EDSML - MFPT - LO1-2 - SAUMODEBDAS - II Submission

International School of Management Studies
Pune – Maharashtra - India
MANAGING FINANCIAL PRINCIPLES & TECHNIQUES
LEARNING OUTCOME 1 & 2
Mr. SAUMODEB DAS
(MBA INTERNATIONAL)
Statement of Authenticity
I certify that the work submitted in regard to this assignment is my own and wherever the works of others have been
used to support my work, the credit has been duly acknowledged.
Student Email: saumodeb.isms@gmail.com Date: 26/03/21

Extended Diploma in Strategic Management & Leadership
International School of Management Studies, Pune – Maharashtra - India
TABLE OF CONTENTS
Serial No Particulars Page no
1 Executive Summary 03
2 Task 1 04-10
3 Task 2 11-13
4 Task 3 14
5 Conclusion 15
6 Bibliography 16
Page 2 of 19
Executive summary
This task explains the role of costs in an organization’s pricing policy, as well as the importance of designing a cost
structure that can be used within the organization. Costing and pricing method improvements are also addressed. A
numerical problem and its solution are often used to illustrate the negative and positive consequences of incorrectly
projecting results. Forecasting methods for expense and sales decisions, as well as cash flow forecasting using a cash
budget, are also demonstrated. The numerous sources of funds for the automotive sector are often discussed in the
business community.
Page 3 of 19
TASK-1
IMPORTANCE OF COSTS IN THE PRICING STRETAGY OF AN ORGANIZATION. (A.C. 1.1)
The pricing policy of a company is influenced by the organization's costing method. There are many decisions made by a
company that are influenced by the costing method. One of them is pricing. If the company raises its rates, consumers in
the market will be unable to afford them. The amount of a customer's buying power and interest is known as the market
for a commodity. In such cases, the buying power of the consumers plays a major role. The business is offering a higher
quality product and relying on the customer's priorities and interest in the market. The company must price its product in
such a way that it is affordable to the market's consumers.
VARIOUS COSTING SYSTEM FOR USE IN AN ORGANIZATION. (A.C. 1.2)
Costing system refers the technique to adopted costs. There are several methods for determining costs. Companies select
between the options based on the situations under which accounting is needed based on the product being
manufactured and the existence of the industry that produces the product. There are many types of costing in an
organization such as standard costing, job costing, contract costing, batch costing, operating costing and many more. I am
going to discuss appropriate costing system for an organization.
Job costing: Job costing is a typical system for cost accounting in which the cost unit distributes, allocates and absorbs
expenses. The production of the company is divided into various jobs of the same kind in order to determine the profit
from every job for future planning.
Batch Costing: Batch Costs are a specific form of order costings that are assembled as lots for a number of related
products. It is comparable to the technique of job costing, but mainly the unit cost indicates the ration of the whole batch
costs to the number of units in the batch.
Contract Costing: The objective of contract costs is to determine the independence of each contract. Each contract
therefore has its own account. This strategy is used by shipbuilders, construction contractor, bridge manufacturer, dam
builders and road builders.
Process Costing: It's called ongoing costing. Raw materials take a succession of processes in some sectors before they
take the form of a final product. In other words, a single operation's end result is the raw material for the next. Process
costs are used in these industries.
Unit Costing: The costing of single or exit is another name. It is great for continuous manufacturing and identical units’
businesses. The aim is to establish both the total cost and the cost per unit. A cost sheet including material, work and
overhead costs is prepared.
Operating Costing: This strategy is employed by industries providing services. The cost of such services is calculated using
composite units such as passenger kilometers and tone kilometers.
Page 4 of 19
Multiple Costing: Another name for it is Composite Costing. It refers to an approach to costing which incorporates two or
more of the above methodologies. It is used in companies where numerous parts are individually created and then
assembled to produce a single product.
VARIOUS PRICING SYSTEMS FOR USE IN AN ORGANIZATION:

Cost plus price: Cost plus price implies an additional markup on the costs of products and services to be achieved at a
sales price. Combine direct material expenses, straightforward labour costs and overhead costs, then add a markup
percentage to calculate the product price. Cost plus pricing may be used in a customer contract when the client
reimburses the seller for all expenses and an agreed profit in addition to cost income.
Marginal cost Pricing: Marginal cost pricing is called the technique of price of a product at or somewhat over the cost of
manufacture variable. This strategy is most typically employed when prices are fixed for a limited time.
Target pricing: The calculation procedure for a competitive price on the market and adding a company's customary profit
margin to this price to the highest cost known as the target pricing for a new product. A design team is then working to
create a product which, while keeping within budgetary limits, has all the necessary features.
Rate of return: "Return Rate" refers to a procedure wherein a company sets the price of the product in a way that assists
companies to achieve their ultimate objective or a return on invested capital.
Predictive pricing: In the present application of machine learning algorithm and big data technologies, the word
"predictive pricing" refers to firms that reach their own commercial targets. The first priority of retailers is to increase
sales. To do so, their pricing strategies must be changed.

IMPROVEMENTS THE COSTING AND PRICING SYSTEMS USED BY AN ORGANIZATION. (A.C. 1.3)
Organization should use the competitive pricing policy. This strategy allows the company to finalize product prices after
analyzing the prices determined by the other companies which compete on the market. Organization should also first
classify its current rivals that are competing with it. An organization sets the price of each commodity following the
calculation of cost of its goods. The rates are either higher, lower, or the same prices that rivals offer. In fact, this decision
is based on how the competitor responds to the fixed price. If there are few rivals on the market, the competitor's answer
is very significant in this price strategy. That if this occurs then the other competitor would therefore drop their price and
become more competitive if one competitor were to lower their price.
That pricing policy is a policy that companies can set their prices reasonably quickly and which needs very little effort to
implement, because this strategy does not require precise market information. Competitive pricing often enhances the
acceptance of distributors of a company's goods since the distributors already manage them within the spectrum. This
pricing approach also allows businesses to pick their competitive objectives from a range of different pricing strategies. In
other words, companies may choose to price above, below or at a rate similar to that of their rivals and thus affect the
perceptions of their goods by customers.
Page 5 of 19
Compute and identify all variances under Material, and Labor favorable or adverse and suggest the most appropriate
method for costing & pricing to this company.
CALCULATION OF MATERIAL VARIANCES OF S.K. CHEMICAL COMPANY:
Standard Data Actual Data
Material Input(x) Per liter(y) Total (Rs) Input(x) Per Liter(y) Total (Rs)
(x.y) (x.y)
A 400 50 20000 420 45 18900
B 200 20 4000 240 25 6000
C 100 15 1500 90 15 1350
A+B+C 700 25500 750 26250
(Normal (25) - (75) -

loss)
675 25500 675 26250
NOTES:
Standard costing- The standard costing is the practice in which the manufacturing process costs are estimated. For
example, it is a cost accounting branch that is used by a fabricator to forecast its costs for next year for different
expenditures including direct material, direct labour and overheads. There are two types of standard costing standard
cost and actual cost.
Standard cost-Standard costs are defined as predetermined costs, future estimates, anticipated costs, unit costs
estimate, projected costs or "should" cost. Standard expenses are often part of the overall profit plan and operating
budgets of a manufacturer.
Actual cost- Current cost refers to the amount of money charged for the acquisition of the commodity or property.
This may be the expense of the commodity from the past or the present day. This is not what management expected
or predicted costs, as they could include seller costs such as distribution, set-up and testing costs. These costs reflect
factors such as distributor discounts or rises in prices.
Page 6 of 19
Variance -The difference between the estimated or anticipated cost/earnings for the activities and the actual costs or
earnings for the business can be described .
SOLUTION:
Material cost variance= Standard cost- Actual cost
= Rs.25500- Rs.26250
= Rs.750(A)
Material Price Variance = (Standard Price- Actual Price) X Actual Quantity

Material A = (50-45) X Rs.420 = 2100(F)
Material B = (20-25) X Rs.240 = 1200(A)
Material C = (15-15) X Rs.90 = NIL
Total Material Price Variance (A+B+C) = Rs900 (F)
Material Usage Variance = (Standard Quantity – Actual Quantity) X Standard Price

Material A = (Rs.400-420) X 50 = 1000(A)
Material B = (RS.200-240) X20 = 800(A)
Material C = (Rs.100-90) X15 = 150 (F)
Total Material Usage Variance (A+B+C) = Rs.1650 (A)
Material Mix Variance = Standard Price X (Revised Standard Quantity – Actual Quantity)
Standard Quantity
Revised Standard Quantity = X Total Actual Quantity
Total Standard Quantity
Material A (RSQ) = 400/700X750 = 428.57

Material B (RSQ) = 200/700X750 = 214.29
Material C (RSQ) = 100/700X750 = 107.14
Material Mix Variance:
Material A = Rs.50X (428.57- 420) = Rs.428.5 (F)

Material B = Rs.20X (214.29 - 240) = Rs.514.2(A)
Material C = Rs.15X (107.14-90) = Rs.257.1 (F)
Total Material Mix Variance (A+B+C) = Rs.171.4
Page 7 of 19
Material Yield Variance = (Standard loss in terms of actual output – Actual loss on actual input) X
Average Standard Price
Total Standard Cost

Average Standard Price =
Total Standard Quantity
= Rs.25500/700
=Rs.36.428
Material Yield Variance = (Rs.25-Rs75) X Rs.36.428

=Rs. 1821.4 (A)
OR
Material Yield Variance= Material Usage Variance – Material Mix Variance
= Rs.1650(A)- (Rs.171.4(F))
= Rs. 1821.4(A)
CALCULATION OF LABOUR VARIANCES OF S.K. CHEMICAL COMPANY:
Types of Standard Data Actual Data

labour
Hours Rate Amounts Hours Rate Amount
MEN(M)
100 2 200 120 2.5 300
WOMEN(w) 200 1.5 300 240 1.6 384
TOTAL (M+W) 300 500 360 684
Page 8 of 19
Labor Cost Variance = Total Standard Cost – Total Actual Cost
= Rs.500 – Rs.684
= Rs.184(A)
Labor Rate Variance = (Standard Rate – Actual Rate) X Actual Hours
Men = (Rs.2 – Rs.2.5) X 120 = Rs.60(A)
Women = (Rs.1.5 – Rs.1.6) X 240 = Rs.24(A)
Total Labor Rate Variance [Men + Women] = Rs.84(A)
Labor Efficiency Variance = (Standard Hours – Actual Hours) X Standard Rate
Men = (100 – 120) X Rs.2 = Rs.40(A)
Women = (200 – 240) X Rs.1.5 = Rs.60(A)
Total Labor Efficiency Variance [Men + Women] = Rs.100(A)
Revised Standard Hour= (Standard Hour of particular labour/Total Standard Input Quantity) x Total Actual Input
Quantity
Men (RSH) = 100/700 X750 = 107.14
Women (RSH)= 200/700 X750= 214.29
(Note: While calculating Revised Standard Hour, Total Standard Input Quantity and Total Actual Input Quantity is to be
considered.)
Labor Mix Variance= Standard Rate x (Revised Standard Hours – Actual Hours)
Men= 2x (107.14 – 120) = 25.72 (A)
Women= 1.5x (214.29 – 240) = 38.57 (A)
Total Mix Variance (Men + Women) = 64.29 (A)
Page 9 of 19
Here we can see that S.K Chemical company have failed to project the material data. Material A and Material B are falsely
being projected due to which they may have to face many adverse effects further. Whereas we can also observe that
Material C is favorable which is a good sign for the company. For Material C the actual output is coming into the range.
Most appropriate method for costing of S.K Chemical company: As the company manufactures chemicals, the process is
split into numerous processes, so the cost of processes is relevant, as costs can then be determined at the conclusion of
each process and helps to determine the cost of each process and completed product periodically. The average cost is
simply computed and price bids may be supplied more rapidly with process consistency when production procedures are
uniform.
Most appropriate method for pricing of S.K Chemical company: A predictive pricing system must be adopted by S.K.
Chemical company. The technique of predictive pricing helps to determine the price drivers that help to establish the
market price. It also is effective for capacity management, which does not require a continuous monitoring and
adaptation of capacity by the production department. The predictive price system contains an integrated model, where a
company can improve pricing policies and take advantage of a profound understanding of diffusion.
Page 10 of 19
TASK-2
You are required to help the management in Forecasting the cash flow for 6 months Jan – June. (A.C.2.1)
Computation of Cash Budget of Plastic Components Manufacturing company from January to June:
PARTICULARS JANUARY FEBRUARY MARCH APRIL MAY JUNE
A. Opening Balance 10000 18000 29800 27000 24700 33100
B. Estimated cash receipt
Sales (cash) 10000 11000 14000 18000 15000 20000
Sales Credit Collections - 10000 11000 14000 18000 15000
Second Call - 10000
Share Premium - 2000
Total (A+B) 20000 39000 66800 59000 57700 68100
Estimated Cash Payment
Materials - - 20000 14000 14000 22000
Wages 2000 4200 4500 4600 4300 4500
Production Overhead - 3200 3300 3400 3500 3200
Selling & Distribution Overhead - 800 900 900 1000 900
Sales Commission (5%) - 1000 1100 1400 1800 1500
Purchase of machinery - - 10000 10000 - -
Total (C)
2000 9200 39800 34300 24600 32100
Closing Stock (A+B-C) 18000 29800 27000 24700 33100 36000
Page 11 of 19
Working Note No.1 (Calculation of Sales Commission)
Total Sales 20000 22000 28000 36000 30000 40000
Sales commission (5% on

total sales) 1000 1100 1400 1800 1500 2000
Payment of commission - 1000 1100 1400 1800 1500
Working Note No.2 (Cash Payment to Suppliers)
purchase 20000 14000 14000 22000 20000 25000
Credit Purchase
(Suppliers allowed 2 - - 20000 14000 14000 22000
months for payment)
Page 12 of 19
Working Note No.3(Expenses)
Wages
(delayed by ½ months) 2000 4200 4500 4600 4300 4500
(2000+2200) (2200+2300) (2300+2300) (2300+2000) (2300+2200)
Production Overhead
(delayed by 1 month) - 3200 3300 3400 3500 3200
Selling and Distribution

Overhead - 800 900 900 1000 900
Working Note No.4 (Cash Sales and Cash Receipts from debtors)
Total Sales 20000 22000 28000 36000 30000 40000
Cash Sales (50% of Total 10000 11000 14000 18000 15000 20000
Sales)
Credit Sales 10000 11000 14000 18000 15000 20000
Realization from Debtor - 10000 11000 14000 18000 15000

(2-month credit period
is allowed)
Page 13 of 19
TASK-3
Evaluate the various sources of funds available for the above industry. (A.C 2.2)
Companies are still searching for new ways to finance their growth. The act of contributing resources to finance a
program, initiative, or need is known as funding or financing. The different sources of funding include:
Retained earnings
Debt capital
Equity capital
Dividend
Working capital
Retained Earnings= Businesses attempt to increase profits by selling a product or delivering a service at a higher price
than it costs them to make the products. After making a profit, a corporation must decide what to do with the money it
has gained and how to best distribute it. The company can allocate the retained earnings as dividends to shareholders, or
it can launch a stock repurchase program to minimize the number of outstanding shares.
Debt Capital= Private bank loans are used to secure debt funding for enterprises. They can also raise money by issuing
debt to the general public. The borrower issues debt securities such as corporate bonds or promissory notes in debt
financing. Debentures, rentals, and mortgages are all forms of debt problems. Companies that issue debt are creditors
because they swap securities for cash to carry out various tasks. Following that, the companies will repay the debt in
accordance with the debt repayment plan and contracts underlying the issued debt securities.
Equity capital= Companies may collect funds from the general public in return for a proportionate share of the company's
ownership interest in the form of shares provided to investors who become shareholders after buying the shares.
Alternatively, private equity funding can be an option if the company's or directors' network has companies or individuals
willing to invest in a project or wherever the money is required.
Dividend= A dividend is a payment made by a company's board of directors to a group of its shareholders. As long as they
own the stock before the ex-dividend date, common shareholders in dividend-paying companies are normally eligible.
Dividends may be received in the form of cash or additional stock.
Working capital loan= A working capital loan is a loan used to support a business's day-to-day operations. These loans are
used to provide operating capital to meet a company's short-term operational needs rather than to purchase long-term
assets or investments. Payroll, rent, and mortgage payments are examples of such expenses. Working capital loans are
essentially corporate debt borrowings that a corporation uses to support its day-to-day operations.
Page 14 of 19
CONCLUSION
Standard costs provide information that is useful in performance evaluation. Real prices are compared to customary
prices, and the statistical differences between the two are referred to as variances. When real prices differ from
customary prices, favorable variances result, and vice versa. The following diagram is intended to illustrate the incredibly
simple relationship between real and customary prices. According to AQ, the output is determined by the "real quantity"
of input used. According to the Associated Press, the "real price" of the input is used to generate the output. SQ and SP
are discussing the expected “standard” sum and meaning. Variance analysis is carried out for the following reasons:
material, labor and overhead.
Cash-flow budgets are important for businesses to understand where their profits and expenses are coming from. This
will assist the organization by encouraging them to use their budgets to identify any possible problems that can be
addressed earlier rather than later.
Both companies and investors need capital to operate. Money capital, on the other hand, i.e., money pledged inside the
organization, isn't free. The minimum estimated rate of return that a project must have investors in order for them to
withdraw cash is known as the project's valuation of capital. Simply put, the value of capital is the anticipated rate of
return on capital required by the market to commit capital to an investment.
Page 15 of 19
(Ensor, 2012) (accounting, 2015) (accountingtools, 2020) (Accounting, 2015) (Career Guide, 2021) (accountingcoach, 2014)
(freshbooks, 2020) (reviso, 2021) (Massey, 2014) (CFI, 2014) (HAYES, 2021) (KAGAN, 2020)
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%20organization&text=By%20using%20this%20th
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Page 16 of 19
Page 17 of 19
Conclusion
Page 18 of 19
Bibliography
Page 19 of 19

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International School of Management Studies

Pune – Maharashtra - India

MANAGING FINANCIAL PRINCIPLES & TECHNIQUES

LEARNING OUTCOME 1 & 2

Mr. SAUMODEB DAS

Student Email: saumodeb.isms@gmail.com Date: 26/03/21

Serial No Particulars Page no

IMPORTANCE OF COSTS IN THE PRICING STRETAGY OF AN ORGANIZATION. (A.C. 1.1)

VARIOUS COSTING SYSTEM FOR USE IN AN ORGANIZATION. (A.C. 1.2)

VARIOUS PRICING SYSTEMS FOR USE IN AN ORGANIZATION:

CALCULATION OF MATERIAL VARIANCES OF S.K. CHEMICAL COMPANY:

Standard Data Actual Data

A 400 50 20000 420 45 18900

B 200 20 4000 240 25 6000

C 100 15 1500 90 15 1350

A+B+C 700 25500 750 26250

(Normal (25) - (75) -

675 25500 675 26250

Material Price Variance = (Standard Price- Actual Price) X Actual Quantity

Material Usage Variance = (Standard Quantity – Actual Quantity) X Standard Price

Material A (RSQ) = 400/700X750 = 428.57

Material Mix Variance:

Material A = Rs.50X (428.57- 420) = Rs.428.5 (F)

Total Material Mix Variance (A+B+C) = Rs.171.4

Total Standard Cost

Material Yield Variance = (Rs.25-Rs75) X Rs.36.428

CALCULATION OF LABOUR VARIANCES OF S.K. CHEMICAL COMPANY:

Types of Standard Data Actual Data

Hours Rate Amounts Hours Rate Amount

WOMEN(w) 200 1.5 300 240 1.6 384

TOTAL (M+W) 300 500 360 684

Labor Cost Variance = Total Standard Cost – Total Actual Cost

Labor Rate Variance = (Standard Rate – Actual Rate) X Actual Hours

Men = (Rs.2 – Rs.2.5) X 120 = Rs.60(A)

Women = (Rs.1.5 – Rs.1.6) X 240 = Rs.24(A)

Total Labor Rate Variance [Men + Women] = Rs.84(A)

Labor Efficiency Variance = (Standard Hours – Actual Hours) X Standard Rate

Men = (100 – 120) X Rs.2 = Rs.40(A)

Women = (200 – 240) X Rs.1.5 = Rs.60(A)

Total Labor Efficiency Variance [Men + Women] = Rs.100(A)

Men (RSH) = 100/700 X750 = 107.14

Women (RSH)= 200/700 X750= 214.29

Men= 2x (107.14 – 120) = 25.72 (A)

Women= 1.5x (214.29 – 240) = 38.57 (A)

Total Mix Variance (Men + Women) = 64.29 (A)

PARTICULARS JANUARY FEBRUARY MARCH APRIL MAY JUNE

A. Opening Balance 10000 18000 29800 27000 24700 33100

B. Estimated cash receipt

Sales (cash) 10000 11000 14000 18000 15000 20000

Sales Credit Collections - 10000 11000 14000 18000 15000

Second Call - 10000

Share Premium - 2000

Total (A+B) 20000 39000 66800 59000 57700 68100

Estimated Cash Payment

Materials - - 20000 14000 14000 22000

Wages 2000 4200 4500 4600 4300 4500

Production Overhead - 3200 3300 3400 3500 3200

Selling & Distribution Overhead - 800 900 900 1000 900

Sales Commission (5%) - 1000 1100 1400 1800 1500

Purchase of machinery - - 10000 10000 - -

2000 9200 39800 34300 24600 32100

Closing Stock (A+B-C) 18000 29800 27000 24700 33100 36000

Working Note No.1 (Calculation of Sales Commission)