costs are relevant or irrelevant for taking decisions. Give reasons:

i) Incremental cost of production for Raw Material Purchase.

ii) Book Value of the Machinery being used for production.

iii) Revenue expected from the sale of the product which will have to be sacrificed for producing the new product.

iv) Rent paid for the existing factory premises.

v) Depreciation (5 marks)

b) Calculate Debt Equity Ratio, Current Ratio and Quick Ratio for year ended 31.3.2022. (Debt may be considered equal to Borrowings.)

Discuss on the findings. (5 marks)

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