INSTITUTE OF MANAGEMENT TECHNOLOGY-

GHAZIABAD
Post-Graduate Diploma in Management – Full Time
(Batch 2021 – 23)
End Term Exam: II (Take Home Exam)
Subject: Managerial Accounting (MA)
Faculty Name: Profs Ashish Varma / Barnali Chaklader / Neha
Arora / Malaya Ranjan Mohapatra / Vivek Bhatia
Exam Date: 29.12.2021 Time: 2 Hours 30 Minutes Max. Marks: 40

Note: Attempt both questions. Submit only one Word File. Do not paste any link of any file
as there is problem opening it.

Qs 1 (24 marks)

The Fragrance Ltd., a mid-size Indian FMCG company, manufactures personal care
products, home care products and “high-end personal & home care products”. Its vision
statements states that " the company’s focus on quality products with sustainability
orientation."
Fragrance’s value chain primarily involves research and development, procurements,
manufacturing operations, product packaging and distribution all at its plant in Baddi,
Himachal Pradesh. The finished products are distributed across North and Central India. Due
to the limited plant capacity, in case of special order or surge in demand the company
outsources the excess production of required toiletries products.
Historically, its product mix is dominated by personal care products (about 48%) followed by
home care products (32%) and followed by “high-end personal and home care products”
(20%) which are largely concentrated in Northern India. The company currently captures 5%
of the FMCG industry in India.
The new CEO of Fragrance Ltd., Mr. Harshit, is planning to increase firms market share by
7% in next 5 years. But he is also concerned about the post-Covid consumer behavior which
may be a hurdle in his expansion dreams. He therefore requests, Mr. Sarthak, the Head of
marketing research at Fragrance, to conduct a post-Covid market demand analysis. Mr.
Sarthak in his market research report, he found that the Indians are now more than ever
concerned about their health and fitness. Based on his analysis he proposed that the company
should rather than expanding through existing product lines, should enter a new-product line
related to “fitness and wellness” products.
The proposal was well-received by the CEO Mr. Harshit, whose strategic plan was then to
initially concentrate on Northern Indian which was already a market for Fragrance company’s
products and thereafter in two years’ new product line will be expanded to entire India. He
asked production manager, Mr. Rohit to prepare a financial and cost analysis of the new
product line for production during next financial year.
Mr. Rohit, while analyzing the production and cost requirement for the new product line,
found that the existing labor available is working at full capacity, engaged in manufacturing
of the existing product line of personal care products, home care products and high-end
personal & home care products. With his new knowledge about labor being the limiting
factor in production, he moved on to analyze the cost, revenue and earnings from existing
products to analyze the impact of shortage of labor at Baddi plant, on firm’s expansion plan.

Suppose you are Mr. Rohit, write a cost management report for the CEO addressing the
following questions:

1) Prepare a cost sheet (including the direct and indirect cost) of the fitness and wellness
products. You may use illustrative numbers in the cost sheet.
2) Consider that the direct labor is a limiting factor and that the production of existing
personal care products need to be decreased in order to shift production facilitates to
manufacture new product line –fitness and wellness products. Assume that new
product will be profitable for the overall firm (i.e. the new product profit will be
higher to compensate for the erosion of profit from existing products). List all the
relevant costs and relevant revenues for Fragrance Ltd. to shift to fitness and wellness
products.
3) Given that Fragrance Ltd.’s vision statement reflects its commitment to sustainability,
briefly explain the sustainability factors that should be considered while making the
managerial decision making of introducing a new product line.

NOTE: Do not write what is already explicitly stated in the question nor copy paste any text
from the annual reports or from any other internet source. Do not produce any calculations on
the answer sheets as this will add to the Similarity Index. Avoid writing any obvious numbers
in your answer sheets. Doing so will again add to the Similarity Index which shall go against
your interest and may lead to your answer sheet getting disqualified for evaluation).
(TOTAL WORD LIMIT: 500 WORDS)

Question 2 (16 MARKS)

Mira Textile Ltd., is a leading local brand selling customized T-shirts. The company has a
wide consumer base, and it delivers its textile products in four major Indian cities –Delhi,
Mumbai, Pune, and Chennai. Mr. Anuj, CEO of Mira Textiles Ltd., analysed the current
period cost and found discrepancies therein. He called a meeting with the management team
consisting of head of all departments, to examine the root cause for the cost variance. During
the discussion with the core members, he found that the actual cost incurred was much higher
than that budgeted during the previous quarter. The team deliberated on probable cause of
variance and analysed that the projected figures of demand of t-shirt, its cost, sales revenues,
quantity and price of raw materials, labor may have been wrongly estimated. The actual cash
balance at end of current quarter was also less than the budgeted cash balance, leading to cash
deficit balance, this was despite a growth in actual sales revenue as compared to previous
quarter.
Mr. Anuj doesn’t want the variances in budgeted number in next quarter, so he appoints a
cost consultant to prepare budget for next quarter, i.e., Jan- March 2022. The management
has decided to keep the target selling price of ₹150 per t-shirt for the next quarter. The
current quarter closing inventory of finished goods is 3000 units and raw material closing
inventory is 20,000 mtrs. of cotton cloth as of the quarter ending March 31.
The company currently operates at 60% plant capacity at the operational level and Mr. Anuj
wants to extend their production level to 100% of the capacity level.

Assuming that you are hired as a cost consultant by Mr. Anuj you are required:
i. To prepare sales, production, material and cash budget.
ii. Will you suggest extending the plant capacity?
(Total Word Limit : 200 Words)

Note: You can make assumptions for the sales quantity, opening and closing
inventory, credit period allowed to customers and credit period availed from
suppliers, material required for each unit of product.

For any other assumption that you wish to make, please write it explicitly.