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CASE STUDY

Excel Industries Limited has been incurring two types of overhead costs viz. Material handling
and Quality inspection.
The costs expected for these categories for the coming year is as follows:
Material Handling : Rs.10, 00,000
Quality Inspection: Rs.30, 00,000
The company currently charges over head using direct labour hours and is expected to use actual
capacity. This figure is 60,000 direct labour hours.
The factory Manager has been asked to submit a bid and has compiled following data concerning
proposed Job:

S.no Particulars Rs./Nos.

1 Direct Material Rs.25000
2 Direct labour (1000 hrs) Rs.80000
3 No. of Material moves 15
4 No. of Inspections 8

The Manager has been informed that the competitors use ABC approach to assign overheads to
the jobs. Before, submitting the bid for the proposed Job, the manager desires to assess the
impact of using the alternative approach. He estimates the expected number of material moves
for all jobs during year as 2000. He also expects the Quality Inspection during the year as 10000.
You are required to:
a) Compute the Total Cost for the proposed job using Direct Labour hours to assign the
overheads and Compute the bid price based on this manufacturing cost plus 20% margin.
(5 Marks)
b) Compute the total cost of the proposed job using ABC approach and Compute the bid price
based on this manufacturing cost plus 20% margin. (10 Marks)
c) Explain the approach along with reasons which reflects the accurate cost of the job ?
(5 Marks)

CASE STUDY 2

The budgeted overheads and the cost drivers of XYZ Ltd are as follows:

Cost pool Budgeted Cost driver Budgeted

Over heads Volume

Material procurement 7,20,000 No. Orders 1200

 Material handling 2,80,000 No. of movements 700

Set up 5,50,000 No. of Set ups 1100

Maintenance 8,10,000 Maintenance hours 9000

Quality Control 1,90,000 No. of inspections 1000

Machinery 7,50,000 No. of machine Hours 25000

The company has produced a batch of 3000 components ZX- 420

Its material cost Rs.2, 50,000 and labour cost is Rs.3, 25,000.
The usage of the activities for the Said Batch was as follows:-
a. Material Orders 40
b. Material movements 25
c. Setups 30
d. Maintenance Hours 800
e. Inspections 40
f. Machine Hours 1600
You are required to compute:
a ) Cost driver Rate. (10 Marks)
b) Ascertain the Cost of the batch of ZX-420 as per ABC system (10 Marks)

Q. No. 2
a) What is Strategic Cost management? What is its need & significance, objectives in the
present business Scenario?
ITRODUCTION :- In todays competitive environment, cost management is a necessary
survival skill for all firms. costs will have to be managed strategically. It is not sufficient to
reduce costs;
It involves three different types of business analysis techniques;
cost driver analysis,
strategic positioning analysis and
value chain analysis.
SIGNIFICANCE OF SCM

Strategic cost management is an important part of the business plans of all business entities
at present, as they are extremely crucial for growth as well as retaining the rate of growth. In
the wake of the economic instability in some prominent business organizations around the
world this process has gained in importance.

Use and Importance of Strategic Cost Management

The process of strategic cost management is very crucial in the context of the present day
business enterprises. There are several ways in which the process of strategic cost
management can be used.

They may be mentioned as below:

Employing strategic resources
Making important business decisions
Examining strategic resources
Locating important resources

Objectives of SCM
The objective of strategic cost management is to reduce costs and improve the strategic
position of a firm.
Traditional cost management systems are limited to the four walls of the factory and
determine only the cost of products.
Other potential cost objects, such as suppliers and customers, are ignored and the
costs associated with them are treated either as general overhead and arbitrarily
allocated to products, or as period costs.
Armed with the insights provided by this extension of cost management, a firm can
begin to manage these costs strategically.
Audit existing cost management initiatives to identify That :-
enhance the firms strategic position.
extends the scope of cost management beyond the walls of the factory.
extends the cost management program beyond the boundaries of the firm.
b) Discuss how Strategic Cost Management is an improvement over conventional cost
methods.
INTRODUCTIO:-Traditional costing systems apply indirect costs to products based on a
predetermined overhead rate. Unlike ABC, traditional costing systems treat overhead costs as a
single pool of indirect costs. Traditional costing is optimal when indirect costs are low compared
to direct costs.
REASONS WHY STRATEGIC COST MANAGEMENT IS AN IMPROVEMENT OVER
TRADITIONAL COSTING

The activity-based costing system is far more accurate in determining the cost of a
product due to the inclusion of all needed equipment and labor necessary for producing
the product. While the traditional accounting system is often used, it has significant
weaknesses when figuring total costs.
 Peanutbutter costing often results in either over costing, or under costing of products
Product cost is under stated implies that a product actually consumes a high level of
resources and is wrongly reported to have consumed low cost per unit.
Companies that under cost products may make sales that
actually result in losses, although they may be in a incorrect impressionthat these sales
are profitable
Product Cost is over stated implies that a product consumes a low level of resources but
is reported to have a high cost per unit.

Companies that over cost products may overprice their products, losing market share to
competitors producing similar products.

c) Differentiate Cost Management from Cost Reduction & Cost Control

d) The basic two challenges which every Business enterprise has to address is Survival and
Growth . Explain the role of Strategic cost Management in this context

Q. No. 3
a) What is Activity Based costing? List out its salient features?
Introduction :-Activity-based costing (ABC) is a costing methodology that identifies activities
in an organization and assigns the cost of each activity with resources to all products and services
according to the actual consumption by each. This model assigns more indirect costs (overhead)
into direct costs compared to conventional costing.
With ABC, a company can soundly estimate the cost elements of entire products, activities and
services. That may help inform a company's decision to either:

Identify and eliminate those products and services that are unprofitable and lower the
prices of those that are overpriced (product and service portfolio aim)

Or identify and eliminate production or service processes that are ineffective and allocate
processing concepts that lead to the very same product at a better yield (process re-
engineering aim
In a business organization, the ABC methodology assigns an organization's
resource costs through activities to the products and services provided to its customers. ABC is
generally used as a tool for understanding product and customer cost and profitability based on
the production or performing processes. As such, ABC has predominantly been used to support
strategic decisions such as pricing, outsourcing, identification and measurement of process
improvement initiatives.

The features or characteristics of Activity Based Costing are briefly explained below.

1. The total cost is divided into two types i.e. fixed cost and variable cost which is necessary to
provide quality information to design a suitable cost system in a manufacturing concern.

2. The proper distinction is made between the cost behavior patterns.

3. The cost behavior patterns are volume related, diversity related, events related and time
related.

4. The appropriate cost driver has to be identified for tracing the overhead to a product.

5. The cost drivers dictate the cost behavior pattern.

b) Describe Cost Drivers with suitable examples

cost driver is the unit of an activity that causes the change in activity's cost. cost driver is
any factor which causes a change in the cost of an activity. Chartered Institute of
Management Accountants. ...
cost driver rate is the amount of indirect or variable cost that is assigned to each unit
of cost driver activity.

A cost driver is the unit of an activity that causes the change in activity's cost.

cost driver is any factor which causes a change in the cost of an activity

"Cost drivers are the structural determinants of the cost of an activity, reflecting any
linkages or interrelationships that affect it".[1] Therefore we could assume that the cost
 drivers determine the cost behavior within the activities, reflecting the links that these
have with other activities and relationships that affect them.

EXAMPLE:-machine hour, Miles Travelled,hours of factory operation,tons of material handle

Some examples of indirect costs and their drivers are: indirect costs for maintenance, with the
possible driver of this cost being the number of machine hours; or, the indirect cost of handling
raw-material cost, which may be driven by the number of orders received; or, inspection costs
that are driven by the number of inspections or the hours of inspection or production runs. In
marketing, cost drivers are Number of advertisements, Number of sales personnel etc. In
Customer service, cost drivers are Number of service calls attended, number of staff in service
department, number of warranties handled, Hours spent on servicing etc..

c) List out the conditions necessary for successful implementation of Activity based costing
INTRODUCTION:-ABC Costing focuses on costs contributing to production of a product. It
does not attribute other general costs that do not have at least an indirect relationship to the
product. While traditional costing systems focus on direct costs and burden a product with other
fixed costs, activity based costing increases accuracy of indirect cost assignment.

Implementation Steps

Step #1: Activity Identification

First, activities must be identified and grouped together in activity pools. Activity pools are the
supporting activities that tie in to a product line or service These pools or buckets may include
fractionally assigned costs of supporting activities to individual products as appropriate during
the second step.

Step #2: Activity Analysis

ABC continues with activity analysis, clearly identifying the processes which support a product
and avoiding some of the systemic inaccuracies of traditional costing. ABC costing requires
activity analysis, similar to the process mapping found in lean manufacturing.

This activity analysis identifies indirect cost relationships and allows assignment of some
percentage of that activity to an end product directly.

Step #3: Assignment of Costs

Based on the findings of step #1 and #2, costs are assigned to an activity pool. For example,
human resources costs would be assigned to indirect administrative or indirect management
costs. These pools will each have some contribution to object cost.
Step #4: Calculate Activity Rates

Initial analysis may include direct labor hours, or indirect support labor. These activities must be
assigned a value in real currency. All weightings must be added at this step. For instance,
production labor hours should be in terms of a weighted labor rate including benefit costs.

Step #5: Assign Costs to Cost Objects

Once activity costs, pools and rates are identified and clearly defined, the next step is to assign
them to cost objects. Objects are generally defined as the results offered to a customer. In both
manufacturing and non-manufacturing environments, this product should have some saleable
value to compare to the assigned costs.

Step #6: Prepare and Distribute Management Reports

Once ABC costing analysis is complete, that cost data should be placed in a concise and coherent
manner for cost object and process owners. This communication of the costing analysis is critical
to justify the cost of the analysis, as often this is not an inconsequential cost.

Conclusion

ABC costing does nothing for the organization if the information is collected but no action
follows. The key to the value of this form of costing is that it is actionable. This analysis allows
companies to make decisions about product lines, where to direct sales efforts, and to validate the
true value provided by capital equipment.

d) State the pre-conditions for successful implementation of Activity based costing

Q. No. 4
a The selling price of product P is set at Rs.5000 for each unit and sales for the coming year are
expected to be 1000 units. If the company requires a return of 20% on its investment of
Rs.50.lakhs, compute the Target cost of Product P per unit for coming year. ?

b If the above company desires to increase its profit to 30% on its investment of Rs.50.lakhs,
what would be reduction cost per unit which company has to target?
c If the reduction in cost is not possible what should be the sales target in units at the sales price
of Rs.5000.

or
d The selling price of product P is set at Rs.1000 for each unit and sales for the coming year are
expected to be 500 units. If the company requires a return of 20% on its investment of
Rs.10.lakhs, compute the Target cost of Product P per unit for coming year. ?

e If the above company desires to increase its profit to 25% on its investment of Rs.10.lakhs,
what would be reduction cost per unit which company has to target?
fIf the reduction in cost is not possible what should be the sales target in units at the sales price of
Rs.1000.

Q. No. 5
a) What are Target Costs? What are the steps in developing Target costs?
Target costing is an approach to determine a product's life-cycle cost which should be
sufficient to develop specified functionality and quality, while ensuring its desired profit. It
involves setting a target cost by subtracting a desired profit margin from a competitive
market price.
b)
Target costing is a proactive approach to cost management that managerscan use to
determine what costs should be in order for the company to earnan acceptable profit
across a products life cycle. The product life cyclerepresents the life of the product from
its infancy (an idea), through design,development, product introduction, growth, maturity,
and eventual decline.
c)
The key element in target costing is the market orientati
d) on of the entire costing and product developmentprocess. By introducing the market price as the
focal point of the analysis, target costing avoids problems ofother costing approaches

The following are the main steps or stages involved in the target costing process.

1. Conducting Market Research: The company should determine the customer wants precisely
through conducting marketing research. A new product can be designed or make changes in the
existing product on the basis of the customers expectations and perceptions.

2. Identify the Nature of Market: The market information can be collected in such a way that
what type of products are available in the market, the level of competition prevailing, the number
of competitors and the price at which the existing products are available. Besides, the company
should find out the affordable price of the customers. If so, the target costing is followed.

3. Translation of Customers Requirements into Product Features: The preference of one

customer differs from another. These preferences are collectively called as customers
requirements. Now, the bundle of preferences are bringing into a tangible thing i.e. product.

4. Development of a Product Design: By considering the engineering analysis of market forces,

customer needs, relevant technology, competitors models, product configuration and
performance features, design alternatives, process capabilities, maintenance and service
requirements etc., a suitable product design is to be determined by the company. Such a product
design assures a targeted profit and target cost for each component in total.

5. Determine the Price, Margin and Cost: Target selling price is determined on the basis of
market survey, at which the product can be sold. The standard margin is also included in the
target selling price. If so, it is possible to determine the target cost

Target Cost = Target Selling Price Target Profit

6. Conducting Value Engineering Process: The company can conduct value engineering
process to reach target cost. It is a well known fact that the difference between target selling price
and the target profit is target cost. The target selling price cannot be changed at any cost; Hence,
it is a duty on the part of company is that takes necessary steps to reach the target cost.

7. Improve the Design to Reach Target Cost: The company starts a minor trial production.
Such a production ensures all product performances, target cost and target profit margin also.
The trial production comes to an end whenever the product design matches the target cost.

8. Approval of Top Management: A detail report is presented before the top management for
getting approval. The report contains the production process, elements of cost involved with the
level of costs to be incurred and design of the specified product. A formal approval is given for
starting commercial production.

9. Maintenance of Accounts: A separate accounting records are to be maintained for each

product design. It is possible to verify whether the total expenses exceed the target cost. If the
expenses are not controllable at any time, the product design will be changed. Hence, the
maintenance of separate set of books are highly required under target costing process.

10. Implement the Target Costing: The company can get the information regarding the
expenses incurred for each design separately. A continuous watching is essential to bring the total
cost within the target cost.

e) What is Value Analysis? How it different from Value Engineering?

Introduction:- Value Analysis is one of the major techniques of cost reduction and control. It is
a disciplined approach which ensures the necessary functions for the minimum cost without
diminishing quality, reliability, performance and appearance.

It is a creative approach to eliminate the unnecessary costs which add neither to quality nor to the
appearance of the product. It is a systematic application of techniques to identify the functions of
a product or a component and to provide the desired function at the lowest total cost.
These are the days of providing the customer with really best quality products at least cost which
is possible through value analysis which proves wrong rightly Best and Cheap or Best is
never cheap or Cheap is Costly.

STEPS CARRYING VALUE ANALYSIS

Establish the objectives (eg, cost reduction).

Consider a team for marketing, sales, production, purchasing, etc.

Analyse the production process of the supplier company.

Decompose various characteristics of purchased product.

Hold a creative brainstorming session to explore all alternative possibilities.

Sort the ideas to establish the cost of each.

Select the best alternative.

Develop a plan for implementing the change.

VALUE ANALYSIS VALUE ENGINEERING

Indicates application on the product that is into Indicates application onthe product at its design
manufacturing. stage.

All factors come together including workers, It is always done by aspecific product
subcontractors, engineers to make a team with design(engineers) team.
total experience and knowledge
It may change the present stage of the product or the changes are executedat the initial stages only.
operation
It is worked out mostly with help of knowledge It requires specifictechnical knowledge.
and experience

f) Discuss the importance Total Quality Management?

However, TQM is not something that happens overnight. While there are a number of
software solutions that will help organizations quickly start to implement a quality
management system, there are some underlying philosophies that the company must integrate
throughout every department of the company and at every level of management. Whatever
other resources you use, you should adopt these seven important principles of Total Quality
Management as a foundation for all your activities.

1. Quality can and must be managed

Many companies have wallowed in a repetitive cycle of chaos and customer complaints. They
believe that their operations are simply too large to effectively manage the level of quality. The
first step in the TQM process, then, is to realize there is a problem and that it can be controlled.
2. Processes, not people, are the problem
If your process is causing problems, it wont matter how many times you hire new employees or
how many training sessions you put them through. Correct the process and then train your people
on these new procedures.

3. Dont treat symptoms, look for the cure

If you just patch over the underlying problems in the process, you will never be able to fully
reach your potential. If, for example, your shipping department is falling behind, you may find
that it is because of holdups in manufacturing. Go for the source to correct the problem.

4. Every employee is responsible for quality

Everyone in the company, from the workers on the line to the upper management, must realize
that they have an important part to play in ensuring high levels of quality in their products and
services. Everyone has a customer to delight, and they must all step up and take responsibility for
them.

5. Quality must be measurable

A quality management system is only effective when you can quantify the results. You need to
see how the process is implemented and if it is having the desired effect. This will help you set
your goals for the future and ensure that every department is working toward the same result.

6. Quality improvements must be continuous

Total Quality Management is not something that can be done once and then forgotten. Its not a
management phase that will end after a problem has been corrected. Real improvements must
occur frequently and continually in order to increase customer satisfaction and loyalty.

7. Quality is a long-term investment

Quality management is not a quick fix. You can purchase QMS software that will help you get
things started, but you should understand that real results wont occur immediately. TQM is a
long-term investment, and it is designed to help you find long-term success.

Before you start looking for any kind of quality management software, it is important to make
sure you are capable of implementing these fundamental principles throughout the company.
This kind of management style can be a huge culture change in some companies, and sometimes
the shift can come with some growing pains, but if you build on a foundation of quality
principles, you will be equipped to make this change and start working toward real long-term
success.

g) Target costing is one price led costing comment on the statement?

The target cost is normally less than the current cost. Thus, managers must try to reduce costs
from the design and manufacture of the product. The planned cost reduction is sometimes
referred to as the cost drift.
Costs can be reduced in a variety of ways such as the following:

1. Simplifying the design

2. Reducing the cost of direct materials

Key Principles of Target Costing:

According to Hilton, target costing involves seven key principles listed as follows:

1. Price-Led Costing:

Target costing sets the target cost by first determining the price at which a product can be sold in
the marketplace. Subtracting the target profit margin from this target price yields the target cost,
that is, the cost at which the product must be manufactured. Notice that in a target costing
approach, the price is set first, and then the target product cost is determined. This is opposite
from the order in which the product cost and selling price are determined under traditional cost-
plus pricing.

2. Focus on the Customer:

To be successful at target costing, management must listen to the companys customers. What
products do they want? What features are important? How much are they willing to pay for a
certain level of product quality? Management needs to aggressively seek customer feedback, and
then products must be designed to satisfy customer demand and be sold at a price they are
willing to pay. In short, the target costing approach is market driven.

3. Focus on Product Design:

Design engineering is a key element in target costing. Engineers must design a product from the
ground up so that it can be produced at its target cost. This design activity includes specifying the
raw materials and components to be used as well as the labour, machinery, and other elements of
the production process. In short, a product must be designed for manufacturability.

4. Focus on Process Design:

Every aspect of the production process must be examined to make sure that the product is
produced as efficiently as possible. The use of touch labour, technology, global sourcing in
procurement and every aspect of the production process must be designed with the products
target cost in mind.

5. Cross-Functional Teams:

Manufacturing a product at or below its target cost requires the involvement of people from
many different functions in an organisation: market research, sales, design engineering,
procurement, production engineering, production scheduling, material handling and cost
management. Individuals from all these diverse areas of expertise can make key contributions to
the target costing process. Moreover, a cross-functional team is not a set of specialists who
contribute their expertise and then leave; they are responsible for the entire product.

6. Life-Cycle Costs:

In specifying a products target cost, analysts must be careful to incorporate all of the products
life-cycle costs. These include the costs of product planning and concept design, preliminary
design, detailed design and testing, production, distribution and customer service. Traditional
cost-accounting systems have tended to focus only on the production phase and have not paid
enough attention to the products other life-cycle costs.

7. Value-Chain Orientation:

Sometimes the projected cost of a new product is above the target cost. Then efforts are made to
eliminate non-value-added costs to bring the projected cost down. In some cases, a close look at
the companys entire value chain can help managers identify opportunities for cost reduction.

Target costing is a common practice in Japan where markets are extremely competitive. The
market determines the price of products and there is a little opportunity for the individual
organisations to set prices. Therefore, controlling cost is extremely important.

h) What is Value Gab Analysis? Explain with suitable examples.

Gap analysis refers to the process through which a company compares its actual performance
to its expected performance to determine whether it is meeting expectations and using its
resources effectively. Gap analysis seeks to define the current state of a company or
organization and the target state of the same company or organization. By defining and
analyzing these gaps, a business management team can create an action plan to move the
organization forward and fill the gaps in performance.

Gap analysis identifies gaps between the optimized allocation and integration of the inputs
(resources), and the current allocation-level. This may reveal areas that can be improved. Gap
analysis involves determining, documenting, and approving the difference between business
requirements and current capabilities. Gap analysis naturally flows from benchmarking and from
other assessments. Once the general expectation of performance in an industry is understood, it is
possible to compare that expectation with the company's current level of performance. This
comparison becomes the gap analysis. Such analysis can be performed at the strategic or at the
operational level of an organization.
Gap analysis is a formal study of what a business is doing currently and where it wants to go in
the future. It can be conducted, in different perspectives, as follows:

1. Organization (e.g., Human Resources)

2. Business direction
 3. Business processes

4. Information technology
Gap analysis provides a foundation for measuring investment of time, money and human
resources required to achieve a particular outcome (e.g. to turn the salary payment process from
paper-based to paperless with the use of a system). Note that "GAP analysis" has also been
used[by whom?] as a means of classifying how well a product or solution meets a targeted need or set
of requirements. In this case, "GAP" can be used as a ranking of "Good", "Average" or "Poor".
(This terminology appears in the PRINCE2 project management publication from the OGC
(Office of Government Commerce).

An Example of Gap Analysis

Gap analysis is important for any type of organizational performance. For example, Minnesota's
Spring Valley announced on July 20, 2016, that it is partnering with the University of Minnesota
to conduct a gap analysis to gain insight into future local business needs. The University is
expected to conduct a retail gap analysis to quantify the impact of business growth on the local
economy. The study will be useful for business owners who want to obtain loans from local
banks, which can help increase the number of businesses in the area

i) Discuss the importance Energy Audit t ?

Energy audits boast a multitude of benefits: in addition to providing a roadmap for greater
energy efficiency, they help you understand how your house works.

An energy audit is a fundamental first step toward reducing utility bills in a big way. By
analyzing a building's major components including the building envelope, combustion
equipment, chimneys, attics, crawlspaces and more, as well as the interrelationship of these
various components, a comprehensive energy audit provides a big picture overview of how a
building works.

This is effective for reducing utility bills, because sources or air leakage and heat
transmission are located with precision so they can be eradicated cost-effectively.

But this isn't the only benefit of a comprehensive energy audit. Additionally, an audit puts
your home, residential property or commercial property, or business on the path to:

Greater Comfort.

Energy efficiency and comfort go hand in hand. Improving your building envelope by air
sealing and increasing insulation; installing window films and shades and radiant barriers,
and high efficiency heating and cooling systems means a more comfortable home for a lower
operating cost. Improving the performance of your home with efficiency upgrades also
means more evenly distributed heat throughout the home -- so you don't have to worry about
drafts, or rooms that are hot or cold.
Improved Indoor Air Quality.

Poor indoor air quality can contribute to allergies, asthma, and more serious long term health
problems. Caused by everything from pet dander to mold spores, from cigarette smoke to
toxins from common building products, and compounded by insufficient ventilation, poor
indoor air quality presents a potentially serious health threat. During a whole house energy
audit, building science experts analyze your home's ventilation to assess whether it's
adequate -- and what can be done to increase the amount of fresh air entering your home, and
improve your home's air quality for you and your family.

Better Health & Safety.

Related to indoor air quality is the larger issue of health and safety in the home. Could your
combustion equipment be backdrafting? Does your home have radon? Are dangerous carbon
monoxide fumes from your attached garage entering your home through air leaks? These are
all questions that a qualified whole-house energy auditor like those on the 1st Choice Energy
team are trained to answer.

Greater Building Durability.

One of the core principles of the whole-house building science approach to energy efficiency
is to promote building longevity and durability. After all, a building is neither energy
efficient nor cost-effective if it's constructed poorly and fails before its time. By controlling
moisture infiltration from the outside of the home by improving the building envelope, and
moisture build-up from the interior of the building by air sealing the building envelope and
adding adequate ventilation and moisture control strategies, building science best practices
can ensure greater durability. The audit is the first step in this process.

Higher Resale Value.

In an era of increasing energy prices, volatility in the energy markets and increasing concern
about man-made climate change and the greenhouse gas emissions that contribute to it,
energy efficient buildings are enjoying an increased demand in the otherwise slouching
housing market. Investing in energy efficiency improvements will ensure that your home
fetches a higher resale value down the road.

Q. No. 6
a) What is Cost Benefit Analysis? What is its relevance in decision making?

Costbenefit analysis (CBA), sometimes called benefitcost analysis (BCA), is a systematic

approach to estimating the strengths and weaknesses of alternatives (for example in transactions,
activities, functional business requirements); it is used to determine options that provide the best
approach to achieve benefits while preserving savings.[1] The CBA is also defined as a systematic
process for calculating and comparing benefits and costs of a decision, policy (with particular
regard to government policy) or (in general) project.

Broadly, CBA has two main purposes:

1. To determine if an investment/decision is sound (justification/feasibility) verifying

whether its benefits outweigh the costs, and by how much;

2. To provide a basis for comparing projects which involves comparing the total expected
cost of each option against its total expected benefits.[2]

CBA is related to, but distinct from cost-effectiveness analysis. In CBA, benefits and costs are
expressed in monetary terms, and are adjusted for the time value of money, so that all flows of
benefits and flows of project costs over time (which tend to occur at different points in time) are
expressed on a common basis in terms of their net present value.

USE OF COST BENEFIT ANALYSIS

Many people think that CBA delivers an efficient outcome. In economics an efficient
outcome is one that is allocatively efficient which means it delivers the best possible outcome
for society.
CBA is useful in calculating the external costs and benefits of a project or action, not just
the private ones. This means the actual impact on society can be calculated.
CBA helps governments decide whether or not to carry out large public sector projects
such as new roads or railways.
As we live in a world of finite resources, CBA is a useful method of prioritising one
project over another. If one project generates more social benefits and fewer social costs than
other projects, it should be carried out.
CBA also takes into account the opportunity cost of a project. For example, if CBA is
used to help decide whether to spend public money on a new road, it will take into account
the potential costs of the next best alternatives that have been sacrificed in this case, the
next best alternative might be investment on the railway.

b) State the Stages of Product Life Cycle Cost ? Discuss how it is an improvement over the
conventional method of ascertaining cost

c) What is balance Score Card ? Bring out its salient features as performance measuring
tool? Discuss how it is an improvement over the earlier performance measuring tools . ?
Introduction:- The balanced scorecard is a strategic planning and management system that is
used extensively in business and industry, government, and nonprofit organizations worldwide to
align business activities to the vision and strategy of the organization, improve internal and
external communications, and monitor organization performance against strategic goals. It was
 originated by Drs. Robert Kaplan (Harvard Business School) and David Norton as aperformance
measurement (see What is a KPI?) framework that added strategic non-financial performance
measures to traditional financial metrics to give managers and executives a more 'balanced' view
of organizational performance.

FEATURES OF BALANCE SCORECARD

Financial Evaluation

Financial evaluation is the most traditional of the balanced scorecard features. No

executive will be interested in a balanced scorecard if it does not include this feature because it
deals with profits, which are central to the goal of creating shareholder value. Ideally, this feature
should be regarded as equal to the others (as is the point of a balanced scorecard), but it is
frequently given greater emphasis than the other features. This feature includes such measures as
return on equity, return on assets and profit margins.

Measuring Customer Perception

Measuring customer perception allows you to understand your organization as it is

perceived by your customers, without whom you cannot exist. It is a less straightforward feature
than financial evaluation because it does not have the same static performance indicators.
Customer perception of an organization is usually evaluated via surveys that ask customers if
they like a company, if they identify with a company and whether they associate the company
with value.

Identifying Internal Business Processes

In order to thrive, a company must understand its core competencies. A balanced

scorecard identifies internal business processes. This involves understanding what processes are
most important to an organization in order to succeed and evaluating how well the firm performs
them. The aim of this feature is to measure the efficiency of a firm's most important
operations. Examples of processes these include marketing, manufacturing and distribution.

Learning and Growth

Businesses must constantly develop and advance or risk becoming obsolete. Therefore,
learning and growth are included on a balanced scorecard. This is a measure of how well a
company is able to develop new knowledge and processes and how well it is able to translate this
into growth and development for the firm. The more dynamic a firm, the better it will score
according to this feature of the balanced scorecard.

#1: It ties directly to the number one issue of executives today: strategy execution.

At the Association of Strategic Planning (ASP) conference this year, I gave a talk on this topic. I
feel that its more important to have a bad strategy executed well than it is to have a good
strategy executed poorly. Even if you execute a terribly-planned strategy, you at least have the
ability to understand what went wrong, fix it, and learn from your mistakes. An excellent strategy
that is left on the shelf might look nice, but itll do absolutely nothing as far as furthering your
goals are concerned.

So, simply having a Balanced Scorecard (or any other strategic framework, for that matter) wont
help you execute your strategy. But if you get leadership buy-in and support during the
integration process and continue to foster and develop the framework, itll help you make the
clear strategic decisions your organization needs in a more effective way.

#2: It provides a framework to align everyone in the organization around a mission and vision.

When the Balanced Scorecard was created, it didnt have much to do with strategy mapping; but
over the years, it has become an integral and unique part of the framework. A strategy map is a
one-page, visual representation of an organizations strategy that works to tell a story. This
method allows your organization to consistently view, and therefore focus on, your most critical
goals and objectives.

3: It allows organizations to be more responsive to changes in the competitive landscape.

Leading indicatorsthe nonfinancial measures on a scorecardhelp your company look

forward and predict future performance. In other words, tracking leading indicators can help you
respond to an array of issues before they actually become problems. For example, you might see
sales in a particular region dropping, signaling the entry of a new competitor. Tracking Balanced
Scorecard measures allows you to address this strategic threat head-on before it makes a major
impact on your profits.

#4: It provides quantifiable metrics that show the health of an organization.

Age-old wisdom and common sense both tell us that if something isnt measured, it wont be
managed. But the act of selecting just any key performance indicators (KPIs) doesnt help ensure
a better strategy. In fact, measures can drive a bad strategy just as quickly as they can drive a
good one!

So how do you remedy this? By selecting measures that tie to one of your overall objectives
ones that are directly linked to your strategy. Dont just take my word for it; a 2008 study
found field-based evidence that the Balanced Scorecard is useful in detectingand therefore
fixingproblems with a strategy. The moral here is that measures alone wont ensure your
strategic success, but intelligently-selected measures will.

#5: It helps drive transparency.

Organizations that excel at strategic implementation arent afraid of exposing their strategy.
Balanced Scorecard strategy maps are perfect for publishing, as they help prove to shareholders,
constituents, or citizens that youre on a direct strategic path.
These companies know that in order to win, they need to executeand part of that execution
includes being transparent. Take Mobil NAM&R, for example. This multi-billion dollar division
of Exxon Mobil is one of the most noteable Balanced Scorecard success stories. Because of the
transparency of their process, it was highlighted in The Strategy-Focused Organization, a BSC
case-study text put out by Kaplan and Norton.

Local governments are using their version of the Balanced Scorecard to drive transparency with
their citizens as well. Charlotte-Mecklenburg was an early adopter of the process, but cities
like Durham, NC, Charlottesville, VA, and Vaughan, ON are using their version of a scorecard to
report out to citizens, as well.

#6: It links projects to measures, and measures to strategy.

A lot of people have separated project management and strategic measurement. But frankly,
thats a mistake. Projects are how things get done in organizations, so thats where budgets are
allocated. The Balanced Scorecard remedies this by explicitly linking measures to strategic
objectives, and linking initiatives or projects to the strategy, as well. Strategic initiatives are
those critical projects that close the gap on measures that are underperforming.

By linking your projects to your strategy, you can gain visibility into the actions your
organization is taking to improve its measures. It can also help to show where you have a true
lack of alignment in your organization.

Bonus Reason #7: You can make it yours.

The biggest reason that the Balanced Scorecard has been so popular and successful for so many
years is because it continues to be a proven framework organizations use to organize their
various strategies. For example, if your strategy is to embrace big data, the Balanced Scorecard
can act as a gateway for your company to achieve that goal. If you use Six Sigma or TQM, the
Balanced Scorecard can also help with that. If you run global franchises or a small storefront, the
Balanced Scorecard is very useful.

The BSC is a framework for frameworks. You can take your best practices and approaches and
integrate them into a scorecard, and the end product will be a fully-customized solution that suits
all of your needs. You can use the BSC to drive operational excellence, customer intimacy,
product innovation, or whatever else is important to you. The beauty of this framework is in its
simplicityit distills business basics into an easy-to-use system that everyone can
understand and work with.

So while the BSC may be a millennial-aged framework, it isnt dead. In fact, it isnt even
outdated. It is still an extremely relevant, useful tool that thousands of organizations around the
world are highly satisfied with.
To quote David Norton, the originator (and thought leader) of the Balanced Scorecard concept,
the BSC is the chart of accounts for strategy. I couldnt say it any better myself.

Q. No. 7 . Write short notes any two

a) Cost Audit
Introduction:- Cost Audit represents the verification of cost accounts and check on the
adherence to cost accounting plan. Cost Audit ascertain the accuracy of cost accounting
records to ensure that they are in conformity with Cost Accounting principles, plans,
procedures and objective.

The following are some of the objectives for which cost audit is under taken:
1. To establish the accuracy of costing data. This is done by verifying the arithmetical
accuracy of cost accounting entries in the books of accounts.

2. To ensure that cost accounting principles are governed by the management objectives and
these are strictly adhered in preparing cost accounts.

3. To ensure that cost accounts are correct and also to detect errors, frauds and wrong
practice in the existing system.

4. To check up the general working of the costing department of the organization and to
make suggestions for improvement.

5. To help the management in taking correct decisions on certain important matters i.e to
determine the actual cost of production when the goods are ready.

6. To reduce the amount of detailed checking by the external auditor if effective internal cost
audit system is in operation.

b) Waste Control & Disposal Management

Waste management is all the activities and actions required to manage waste from its
inception to its final disposal.[1] This includes amongst other things, collection, transport,
treatment and disposal of waste together with monitoring and regulation. It also
encompasses the legal and regulatory framework that relates to waste management
encompassing guidance on recycling etc.

The term normally relates to all kinds of waste, whether generated during the extraction
of raw materials, the processing of raw materials into intermediate and final products, the
consumption of final products, or other human activities,[1] including municipal (residential,
institutional, commercial), agricultural, and social (health care, household hazardous wastes,
sewage sludge).[2] Waste management is intended to reduce adverse effects of waste
on health, the environment or aesthetics.

Waste management practices are not uniform among countries (developed and developing
nations); regions (urban and rural area), and sectors (residential and industrial).[3]

c) Business Process Engineering

d) Management Audit
 Management Audit' is a systematic examination of decisions and actions of the
management to analyse the performance. Management audit involves the review of
managerial aspects like organizational objective, policies, procedures, structure, control and
system in order to check the efficiency or performance of the management over the activities
of the Company. Unlike financial audit,[1] management audit mainly examine the non
financial data to audit the efficiency of the management. Somehow audit tries to search the
answer of how well the management has been operating the business of the company? Is
managerial style well suited for business operation? Management Audit focuses on results,
evaluating the effectiveness and suitability of controls by challenging underlying rules,
procedures and methods.[2]

Management Audit is an assessment of methods and policies of an organization's

management in the administration and the use of resources, tactical and strategic planning,
and employee and organizational improvement. Management Audit is generally conducted
by the employee of the company or by the independent consultant and focused on the critical
evaluation of management as a team rather than appraisal of individual.[3]

e) Value Analysis and Value Engineering

f) Bench Marking

Benchmarking is comparing one's business processes and performance metrics to industry bests
and best practices from other companies. Dimensions typically measured are quality, time and
cost. In the process of best practice benchmarking, management identifies the best firms in their
industry, or in another industry where similar processes exist, and compares the results and
processes of those studied (the "targets") to one's own results and processes. In this way, they
learn how well the targets perform and, more importantly, the business processes that explain
why these firms are successful.

Benchmarking is used to measure performance using a specific indicator (cost per unit of
measure, productivity per unit of measure, cycle time of x per unit of measure or defects per unit
of measure) resulting in a metric of performance that is then compared to others.[1]