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PAPER - 5 : COST MANAGEMENTQuestion 1
(
a)Define Total Quality Management? What are the six Cs for successful implementation of TQM ?(b)What steps are involved in value chain analysis approach for assessing competitive advantages?(c)Carlon Ltd. makes and sells a single product; the unit specifications are as follows:Direct Materials X:8 sq. metre at Rs 40 per squaremetreMachine Time:0.6 Running hoursMachine cost per gross hour :Rs. 400Selling price:Rs. 1,000Carlon Ltd. requires to fulfil orders for 5,000 product units per  period. There are no stock of product units at the beginning or end of the period under review. The stock level of material X remains unchanged throughout the period.Carlon Ltd. is planning to implement a Quality Management Programme (QPM). The following additional informationregarding costs and revenues are given as of now and after implementation of Quality Management Programme.Before the implementationof QMP After theimplementation1.5% of incoming materialfrom suppliers scrapped dueto poor receipt and storageorganisation.1.Reduced to 3%.2.4% of material X input to themachine process is wasteddue to processing problems.2.Reduced to 2.5%3.Inspection and storage of Material X costs Re. 1 per square metre purchased.3.No change in the unit rate4.Inspection during the production cycle, calibrationchecks on inspection4.Reduction of 40% of the existing cost.
 
FINAL EXAMINATION : MAY, 2005
equipment vendor ratingand other checks cost Rs.2,50,000 per period5.Production Qty. is increasedto allow for the downgradingof 12.5% of the productionunits at the final inspectionstage. Down graded unitsare sold as seconds at adiscount of 30% of thestandard selling price.5.Reduction to 7.5%6.Production Quantity isincreased to allow for returnfrom customers (these arereplaced free of charge) dueto specification failure andaccount for 5% of unitsactually delivered tocustomer.6.Reduction to 2.5%7.Product liability and other claims by customers isestimated at 3% of salesrevenue from standard product sale.7.Reduction to 1%.8.Machine idle time is 20% of Gross machine hrs used (i.e.running hour = 80% of gross/hrs.).8.Reduction to 12.5%.9.Sundry costs of  Administration, Selling andDistribution total – Rs.6,00,000 per period.9.Reduction by 10% of the existing.10.Prevention programme costsRs. 2,00,00010.Increase to Rs.6,00,000.The Total Quality Management Programme will have areduction in Machine Run Time required per product unit to0.5 hr.Required:(a)Prepare summaries showing the calculation of (i) Total
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PAPER - 5 : COST MANAGEMENT
 production units (pre inspection), (ii) Purchase of Materials X (square metres), (iii) Gross Machine Hours.(b)`In each case, the figures are required for the situationboth before and after the implementation of the Quality Management Programme so that orders for 5,000 product units can be fulfilled.(b)Prepare Profit and Loss Account for Carlon Ltd. for the period showing the profit earned both before and after the implementation of the Total Quality Programme.
Answer(a)
 The total quality management is a set of concepts andtools for getting all employees focused on continuousimprovement in the eyes of the customer. Quality is animportant aspect of world-class manufacturing. The success of  Japanese companies is grass rooted in their long-termcommitment to improvement of quality. A world classmanufacturing approach demands that the quality must bedesigned into product and the production process, rather than anattempt to remove poor quality by inspection. This means thatthe objectives of quality assurance in a world- class-manufacturing environment, is not just reject defective product,but to systematically investigate the cause of defects so thatthey can be gradually eliminated. Though the goal is zero defect,the methodology is one of continuous improvement.
Six Cs of TQM
(i) Commitment - If a TQM culture is to be developed, so thatquality improvement becomes normal part of everyone's job,a clear commitment, from the top must be provided. Withoutthis all else fails.(ii) Culture - Training lies at the centre of effecting a change -inculture and attitudes. Negative perceptions must be changedto encourage individual contributions.(iii) Continuous improvement - TQM is a process, not aprogram, necessitating that we are committed in the longterm to the never ending search for ways to do the jobbetter.(iv) Co-operation: The on-the-job experience of allemployees must be fully utilized and their involvement andco-operation sought in the development of improvementstrategies and associated performance measures.
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