Strategic Cost Management
1. A leading business school is planning to launch a new post-graduate course in Data Science and Analytics. The course is designed to cater to the growing demand for skilled professionals in this field. The school's administration is tasked with determining the optimal pricing strategy for the course.
The school has conducted market research to understand the demand for the course and the pricing sensitivity of potential students. The research indicates that there is a strong demand for the course, and students are willing to pay a premium for a high-quality education from a reputable institution. However, students are also price-conscious, and the school needs to balance the demand for the course with the need to generate revenue.
The school's administration is considering two pricing methods: cost-plus pricing and break-even pricing. Explain the advantages and disadvantages of cost-plus pricing and break-even pricing in the context of this situation.
2. The management of a retail company, "The Retail Haven," carries a notion that it has been experiencing declining profits despite a steady increase in sales. The company's management is concerned about the company's financial health and has tasked you with conducting a ratio analysis to identify potential areas of concern
|
Particulars |
Year 1 |
Year 2 |
|
Sales |
₹1,00,000 |
₹1,20,000 |
|
Cost of Goods Sold |
₹70,000 |
₹80,000 |
|
Gross Profit |
₹30,000 |
₹40,000 |
|
Operating Expenses |
₹20,000 |
₹25,000 |
|
Operating Income |
₹10,000 |
₹15,000 |
|
Interest Expense |
₹2,000 |
₹2,500 |
|
Net Income |
₹8,000 |
₹12,500 |
|
Total Assets |
₹50,000 |
₹60,000 |
|
Total Liabilities |
₹20,000 |
₹25,000 |
|
Shareholders' Equity |
₹30,000 |
₹35,000 |
a) You’re required to calculate the following financial ratios for both years:
i. Gross Profit Margin Ratio
ii. Net Profit Margin Ratio
iii. Return on Assets Ratio (ignore taking average for balance sheet number)
iv. Return on Equity Ratio (ignore taking average for balance sheet number)
b) Analyze the trends in these ratios and comment if the management is correct.
3. August Ltd. is a medium-sized enterprise operating in the consumer electronics industry. The company has been in business for several years and has a reputation for producing high-quality products. However, the company has been facing increasing competition from both domestic and international rivals. To maintain its market position and drive growth, the company is considering launching a new product.
The new product is a cutting-edge gadget that is expected to appeal to a wide range of consumers. The company believes that the product has the potential to become a major success and significantly boost its revenue and profitability. However, before launching the product, the company needs to conduct a thorough analysis to assess its financial viability and potential risks. It is considering launching a new product. The estimated fixed costs for the product are ₹1,000,000 per year, and the variable cost per unit is ₹50. The expected selling price per unit is ₹100.
a) Calculate the break-even point in units and in rupees for the new product. If the company expects to sell 20,000 units of the product per year, what will be its profit or loss?
b) Calculate the margin of safety in units and in rupees for the new product, assuming expected sales of 20,000 units per year. What does the margin of safety indicate about the product's profitability?
Unlock your potential with NMIMS Solved Assignments for December 2024 in Strategic Cost Management. Our expert solutions provide detailed insights and practical applications to help you excel. With a focus on real-world scenarios, these assignments are designed to enhance your understanding and improve your grades. Don’t miss out—secure your success today!