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Strategic Cost Management [email protected] +91 95030-94040 Strategic Cost Management Problem 1 Initial Investment: 500,000 Annual savings of: 100,000 Cost of capital: 9% Find the payback period and discounted payback period (nearest year is acceptable), which one will you recommend and justify your recommendation Round to 3 decimal places for all calculations. Assume all savings happen at the end of year, starting from Year 1 (10 Marks) Problem 2: An auto component manufacturing company is contemplating introducing a new inspection process in their assembly line to save on rectifying cost. The current production is in batches, each batch produce 5000 components. The cost of inspection of each component is Rs 50, the cost of rectifying each defective component is Rs 250. If a defective component is sent to customer and returned by customer it cost the company Rs 500. Calculate at what percentage of defective rate it would be beneficial for the company to adopt the proposal. (10 Marks) Problem 3: From the following details calculate and elaborate on: Sales 150,000 Total Cost 120,000 Fixed Cost Profit 60,000 30,000 a. P/V ratio (5 Marks) b. Break Even Point and Margin of Safety (5 Marks) www.answersheets.in [email protected] [email protected] +91 95030-94040