HOLY GRACE ACADEMY OF MANAGEMENT STUDIES, MALA
BUS 3 C 18 Strategic Cost Management
III SEMESTER MBA—MODEL EXAMINATION—2016-18
Time: 3 hours Maximum weight: 36
SECTION A
Answer all Questions (6 X 1 = 6 Weightage)
1. Explain the differences between Cost Control and Cost Reduction.
Cost Control VS Cost Reduction: Both cost reduction and cost control are efficient
tools of management but their concepts and procedure are widely different. The
differences are summarised below:
Cost Control Cost Reduction
(a)Cost Control represents efforts made
towards achieving target or goal. (a) Cost reduction represents the achievement in
(b)Cost reduction is not concerned with
(b) The process of cost control is to set up a maintenance of performance according to
target, standard
(c) Cost control assumes the existence of (c) Cost reduction assumes the existence of
standards or norms which are not challenged concealed
potential savings in standards or norms which
are
therefore subjected to a constant challenge with
a
view to improvement by bringing out savings
Cost Control is a preventive function. Costs Cost reduction is a corrective function. It
(d) are (d) operates
even when an efficient cost control system
optimized before they are incurred exists.
There is room for reduction in the achieved
costs
under controlled conditions
1
, Cost reduction is a continuous process of
(e) Cost control lacks dynamic approach (e) analysis
by various methods of all the factors affecting
costs,
efforts and functions in an organization. The
main
stress is upon the why of a thing and the aim is
to
have continual economy in costs
2. Explain the Differences between Absorption Costing and Marginal Costing:
Absorption Costing Marginal Costing
Only variable costs are considered for product
1. Both fixed and variable costs are considered for costing
product costing and inventory valuation. and inventory valuation.
Fixed costs are charged to the cost of
2. production. Fixed costs are regarded as period costs. The
Each product bears a reasonable share of fixed profitability of different products is judged by
cost their
and thus the profitability of a product is
influenced by P/V ratio.
the apportionment of fixed costs.
Cost data are presented in conventional pattern.
3. Net Cost data are presented to highlight the total
profit of each product is determined after
subtracting contribution of each product.
fixed cost along with their variable cost.
The difference in the magnitude of opening stock The difference in the magnitude of opening
4. and stock
2
, closing stock affects the unit cost of production and closing stock does not affect the unit cost
due of
to the impact of related fixed cost. production.
In case of absorption costing the cost per unit In case of marginal costing the cost per unit
5. reduces, remains
as the production increases as it is fixed cost the same, irrespective of the production as it is
which valued
reduces, whereas, the variable cost remains the
same at variable cost.
per unit.
3. Uses and applications of Break even Analysis (Or) Profit Charts (Or) Cost Volume
Profit Analysis:
The important uses to which cost-volume profit analysis or break-even analysis or profit charts
may be put to use are:
a. Forecasting costs and profits as a result of change in Volume determination of costs,
revenue and variable cost per unit at various levels of output.
b. Fixation of sales Volume level to earn or cover given revenue, return on capital
employed, or rate of dividend.
c. Determination of effect of change in Volume due to plant expansion or acceptance of
order, with or without increase in costs or in other words, determination of the quantum
of profit to be obtained with increased or decreased volume of sales.
d. Determination of comparative profitability of each product line, project or profit plan.
e. Suggestion for shift in sales mix.
f. Determination of optimum sales volume.
g. Evaluating the effect of reduction or increase in price, or price differentiation in
different markets.
h. Highlighting the impact of increase or decrease in fixed and variable costs on profit.
i. Studying the effect of costs having a high proportion of fixed costs and low variable
costs and vice-versa.
3
BUS 3 C 18 Strategic Cost Management
III SEMESTER MBA—MODEL EXAMINATION—2016-18
Time: 3 hours Maximum weight: 36
SECTION A
Answer all Questions (6 X 1 = 6 Weightage)
1. Explain the differences between Cost Control and Cost Reduction.
Cost Control VS Cost Reduction: Both cost reduction and cost control are efficient
tools of management but their concepts and procedure are widely different. The
differences are summarised below:
Cost Control Cost Reduction
(a)Cost Control represents efforts made
towards achieving target or goal. (a) Cost reduction represents the achievement in
(b)Cost reduction is not concerned with
(b) The process of cost control is to set up a maintenance of performance according to
target, standard
(c) Cost control assumes the existence of (c) Cost reduction assumes the existence of
standards or norms which are not challenged concealed
potential savings in standards or norms which
are
therefore subjected to a constant challenge with
a
view to improvement by bringing out savings
Cost Control is a preventive function. Costs Cost reduction is a corrective function. It
(d) are (d) operates
even when an efficient cost control system
optimized before they are incurred exists.
There is room for reduction in the achieved
costs
under controlled conditions
1
, Cost reduction is a continuous process of
(e) Cost control lacks dynamic approach (e) analysis
by various methods of all the factors affecting
costs,
efforts and functions in an organization. The
main
stress is upon the why of a thing and the aim is
to
have continual economy in costs
2. Explain the Differences between Absorption Costing and Marginal Costing:
Absorption Costing Marginal Costing
Only variable costs are considered for product
1. Both fixed and variable costs are considered for costing
product costing and inventory valuation. and inventory valuation.
Fixed costs are charged to the cost of
2. production. Fixed costs are regarded as period costs. The
Each product bears a reasonable share of fixed profitability of different products is judged by
cost their
and thus the profitability of a product is
influenced by P/V ratio.
the apportionment of fixed costs.
Cost data are presented in conventional pattern.
3. Net Cost data are presented to highlight the total
profit of each product is determined after
subtracting contribution of each product.
fixed cost along with their variable cost.
The difference in the magnitude of opening stock The difference in the magnitude of opening
4. and stock
2
, closing stock affects the unit cost of production and closing stock does not affect the unit cost
due of
to the impact of related fixed cost. production.
In case of absorption costing the cost per unit In case of marginal costing the cost per unit
5. reduces, remains
as the production increases as it is fixed cost the same, irrespective of the production as it is
which valued
reduces, whereas, the variable cost remains the
same at variable cost.
per unit.
3. Uses and applications of Break even Analysis (Or) Profit Charts (Or) Cost Volume
Profit Analysis:
The important uses to which cost-volume profit analysis or break-even analysis or profit charts
may be put to use are:
a. Forecasting costs and profits as a result of change in Volume determination of costs,
revenue and variable cost per unit at various levels of output.
b. Fixation of sales Volume level to earn or cover given revenue, return on capital
employed, or rate of dividend.
c. Determination of effect of change in Volume due to plant expansion or acceptance of
order, with or without increase in costs or in other words, determination of the quantum
of profit to be obtained with increased or decreased volume of sales.
d. Determination of comparative profitability of each product line, project or profit plan.
e. Suggestion for shift in sales mix.
f. Determination of optimum sales volume.
g. Evaluating the effect of reduction or increase in price, or price differentiation in
different markets.
h. Highlighting the impact of increase or decrease in fixed and variable costs on profit.
i. Studying the effect of costs having a high proportion of fixed costs and low variable
costs and vice-versa.
3
