Management Accounting
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Concept builder Practice Caselets:
Understanding Variable Cost , contribution, Fixed cost, P/V
Ratio, Break even point, Margin of Safety
1.
Dan Enterprises, after inviting tenders, received two quotations as under:
SUPPLIER A
SUPPLIER B
$2.20 per unit
$2.10 per unit + $2000 irrespective of the
no. of units ordered
Questions:

At what level is the point of indifference?

Evaluate the quotes when demand is
 At 25000 units
 At 15000 units
2. Sturt Inc. is currently running at 50% capacity and produces 5,000 units at a
cost of $90 per unit as per detailed below:
$
Material
50
Labor
15
Factory overheads
15 ($6 fixed)
Administrative overheads
10 ($5 fixed)
Selling price
$100
At 60% working, material cost per unit increases by 2% and selling price per
unit falls by 2%.
At 80% working, material cost per unit increases by 5% and selling price per
unit falls by 5%.
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Management Accounting
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Estimate profits of the factory at 60% and 80% working and offer your
comments.
3. Two companies AMY Inc & Xavier Inc sell the same type of product. Budgeted
P&L account shows the following:
Figures in (thousand $)
AMY Inc
Xavier Inc
Sales
150
150
Variable cost
100
120
Fixed cost
35
Profit
15
15
15
You are requested to decide when
1)
there is heavy demand for product
2)
And poor demand for product.
4. Chin enterprises , a single product company furnishes the following data
Product
Year I
Year 2
Sales
$24,00,000
?
PV ratio
33.33 %
30%
Margin of safety
25%
40%
While there was no change in the volume of sales in year 2, the selling price was
reduced. Calculate the sales, fixed costs and profit year 2.
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Decisions from among alternatives
5. Smith Inc has prepared budget estimates for 2016-17. It is a multi product
company with budgets given for 2 products.
Sales units
A
B
6000
16000
Rate
unit
per Rate
unit
$
$
Selling price
40
64
Direct material
12
22
Direct wages @ Re. 1 8
per hour
12
Variable overheads
4
6
Fixed overheads
8
12
TOTAL
32
52
PROFIT
8
12
per
The plant is at present being used at 2/3rd capacity. After finalization of
budget estimates it was observed that 1/3rd of the production capacity was
still idle. In order to improve the performance the following proposals are
received
1. Discontinue product A and the capacity so released would be utilized for
the production of product B. In that case the selling price of Product B
has to be reduced by $2 per unit.
2. Discontinue product B and the capacity so released is to be utilized for
the production of product C.
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C
$
Selling price
52
Direct material
15
Direct wages @ Re. 1 10
per hour
Variable overheads
5
3. The idle capacity would be utilized for the production of product D.
D
$
Selling price
72
Direct material
40
Direct wages @ Re. 1 20
per hour
Variable overheads
10
4. The idle capacity would be utilized by giving the same on hire at a rental
of $ 1 per labor hour.
You are requested to evaluate each of the above proposals and take the
appropriate decision for the organization.
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Management Accounting
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Pricing of a product
6. Tijo Toys earns an average net profit of $3 per unit at a selling price of $ 15 by
producing and selling 60,000 units at 60% potential capacity.
The composition of cost of sales is as follows:
Direct materials
$4.00
Direct labor
$1.00
Production overhead
$6.00 (50% fixed)
Sales overhead
$1.00 (75% fixed)
During the current year the firm intends to produce the same number but
anticipates that:
(i)
its fixed expenses will increase by 10%;
(ii)
rates of direct material will increase by 5%;
(iii)
rates of direct labor will increase by 20%; and
(iv)
Selling price can not be increased.
Under these circumstances, the firm obtain an order for an additional 20% of
its capacity.
What minimum price, would you recommend for accepting the order to ensure Tijo
Toys an overall profit of $1, 80,500?
7. Caselet
Caselet: TransWestern Airlines- Cost-Volume-Profit Analysis, Pricing and Breakeven Analysis in the Airline Industry
Trans Western Airlines is considering a proposal to initiate air service between
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Management Accounting
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Phoenix, Arizona, and Las Vegas, Nevada. The route would be designed primarily to
serve the recreation and tourist travelers who frequently travel between the two
cities. By offering low-cost tourist fares, the airline hopes to persuade persons who
now travel by other modes of transportation to switch and fly Trans Western on this
route.
In addition, the airline expects to attract business travelers during the hours of 7
A.M. to 6 P.M. on Mondays through Fridays. The fare price schedule, or tariff, would
be designed to charge a higher fare during business – travel hours so that tourist
demand would be reduced during those hours. The company believes that a business
fare of $100 one way during business hours and a fare of $60 for all other hours
would equalize the passenger load during business-travel and tourist-travel hours.
To operate the route, the airline would need two 200-passenger jet aircraft. The aircraft would be leased at an annual cost of $10,000,000 each. Other committed costs
for ground service would amount to $5,000,000 per year.
Operation of each aircraft requires a flight crew whose salaries are based primarily
on the hours of flying time. The costs of the flight crew are approximately $800 per
hour of flying time.
Fuel costs are also a function of flying time. These costs are estimated at $1,000 per
hour of flying time. Flying time between Phoenix and Las Vegas is estimated at 45
minutes each way.
The flexible costs associated with processing each passenger amount to $5. This
amount includes ticket processing, agent commissions, and baggage handling. Food and
beverage service cost $10 per passenger and will be offered at no charge on flights
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Management Accounting
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during business hours. The airline expects to recover the cost of this service on nonbusiness-hour flights through charges levied for alcoholic beverages.
Assignment Questions
1) If six business flights and four tourist flights are offered each way every
weekday, and 12 tourist flights are offered each way every Saturday and Sunday,
what is the average number of passengers that must be carried on each flight to
break even?
2) What is the breakeven load factor (percentage of available seats occupied) on a
route?
3) If Trans Western Airlines operates the Phoenix – Las Vegas route, its aircraft
on that route will be idle between midnight and 6 A.M. The airline is considering
offering a “Red Die” special, which would leave Phoenix daily at midnight and
return by 6 A.M. The marketing division estimates that if the fare were no more
than $40, the load factor would be 50% for each Red Die flight. Operating costs
would be the same for this flight, but advertising costs of $10,000 per week
would be required for promotion of the service. No food or beverage costs would
be borne by the company. Management wants to know the minimum fare that
would be required to break even on the Red Die special, assuming that the
marketing division’s passenger estimates are correct.
Learning Outcome
1.
2.
3.
4.
To understand the concept of break even point
To decide on Introduction of new product and services
To utilize the idle capacity for better generation of revenue and profit
maximization thereof.
To segregate the cost between variable and fixed and the concept of
contribution margin as a key for decision making.
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8. The following particulars are extracted from the records of George and company:
Product A
Product B
Sales
$100
$120
Material cost
10
15
Direct wage cost
15
10
Direct expenses
5
6
Fixed
5
10
Variable
15
20
Machine-hou$ used
3
2
Consumption of materials(kgs)
2
3
Overhead expenses:
Direct wages per hour
$5
Comment on the profitability of each product when:
1. Total sales potential in units is limited.
1) Total sales potential in value is limited.
2) Raw material is in short supply.
3) Capacity is limited
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9.
Living Furniture ltd – Caselet on Limiting Factor
The Living Furniture’s Convertibles Series is an innovative line of furniture
designed to maximise the space in your home.
The Convertibles Series features from Living Furniture ltd multifunctional,
space saving furniture that can even be used to transform a 1 BHK apartment
into a 2 BHK. Designed with urban spaces in mind, The Convertibles has a
contemporary aesthetic and is built with durability in mind.
Living Furniture ltd manufactures 1 type of sofa set exclusively. The set
contains 7 components:
1- sofa, 2 centre tables, 4-chairs
These components can either be manufactured or sub-contracted and the
following are relevant information
Sofa
Table
Chair
Direct material ($)
1000
500
550
Direct labour hours per
component-Hours
100
50
10
Sub contract price per
component($)
2500
1000
750
Sales of sofa sets are currently 8000 per period each set being sold at $
7500/-. A capacity constraint of 500000 direct labor hours forces the company
to sub contract some component.
The variable overhead varies with direct labor hours worked and are incurred @
$ 2/- per hour. Fixed cost $1,750,000/- per period. Labor cost $ 5.50 per hour.
Assignment Questions
1)
Advice on which component and how many should be manufactured by
the company,
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2)
What is the maximum, profit that could be earned at the current
sales? What is the max profit if the sales are unlimited?
3)
If the selling price has to be reduced to $ 6950/- per sofa set.
What is the max profit that the company can obtain?
Learning Outcome
1)
2)
3)
4)
10.
To understand the concept of Limiting factor in Decision making
To decide on Introduction of new product and services
To utilize the available capacity for better generation of revenue and
profit maximization thereof.
To segregate the cost of making and subcontracting as a key for decision
making.
Caselet : Markus and Company – a limiting factor departmentally
Markus and Company manufactures two products, A & B using imported raw
materials. The selling prices of these products are: A $144, B $216. The
standard cost data are as under:
PRODUCT
PRODUCT
A
B
$
$
Raw Materials
P
15
20
Q
5
20
Direct Wages @ $4/- per hour
Department
1.
24
36
2.
12
24
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3.
36
nil
4
Nil
48
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14
Variable Overheads
Fixed Overheads per annum $2,50,000
The Company operates a 8 hour shift in 300 days in a year and the
number of workers engaged in cash department is given below:
Department
Number of Workers
1
45
2
24
3
27
4
36
Assignment Questions :
(1)
How many units of each product should be manufactured and what is the
resultant maximum profit if the number of employees cannot be increased or
transferred from one department to another.
(ii)
If only one product is to be manufactured by the company.
(a)
Which of the products should be manufactured to yield optimum
profit and what is the amount of such profit
(b)
What is the amount of such profit if the availability of both the
imported raw materials in total is limited to $1, 80,000?
Learning Outcome
1)
2)
3)
To understand the concept of Limiting factor in Decision making
To decide on decision of optimum product Mix under limiting factor
To utilize the available capacity for better generation of revenue and
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Management Accounting
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profit maximization thereof, when limiting factor is departmentally
availability of resources
Activity Based Costing
11. Major Ltd. manufactures two products A and B. The product A is a low-volume
item and its sales are 5,000 units per annum. The product B is a high-volume
item and its sales are 20,000 units per annum. Both products require two direct
labor-hours for completion. The company works 50,000 direct labor-hours each
year as given below:
Hours
Product A: 5,000 units x 2 hours
10,000
Product B: 20,000 units x 2 hours
40,000
Total Hours
50,000
Details of costs for materials and labor for each product (per unit) are given
below:
Product
A
Direct Materials
Direct Labor (at $ 5 per hour)
B
$25
$15
10
10
The company’s total manufacturing overheads costs are $8, 75,000 per annum.
The company has analyzed its operations and has determined that five activities act
as cost drive$ in the incurrence of overhead costs. Data relating to the five
activities are given below:
Number of Events or Transactions
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Activity
Traceable
Costs
Machine set-ups
Quality inspections
Production orders
Machine-hours worked
Material receipts
Total
Total
Product A
Product B
$ 2,30,000
5,000
3,000
2,000
1,60,000
8,000
5,000
3,000
81,000
600
200
400
3,14,000
40,000
12,000
28,000
90,000
750
150
600
8,75,000
You are requested to compute per unit cost for each product using(i)
Direct Labor Hour Rate Method for absorption of overhead costs.
(ii)
Activity Based Costing Technique for absorption of overhead costs.
Comment on your results.
12.
Caselet: Holiday Hotel - Elements of costs –Prime Costs and Overheads
The Holiday Hotel provides a recreation centre for the use of its guests and
employees. The centre also sells memberships to people in the local
community. The centre has squash and racket ball court facilities, showering
facilities, and a room with various types of exercise equipment. The courts
occupy about 70% of the facility’s floor space, the showering area 10%, the
exercise room 15%, and the administrative offices 5%. In the long-run the
hotel could convert unused facilities to additional lodging units. The center
reports the following costs for the most recent year:
1.
Assigned building depreciation and staff costs: $400,000. The
depreciation charges amount to $250,000; the salaries of the manager
and her staff amount to $150,000. Staff costs are independent of the
level of activity in the recreation centre.
2. Depreciation on the exercise equipment that is added as demand
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Management Accounting
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grows: $200,000.
3. Maintenance and electrical charges, which are thought to vary with
the number of visitors to the centre: $300,000.
4. Laundry costs: $300,000, comprising $50,000 of depreciation on the
machines and $250,000 of supplies costs.
5. The cost of other supplies, which are consumed equally by all visitors
to the center: $200,000.
During the last year, there were 67,000 visits to the physical centre. The
capacity level of each of the showering, exercise, and court areas is estimated
as 80,000, 40,000, and 25,000 visits per year respectively.
Assignment Questions
1) What is the cost per visit to the physical centre?
2)
In the past, the costs of the physical centre were charged to the various
hotel departments, guest services, and outside business in the ratio 50%,
40%, and 10%. The idea of charging back to hotel departments is to
recognize that the physical centre is an employee-related cost. The idea of
charging back to guest services is to provide information to support the
calculation of cost per guest visit at the hotel. Costs were assigned to the
unit relating to memberships with the expectation of covering out-of-pocket
costs under the assumption that the facility was built for the use of the
employees and guests. Some of the department controllers have complained
about this practice and have argued that the charges to the departments
should be based on use rather than on employee numbers. Moreover, some
controllers have argued that it is unfair and unreasonable to charge all
visitors the same. An audit of the center’s use, which is thought to reflect
average long-term use, suggests that about 25,000 visits were by employees
and that 80% of them only showered; the rest used the exercise and court
facilities almost equally and showered. About 15,000 visits were by hotel
guests, virtually all of whom showered and used the exercise room. The
remaining visits were from paid members, all of whom showered, and who
used the exercise and court facilities almost equally. Based on this
information, how should the costs of the physical centre be assigned to all
various groups?
3)
Learning Outcome
1. To understand different elements of costs
2. To appreciate the difference between directly attributable costs and
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Management Accounting
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the costs to be apportioned
3. To recognize the methods of cost apportionment
4. To achieve for profit maximization
Make or Buy and Profitability Analysis and Relevant
Costing
13.
Caselet : Bangalore Toy and Gift Ltd- Relevant Costing
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Management Accounting
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Case : Bangalore Toy and Gift Ltd
Bangalore Toy and Gift Ltd want to add one more toy to its range of products. It will be
named “Pookie”. The demand for it will last for one year as indicated by a research survey
at a cost of$ 20,000. The total demand is expected to be 1, 00,000 units at a price of $ 6
each. The following are the requirements to make one Pookie:
Raw materials
Amount
reqd per
pookie
Current
stock
level
kg
kg
A
0.8
2,00,000
1.05
1.25
0.9
B
0.4
30000
1.65
1.2
0.55
Type
Original
cost
$/kg
Replac
ement
Cost
Realizab
le value
Remarks
$/kg
$/kg
Regularly used in business
Surplus stock from an earlier
Contract. Not reqd. in near
future.
C
0.1
0
-
2.75
2.5
Specially reqd. for Pookie;
not used earlier in the business
Labour
Type
Skilled
Unskilled
Supervisor
Hours of
work
Rate
Remarks
$/hr
0.5
3
To be recruited specially for Pookie.
0.25
2
25,000 surplus hours are expected to be
available during the coming year if Pookies are
not produced. Company policy dictates that no
unskilled worker will be made redundant in the
foreseeable future
One supervisor who is getting $7000 a year on
full-time basis is to retire shortly, but he has
agreed to delay his retirement for one year and
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Management Accounting
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to waive his annual pension of $4000 in return
for his annual salary during this period.
Machinery
Two machines, X and Y, would be required to manufacture Pookies, details of which are as
below:
X
Y
Original cost
$35,000
$25,000
Accumulated depreciation
$24,000
$18,000
Written down value
$ 11,000
$ 7,000
Estimated value at end of useful life
$ 5,000
$ 1,000
Age
4 years
6 years
Estimated remaining useful life
1 year
2 years
Details are also available of cash values relating to the two machines at the start and end
of the year during which Pookies would be produced,
Machine X:
Replacement cost
Resale value
Start of the year
End of year
$
$
40,000
45,000
7,000
5,000
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Management Accounting
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Machine Y:
Replacement cost
Resale value
30,000
33,000
4,000
3,000
If machine X is not used for the manufacture of Pookies then it would be used to
manufacture existing products, the sale of which would result in estimated $50,000 net
receipts.
Machine X is one of a number of identical machine types used regularly on various products
by Bangalore Toy & Gift Ltd. Each of this type of machine is replaced as soon as it reaches
the end of its useful life.
Machine Y is the only one of its type within the firm and if not used in the manufacture of
Pookies would be sold immediately.
Overheads
Variable overheads attributable to Pookies are estimated at $1.50 per piece and there will
be no additional fixed costs to make Pookies. However, it is the practice of the firm to
allocate fixed overheads to all the products on the basis of labor hours, and the rate for
the coming year has been established at $2.50 per labor hour.
Assignment Questions
1.
On the basis of the above information, you are to advise the management if the project
is worth implementing that is whether Pookie be introduced
2. Explain your working along with the answer,
Learning Outcome
1.
2.
To understand the usefulness of the knowledge of the relevant costing
for
introduction of a new product
To calculate the cost of the product under relevant costing concept and to win over
the competitors in bagging the deal.
14. Adam and company engaged in the manufacture of consumer products has
developed a special adhesive gum called “Adgum” to utilize its spare production
capacity. Adgum is to be sold in tubes of 50 ml. capacity to distributors packed
in cartons of 40 tubes at $240 per carton. The company estimates a sales of
2,00,000 tubes per month and the cost estimates based on this volume of
production are as under.
Per Carton
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Management Accounting
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$
Direct materials
100
Direct wages
60
Variables overheads
60
Allocated fixed overheads
_ 12
Total
232
The Company expects that in cou$e of time the sales can be increased to
3,00,000 tubes per month and ultimately to 5,00,000 tubes per month.
The sale of Adgum requires a special tube manufacturing capacity. The
company has a machine which is capable of producing 2,00,000 empty tubes
of the requisite size per month and this machine is at present idle. It can be
used for producing the empty tubes required for packing Adgum.
Alternatively, the company can purchase empty tubes from the market at a
cost of $90 per 100 tubes. In that event, there will be a saving of 20% in
material costs and 10% in labor and overhead costs of Adgum estimated
above.
If the company however desires to manufacture the empty tubes in excess of
2,00,000 tubes, a new tube making machine involving a fixed overheads of
$40,000 per month will have to be installed. The capacity of the new machine
is 5,00,000 empty tubes per month.
Required:
i)
Prepare statements to show whether the company should make or buy empty
tubes at each of the three levels of production of Adgum of 2,00,000,
3,00,000 and 5,00,000 tubes.
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ii)
At what volume of sales of Adgum will the company find it justifiable to
install the new empty tube manufacturing machine?
iii)
Prepare a statement to show the overall profits at the three volume of
production and sales of Adgum viz.2,00,000, 3,00,000 and 5,00,000 tubes
based on your decision to make or buy the empty tubes.
Absorption Costing and Marginal Costing
15. Where lays the difference??????
The following details are available for Puzzled ltd:
1. Selling price per unit $ 8/2. Variable cost per unit $ 4/3. Fixed cost per unit $ 2/- (Calculated on a normal volume of production of
20,000 units)
4. The quantity produced and sold in each quarters are as under
Quarter 1
Opening Balance
Quarter 2
Quarter 3
Quarter 4
Total
Nil
Nil
1,000
2,000
Nil
Production
18,000
19,000
17,000
20,000
74,000
Sales
18,000
18,000
16,000
22,000
74,000
Nil
1,000
2,000
Nil
Nil
Closing Balance
Requested to calculate profit as per
1. Marginal costing
2. Absorption costing method
3. Reconcile the two
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Management Accounting
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4. Comment on where the difference occurs & the relative advantage and
disadvantage of the methods
16.
CASELET: TOPIC: JOINT- PRODUCT, BY-PRODUCT
Exotic Perfume Inc. , a Chemical company processes raw material R and produces three
similar products P1, P2, and P3 of a joint process. The joint cost of processing 5000
Kilogram (Kg) of R is as under:
$
Labor Cost
6000
Overhead Cost
2000
Total
8000
The Raw Material R is purchased at $ 2.40 per Kg. This rate is after a trade discount of
20% on the list price.
Normal process loss is estimated at 10% of input weight The scrap generated in
processing R is recovered to the extent of 25% (by weight) and sold as such in the
market at $4 per kg. The products---P1, P2 and P3 can also be sold at $5.00, $ 6.00 and
$ 6.50 per Kg. respectively without any further processing.
However, products P1 and P2 can also be further jointly processed at an additional cost
of $ 2 per Kg. of the input to get product J1. The further processing cost of J1 will be $
1 per Kilogram of the output weight.
Similarly, products P2 and P3 can be jointly processed to get the product J2 at an
additional cost of $ 5 per Kg of input. The further processing cost of J2 will be $ 2 per
Kg of the output weight. The normal loss of processing J1 out of P1 and P2 will be 5% of
input weight.. No processing loss is expected on processing J2.
The manufacturing of J1 and J2 from P1, P2, and P3 are as under:
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J1
P1
40%
P2
60%
P3
J2
50%
50%
SP($)
10
12
The output of P1, P2 and P3 from R is in the ratio of 3:4:2
Assignment Questions :
1.
Prepare a profitability statement if products are sold at split off point
2. Prepare profitability statement if product P2 is used in the ratio of 3:2 for J1 &
J2 respectively.
3. Use P2 judiciously if only one product is produced i.e. either J1 or J2.
Learning Outcome
1) To understand pricing decisions under Joint- product and By-product situations.
2) To understand different methods of apportionment of Joint costs among joint
products
Budgeting
17.
Caselet : David Ltd -Budgeting- Preparation of Master budget
David Ltd. has specialised in the manufacture of three kinds of sub-assemblies
required by the manufacturers of certain equipment. The current pattern of sales of
sub-assemblies is in the ratio of 1:2:4 for sub-assemblies P, Q and R respectively.
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The sub-assemblies consist of the following components:
Sub-assembly
Requirement of components
Price ($)
P
Frame
Part X
Part Y
Part Z
430
1
10
2
8
Q
500
1
2
14
10
R
600
6
10
2
16
10
6
1
Purchase Price ($)
40
The direct labour hours required for the manufacture of each of the subassemblies are:
Sub-assembly
Skilled hours
Un-skilled hours
P
4
4
Q
3
4
R
3
6
6
5
Wage rate per hour ($)
The labourers work for 8 hours a day for 25 days a month.
Variable overheads per sub-assembly are P $10, Q $8, R $7.
The estimates of ‘opening stocks of sub-assemblies and components
for the month of July 2017 are as under:
Sub-assemblies
P
600
Components
Frames
2000
Q
1400
Part X
800
R
3200
Y
Z
20000
8000
Fixed overheads budget per month is as under:
$
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Production
15,80,000
Selling & Distribution
7,28,000
Administration
6,76,000
All fixed overheads are incurred evenly throughout the year.
The target of profit for the current year is $120 million before tax. The
company has a plan to reduce the closing stock of sub-assemblies and
components by 10% as compared to the opening stock.
Assignment Questions:
Required
Prepare the following budgets for the July 2017:
i)
Sales in quantities and value
ii)
Production in quantities
iii)
Material usage
iv)
Material purchase in quantities and value
v)
Manpower budget for both categories of labour including wages
payable.
Learning Outcome:
1) To understand the interlinkage of the different Budgets in the
organisation
2) To prepare Budget keeping in mind the targeted profit of the
organisation
VARIANCE ANALYSIS
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18. Josh and Company selling consumer durables prepared its budget for 2016-17
anticipating a profit of $ 20 millions. But the actual results for the year
disclosed a net loss of $ 1 million. The managing director of the company
wanted to prepare a statement explaining the reasons for the loss. Details of
the budget with actual are given below:
Particulars
Amount
(millions)
Amount
(millions)
Sales
400
484
Material
200
253
Labour
80
115
Variable overheads
40
48
Fixed overheads
60
69
Profit / Loss
20
(1)
During your investigation you found that there was an overall increase of 10% in
cost of material. The labourers were given 15% increase in wages as a result of
agreement with trade unions. The selling prices increase by 10%. Prepare a report
listing the various facto$ responsible for the loss of 1 million as against the
anticipated profit of 20 million.
19. Steve ltd. with a good track record and quality product had a record sales
volume in 2015-2016. But at the end, it realised to its surprise that gross profit
had dipped considerably and the net working result was a loss of $75000/-. On
a review the management decided that taking into account all relevant aspects
and to avoid losses in the future, the selling price would be increased by 10%
w.e.f. 1/4/2016. Simultaneously the post of factory manager, which was lying
vacant for some months, was filled up and the new incumbent was entrusted
with the task of reducing costs.
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Management Accounting
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PARTICULA$
20152016
2016-2017
$ IN MILLIONS
NET SALES
52.50
67.50
COST OF GOODS SOLD
47.25
54.00
OPERATING PROFIT
5.25
13.50
MISCELLANEOUS EXPENSES
6.00
6.75
(0.75)
6.75
NET PROFIT/LOSS
During your review a controversy arose between the marketing manager and the
factory manager. While both agreed that increase in profit was mainly attributable
to the hike in selling price, the marketing manager insisted that the increase in
gross profit was mainly due to increase in volumes compared to increase in gross
profit due to savings in factory cost, the factory manager thinks otherwise. You are
requested to intervene and settle the dispute.
20. The summarized operating results of Tim and company for two years are as
under:
2016
$million
2017
$ million
Sales
420.00
453.60
Material cost of Sales
280.00
318.85
Variable expenses
70.00
84.00
Fixed expenses
52.50
64.75
Total
402.50
467.60
Profit / Loss
_17.50
(14.00)
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Management Accounting
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Analysis revealed that during 2017 the average prices increased over those of 2016
in respect of:a) Sales by 20%,
b) Materials by 15%,
c) Expenses by 10%
Prepare a statement showing the variation in profit
Divisional Performance Measurement and Transfer pricing
21. David and company is organised into two divisions namely A and B. Division A
produces three products, K, L and M. Data per unit are:
K
L
M
Market price
$120
115
100
Variable costs
$ 84
60
70
Direct labour-hours
4
5
3
Maximum
sales
potential (units)
1,600
1,000
600
Division B has a demand for 600 units of product L for its use. If Division A cannot
supply the requirement, Division B can buy a similar product from market at $112
per unit.
What should be the transfer price of 600 units of L for Division B, if the total
direct labour-hours available in Division A are restricted to 15,000?
22. Shane and company is organised into two divisions namely A and B. Division A
produces three products, D, E and F. Data per unit are:
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Management Accounting
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Products
D
Market
price/unit
$240
230
200
Variable
costs/unit
$ 168
150
140
6
8
4
4,000
2500
1500
Direct labourhours / units
Sales units
E
F
Division B requires 1000 units of product E for use in one of its products.
Required:
Determine the transfer price which Division A should charge for its supplies of
product E to Division B if the capacity of Division A is
i)
38000 direct labour hours
ii)
56000 direct labour hours
iii)
70000 direct labour hours
23. Nathan and company is organised into two large divisions. Division A produces a
component, which is used by division B in making a final product. The final
product is sold for $400 each. Division A has a capacity to produce 2000 units
and division B can purchase the entire quantity. Division A informed that due to
installation of new machines, its depreciation cost had gone up and hence wanted
to increase the price of the component to be supplied to Division B to $220.
Division B however, can buy the component from the outside market at $200
each. The variable costs of Division A are $190 and fixed costs $20 per
component. The variable cost of Division B in manufacturing the final product
by using the component is $150 (excluding the component cost).
Present statements indicating the position of each division and the company as a
whole taking each of the following situations separately:
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Management Accounting
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24.
i)
If there are no alternative uses for the production facilities of A,
will the company benefit if Division B buys from outside suppliers at
$200 per component?
ii)
If internal facilities of A are not otherwise idle and the alternative
use of the facilities will give an annual cash operating saving of
$30,000 to Division A should Division B purchase the component from
outside suppliers?
iii)
If there are no alternative uses for the production facilities of
Division A and the selling price for the component in the outside
market drops by $15, should Division B purchase from outside
suppliers?
iv)
What transfer price would you fix for the component in each of the
above three circumstances?
Caselet : Excellent Smartphone - Case on Product Life Cycle Costing
Excellent Smartphone launches a deluxe type of Smartphone in the market. The
market research study reveals that a demand of 20000 units/month of such
deluxe Smartphone thus launched, exist. The variable cost/unit of it $640 and
the total fixed overhead is $20, 00,000 per month. The selling price is 125% of
the variable cost. The company adopts a policy of penetrating pricing. The demand
of the deluxe Smartphone per month is given by the equation Q 1 = 2000 t1 – 50 t12,
where Q is the demand in unit and t is the time in months from its introduction in
the market. When 50% of the market has been penetrated, the company changes
its pricing policy to 150% of the variable cost for the subsequent months, till it
captures the whole market. The profit earned during the maturity stage is $33.0
crores.
A competitor, Moderate Smartphone then enters the market with a people’s
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Management Accounting
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brand Smartphone having a demand function of Q 2 = 2500 t2
- 30 t22. When
people is introduced, the demand in the market rises to 21500 units/month.
Deluxe’s price is reduced to $880 to combat the price of people at $800 each.
When people is introduced, the demand of deluxe declines, the total market
demand remaining the same. When the sale of deluxe drops around 1500
units/month, Excellent discards the product.=
Assignment Questions :
(i)
Determine The product life cycle of deluxe;
(ii)
Calculate total contribution and Total sales earned by
Deluxe at each stage of its product life cycle; and
Learning Outcome
1.
2.
3.
4.
5.
It requires students to analyse the results of operations as they have
been reported
To understand as to how the prices change at different stages of product
life cycle
To understand how to survive in a competitive situation
To develop an understanding of the economies of the business and to use
that understanding to forecast the potential change in income which would
occur if various alternative courses of actions were selected by
management.
To understand the importance of the way in which cost information is
reported and the way in which accounting and reporting systems can be
used to highlight the factors which are important to management and for
appraisal of product.
Capital Budgeting Decisions
25. Hussey and Company is considering investing in a project requiring a capital outlay of
$2,00,000. Forecast for annual income after depreciation but before tax is as follows :
Year
$
1
1, 00,000
2
1, 00,000
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Management Accounting
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3
80,000
4
80,000
5
40,000
Depreciation may be taken as 20% on original cost and taxation at 50% of net
income. You are required to evaluate the project according to each of the following
methods.
A)
Pay-back method.
B)
Rate of return on original investment method.
C)
Rate of return on average investment method.
D)
Discounted cash flow method taking cost of capital as 10%.
E)
Net present value index method.
F)
Internal rate of return method.
26. Cutting and company, a manufacturing unit , produces at present 2 products namely A
and B. The sales revenue and cost data are as follows:
A
B
D Materials ($ Per Unit)
45
55
D Labour ($ Per Unit)
45
35
D. Expenses ($ Per Unit)
20
15
The number of units produced at present is for A 8000 and B 9500. The total overhead
cost $5,25,000 is divided between two products on the basis of number of units. In
addition, the total depreciation cost is $ 1, 80,000. The products are sold at $190 and $
170 respectively.
The company is planning to introduce a new product C. For this an investment in plant would
need $600,000 . The life of the plant is 5 years In the beginning of third year this plant
would need a major addition at the cost of $1, 50,000. There is no scrap value either for
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Management Accounting
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the plant or for the major addition. The depreciation shall be charged based on straight line method. As the product is a socially relevant product the company will get one time cash
subsidy from the government in the beginning of the second year equivalent to the direct
material and direction labour cost incurred in the first year.
The other coast data are as under
D materials ($ Per Unit)
50
D Labour ($ Per Unit)
30
D Expenses ($ Per Unit)
10
The total overhead cost for the entire factory (All the three products) shall go up to $.
6,00,000 per annum. The number of units produced for A and B shall remain the same for
the next five years.
The sales forecast for product C for the next 5 years is as under:
Year
Expected sales in units
1
4,200
2
6,500
3
7,100
4
9,400
5
10,500
The selling price per unit shall be $ 150. The Government will not allow increasing the
selling price. However, it is expected that the direct labour cost may increase by 20 % in
the beginning of the third year and there after remain constant till the end of the fifth
year. Other cost shall remain unchanged for five years
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Management Accounting
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The cost of capital for the company is 11% and it uses NPV method for capital budgeting
decisions. Advise to the company whether it should add product C to its product line or not
if the tax rate is 30% basic + 10% surcharge on basic tax. It is given for your information
that the present value of $ 1 at 11% cost is as under:
Year
Present Value of Re.1
1
.901
2
.812
3
.731
4
.659
5
.593
Mutually exclusive Projects
27.Bird and company is faced with the problem of choosing between two mutually
exclusive projects. Project A requires a cash outlay of $ 1,00,000 and cash running
expenses of $ 35,000 per year. On the other hand, Project B will cost $ 1,50,000
and require cash running expenses of $ 20,000 per year. Both the machines have a
eight-year life. Project A has a salvage value of $ 4,000 and Project B has a salvage
value of $ 14,000. The company’s tax rate is 50% and it has a 10% required rate of
return.
Assuming depreciation on straight line basis, ascertain which project should be accepted.
Present value of an annuity of Re. 1 for 8 years = 5.335 and present value of $ 1 at the end
of 8 years = 0.467, both at the discount rate of 10%.
SENSITIVITY ANALYSIS
28. The initial investment outlay for a Capital Investment Project of
Ganguly ltd consists
of $100 lakhs for Plant and Machinery and s.40 lakhs for Working Capital. Other details are
summarized below:
Sales
:
1 lakh units of output per year for years 1 to 5
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Management Accounting
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Selling Price
:
$120 per unit of output
Variable Cost
:
$60 per unit of output
Fixed Overheads
:
$15 lakhs per year for years 1 to 5
(Excluding depreciation)
Rate of Depreciation
:
25% on WDV method
on Plant & Machinery
Salvage Value of Plant: Equal to the WDV at the end of year 5
& Machinery
Applicable Tax Rate
:
40%
Time horizon
:
5 years
Post-tax cut off rate :
12%
Required:
a) Indicate the financial viability of the project by calculating the Net Present Value.
b) Determine the Sensitivity of the Project’s NPV under each of the following
conditions:
i)
Decrease in Selling Price by 5%
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Management Accounting
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ii)
Increase in Variable Cost by 10%
iii)
Increase in cost of Plant and Machinery by 10%.
CAPITAL RATIONING
29. Sachin
Limited has $ 10,00,000 allocated for capital budgeting purposes. The
following proposals and associated Profitability Index have been determined.
Project
Amount ($)
Profitability Index
1
300,000
1.22
2
150,000
0.95
3
350,000
1.20
4
450,000
1.18
5
200,000
1.20
6
400,000
1.05
Which of the above investment should be undertaken?
Assume that the Projects are indivisible and there is no alternative use of the money allotted for
capital budgeting.
Strategic Decisions
OPTIMUM ALLOCATION OF SALESMEN
30. Hilton Ltd., a company selling a washing machine, has estimated the market
capacity of 50,000 units a year divided evenly over five sales area - East,
West, South, North and Centre. The Managing Director has set a sales
objective of between 50% and 80% of this potential. The sales force is
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Management Accounting
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divided into five equal areas and the objective is expected to be achieved by
using salesmen in the following manner:
Number of salesmen used per area
Market share expected
(%)
5
50
6
58
7
65
8
71
9
76
10
78
11
80
All the products are manufactured at one location at ex-factory cost of $8,400
each and are sold at a standardized price of $10,000 each. The transportation and
installation cost varies in relation to the distance from the factory as follows:
Sales Area
Variable transportation/installation cost
per unit ($)
East
1,000
West
900
South
800
North
750
Centre
700
Each salesmen will be employed at an average cost of $1, 00,000 per annum.
The marketing director indicated that even with additional salesmen sales per area
increase beyond 6500 per area would be difficult unless additional expenditure are
incurred in advertising and sales incentives as below:
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Management Accounting
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Sales per area
Additional expenditure
6501-7000
$10,000 for every 100 units or part thereof sold beyond 6500
7001-7500
$50,000 plus $15,000 for every 100 units or part thereof sold
beyond 7000.
7501-8000
$1,25,000 plus $20,000 for every 100 units or part thereof sold
beyond 7500 units
Given that there must be at least five salesmen in each area, you are requested to
calculate the following:
1. The total contribution when 5 salesmen are deployed in each centre
2. Which centre and how many sales men would you allocate out of the pool of 35
salesmen so as to get the highest total contribution.
3. Is it advisable to allocate salesmen upto 55. If not, how many would you allocate
in each centre and in totality and what is the maximum profit possible in that
case.
26. Maximin, maximax and minimax regret are three approaches to decision
making under uncertainty.
ILLUSTRATION
Payoff tables show the payoff (profit or loss) for the range of possible outcomes
based on two factors:
1. Different decision choices
2. Different possible real world scenarios
31. Geoffrey Ramsbottom is faced with the following pay-off table. He has to
choose how many salads to make in advance each day before he knows the
actual demand.

His choice is between 40, 50, 60 and 70 salads.
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Management Accounting
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

The actual demand can also vary between 40, 50, 60 and 70 with the
probabilities as shown in the table - e.g. P(demand = 40) is 0.1.
The table then shows the profit or loss - for example, if he chooses to make
70 but demand is only 50, then he will make a loss of $60.

Probability
Daily supply
40 salads 50 salads 60 salads 70 salads
40 salads
0.10
$80
$0
$(80)
$(160)
Daily Demand 50 salads
0.20
$80
$100
$20
$(60)
60 salads
0.40
$80
$100
$120
$40
70 salads
0.30
$80
$100
$120
$140
The question is then which output level to choose.
MAXIMAX
The maximax rule involves selecting the alternative that maximises the maximum
payoff available.
This approach would be suitable for an optimist, or 'risk-seeking' investor, who
seeks to achieve the best results if the best happens. The manager who employs
the maximax criterion is assuming that whatever action is taken, the best will
happen; he/she is a risk-taker. So, how many salads will Geoffrey decide to supply?
Looking at the payoff table, the highest maximum possible pay-off is $140. This
happens if we make 70 salads and demand is also 70. Geoffrey should therefore
decide to supply 70 salads every day.
MAXIMIN
The maximin rule involves selecting the alternative that maximises the minimum
pay-off achievable. The investor would look at the worst possible outcome at each
supply level, then selects the highest one of these. The decision maker therefore
chooses the outcome which is guaranteed to minimise his losses. In the process, he
loses out on the opportunity of making big profits.
This approach would be appropriate for a pessimist who seeks to achieve the best
results if the worst happens.
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Management Accounting
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So, how many salads will Geoffrey decide to supply? Looking at the payoff table,




If we decide to supply 40 salads, the minimum pay-off is $80.
If we decide to supply 50 salads, the minimum pay-off is $0.
If we decide to supply 60 salads, the minimum pay-off is ($80).
If we decide to supply 70 salads, the minimum pay-off is ($160).
The highest minimum payoff arises from supplying 40 salads. This ensures that the
worst possible scenario still results in a gain of at least $80.
Minimax regret
The minimax regret strategy is the one that minimises the maximum regret. It is
useful for a risk-neutral decision maker. Essentially, this is the technique for a
'sore loser' who does not wish to make the wrong decision.
'Regret' in this context is defined as the opportunity loss through having made the
wrong decision.
To solve this a table showing the size of the regret needs to be constructed. This
means we need to find the biggest pay-off for each demand row, then subtract all
other numbers in this row from the largest number.
For example, if the demand is 40 salads, we will make a maximum profit of $80 if
they all sell. If we had decided to supply 50 salads, we would achieve a nil profit.
The difference or 'regret' between that nil profit and the maximum of $80
achievable for that row is $80.
Regrets can be tabulated as follows :
Daily supply
40 salads
Daily Demand
50 salads
60 salads
70 salads
40 salads
$0
$80
$160
$240
50 salads
$20
$0
$80
$160
60 salads
$40
$20
$0
$80
70 salads
$60
$40
$20
$0
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Management Accounting
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The maximum regrets for each choice are thus as follows (reading down the
columns):




If we decide to supply 40 salads, the maximum regret is $60.
If we decide to supply 50 salads, the maximum regret is $80.
If we decide to supply 60 salads, the maximum regret is $160.
If we decide to supply 70 salads, the maximum regret is $240.
A manager employing the minimax regret criterion would want to minimise that
maximum regret, and therefore supply 40 salads only.
Note that the above techniques can be used even if we do not have probabilities. To
calculate expected values, for example, we will need probabilities.
Choosing the right Marketing Strategy
32. Jackson ltd has developed a perfume which the company feels has a
tremendous potential. A total of $ 10 million has already been spent for its
development. Two marketing plans have been devised :
(a) The first marketing plan follows the company’s usual policy of giving small
samples of the new product when other items in the company’s product lines
are purchased and placing advertisement in the popular women’s magazine.
The plan would cost $5 million and it is believed that it might result in high,
moderate or low market response with probability of 0.2, 0.5 and 0.3
respectively. The net profit excluding promotional and development
expenditure in these cases would be $ 20 million, $10 million and $ 1 lac
respectively. If it later appeared that the market response is going to be low,
it would still be possible to launch a TV advertisement campaign. This would
further cost another $ 7.5 million. It would change the market response to
high or moderate as described earlier with a probability of 0.5 each.
(b) The second marketing plan is more vigorous than the first. The emphasis
would be totally on TV advertisement. The total cost of this plan would be
$15 million, but the market response would be either excellent or good with a
probabilities of 0.4 and 0.6 respectively. The profit excluding development
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Management Accounting
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and promotion costs would be $ 35 million and $ 25 million respectively for
the two outcomes.
What sequence of strategy to be followed by the company.
Repositioning of a product and Branding
33. Qu-Tee Fashion is a high-fashion women’s garments manufacturer. It is
planning to introduce a new fashion garment in the market in the
forthcoming festival season. Four mete$ of cloth material are required to
lay out the dress pattern. After cutting, some material remains that can be
sold as cut-pieces. The left over material can also be used to manufacture a
matching cap and handbag.
Qu-Tee Fashion expects to sell 2500 dresses if matching cap and handbag are
not provided, and 20% more if matching cap and handbag are made available.
The market research indicates that the cap and/or handbag cannot be sold
independently but only as accessories with the dress.
The various combinations of dresses, caps and handbags that are expected to
be sold by retailers in the forthcoming season are as below:
%
Complete sets of dress, caps and handbag
68
Dress and cap only
12
Dress and handbag only
9
Dress only
11
100
The material used in the dress costs $60 per metre. The costs of cutting
the dress, if the cap and handbag are not manufactured is estimated at $20
a dress and the resulting remnants can be sold for $5 for each dress cut
out. If the cap and handbag are to be manufactured, it requires more
delicate and skilful cutting and hence cutting and hence cutting cost will
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Management Accounting
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increase by $8 per dress. There will be no salable scrap if the caps and
handbags are manufactured in the quantities estimated.
The selling prices and the costs to complete the three items, once they are
cut, are as follows:
Selling price
Unit cost
Per unit
to complete*
$
Dress
$
400.00
48.00
Cap
29.00
6.50
Handbag
18.00
3.00
*Excludes cost of material and cutting operation.
Required:
Should the company go in for caps and handbags along with dresses substantiate
your answer.
34.
Caselet: CLE PC Manufacturer - Learning and experience curves
CLE is a small company wishing to enter the lower end of the PC market. It has a product
that has been well tested and proved reliable. To date 2,000 have been made at an
average cost per unit of £650. However, the product was aimed originally at the cheaper
end of the market and management wanted to launch at a retail price of £399 to compete
satisfactorily and to achieve adequate volume. The retailer traditionally receives a 50
per cent mark up in this product area. A market survey has already been carried out
showing the share of the cheap PC computer market (estimated total next year, 500,000
computers) that CLE might achieve during the first year with a launch retail price of
£399.
Market share %
Probability
2.5
0.05
5
0.1
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Management Accounting
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7.5
0.25
10
0.35
12.5
0.15
15
0.1
Feelings among the directors are strong. The accountant says that the product
cannot be launched at so low a price and that a price of £600 is much more realistic. The
marketing director disagrees and says that the new product will not get any worthwhile
market share at that price. The production manager says capacity is available for only
20,000 units a year unless £250,000 is spent on additional equipment, which would in
effect double capacity. Further capacity can be obtained by contracting out manufacture
to one of several firms whose costs are relatively low. It has been estimated that this
type of product has an 80 per cent experience curve. The company has £0.5 m available
in cash and bank overdraft.
Assignment Questions
1. Should CLE launch the product at a price of Rs. 399?
2. How to assess the risk involved in this process?
Learning Outcome
3.
4.
35
To understand the usefulness of the knowledge of the experience curve for a new
product
To calculate the cost of the product under learning curve concept and to win over
the competitors in bagging the deal.
Caselet - Car Services Ltd (CSL)
Car Services Ltd (CSL) rends motor vehicle breakdown recovery service to its members. It
attracts new members through a television advertising campaign that encourages potential
clients to telephone a free call number for further information and the opportunity to
immediately enroll with a credit card. Members are offered the choice of three levels of annual
service contract in descending order of coverage and price: Gold, Silver and Standard. The
telephone inquiries come through to a call centre staffed by CSL employees at the company’s
premises who are paid a basic salary and a bonus of each new member that they successfully
enroll. Located in the same building on another floor is the Car Hospital (CH) team who take the
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Management Accounting
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calls from the stranded motorists and arrange for a franchised garage to deal with the
breakdown. These garages are independently owned and CSL pay them a fee for every callout
that they undertake. CSL has recently (after January 2017) commenced employing trained
mechanics on enhanced salaries to dispense technical advice to members on the telephone in the
hope that a proportion of the call-outs to franchised garages will be avoided. Detailed
information on costs, revenues, business activity and staff is displayed in the following tables.
Table 1
Cost, Revenue and business Activity data for 2017
Gold
Silver
Standard
$120
$80
$65
the call out service during the year
0.25
0.4
0.3
Fee paid to garage per callout
$80
$70
$50
47,500
59,000
20%
30%
Annual subscription fee
Probability of a member’s requiring
Number of members
% of members who represent new members
during the year
Specific Fixed Administration
$9,73,000
1,21,000
40%
$9,26,000
$14,28,200
The general fixed overhead of the business is $35,00,000 for the year (this excludes the CH
and call centre staff costs).
Table 2
Call Centre Data




The call centre operates for eight hours per day, five days a week for 52 weeks per
year.
The 50 staff employed all work a 40-hour week.
10% of the call centre staff are absent at any one time because illness, holidays etc.
Each call centre employee receives an annual salary of$10,000 and a bonus for each new
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Management Accounting
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member that they enrol.
Bonus paid per new member:
Gold – $24
Silver – $22
Standard – $20
During their period on duty each call centre employee manages to deal on average with
four telephone enquiries per hour. Assume that all potential customers only make one
call. Potential customers can only apply via the call centre and only a minority of the
calls result in an enquiry being converted into a member.

Table 3
Employment details for the Car Hospital team
1. The CH is composed of 12 members, of which two are trained motor mechanics.
2. The 12 members of the team provide a 24 hour x365 day service with one mechanic and
three non-mechanics being duty at any one time. (The two mechanics each work 12 hour
shifts and the 10 non-mechanics work 7.2 hour shifts)
3. The motor mechanics are competent at advising motorists over the telephone how to
solve certain problems with their vehicles. The other 10 members are only able to
provide limited advice which always results in a call out being arranged. In contrast to
the other members of the team, only 50% of the calls taken by any mechanic result in a
garage being requested to make a call out.
4. The mechanic on duty takes 25% of the calls for assistance during any period and
spends the same average time speaking to the subscribers as do the other team
members.
5. Salaries of non-mechanically trained staff $5,000 per annum. Salaries of mechanically
trained staff $20,000 per annum.
6. Newly recruited mechanics have the same competence as the existing two.
Assignment Questions
A.
i.
ii.
Calculate the profit earned by CSL during 2017
Explain the financial consequences on 2017 of separately withdrawing each of the
three service contracts that it currently offers (the total staff number are fixed).
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Management Accounting
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iii.
iv.
B.
i.
ii.
Explain any assumption that you have made in calculating your answer.
Calculate the annual expected financial impact of increasing the membership of
each service by one member.
Assess the effectiveness of the company in converting enquiry calls into fee-paying
members. Show any calculations and comment on your results.
Calculate the percentage of telephone calls from members of the Car Hospital Team
that result in a hospital call out being required.
Calculate the net savings to the company if it were to replace the 10 non-mechanics
in the team with mechanics.
The manager of CSL is conscious that there is insufficient current business information
available if the company is to take a more dynamic ad sophisticated approach towards its
subscription pricing and garage fee level payment policies.
Required
C.
Suggest what additional information would be required to permit the manager of the
business to improve any profit maximizing decisions concerning:
i.
Subscription rates;
ii.
The callout fees paid to hospital;
iii.
The possible introduction of a no claims discount bonus being offered to
members who do not require a call out during the year.
A competitor that offers a breakdown service has compiled an analysis of its members.
They anticipate that the variable cost per member could be $70, $65 or $60 and that a
flexible pricing policy will result in the following outcomes.
Subscription fee $
110
100
90
Number of subscribers
45,000
58,000
80,000
Required:
D.
i.
Prepare a summary which shows the budgeted contribution for each of the nine
possible outcomes.
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Management Accounting
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ii.
State the membership fee strategy which will result from each of the following
decision rules: maximax; maximin; minimax regret
Explain the basis of operation of each decision rule. Use your answer to 1. Where relevant and
show any additional working calculations as necessary.
Learning Outcome
1) To appreciate the need for gaining competitive edge through cost reduction program in a
service set up
2)
To understand decision making under uncertainty by following decision rules: maximin;
minimax regret, maximax;
3)
To estimate the savings arising out of elimination of wasteful and non-essential elements
from techniques and practices carried out in connection therewith, without sacrificing
essential characteristics and quality of the product or service
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