MODEL TEST PAPER

Self-Paced Online Modules

SET-B: Strategic Cost & Performance Management
Time Allowed: 3 Hours Maximum Marks: 100

All Questions are compulsory. Each questions are of 2 Marks Each.

Section -A
Case Scenario A1
Art Décor is a marble sculpture making company based out of Jaipur, Rajasthan. It has been making
miniature figurines (small statues) for the past many years. It now plans to foray into making larger
sizes statues that can be displayed in gardens, resorts or large corporate offices. As a trial it has
asked its main designer Raj to come up with an appropriate design model that would appeal to such
customers. There is already a competitive market for such larger size statues. However, the
management of Art Décor has a skilled artist like Raj who can come up with attractive designs for
customers. Within the month, Raj has come up with the appropriate design. Jay is the product
manager who likes the design but wants to price it competitively in the market. The costing for 200
statues is as below:
Cost Amount (₹)
Design cost 5,00,000
Direct materials 20,00,000
Direct manufacturing labour 25,00,000
Variable manufacturing overhead 20,00,000
Fixed manufacturing overhead 5,00,000
Marketing 10,00,000
MCQ 1
The target profit required is 25% of revenue. If the sale price per statue is ₹45,000 what is the target cost per
statue?
Options
(a) ₹33,750 per statue
(b) ₹36,000 per statue
(c) ₹42,000 per statue
(d) ₹56,250 per statue
MCQ 2
What is the cost estimate per unit as per the cost information given above?
Options
(a) ₹45,000 per statue
(b) ₹42,500 per statue
(c) ₹30,250 per statue
(d) ₹43,000 per statue

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MCQ 3
During the course of discussions, Jay the product manager found that the designer Raj plans to use high
quality marble for these statues. Jay suggests that he use a much lower quality marble material for the
statues. This would reduce the material cost by 60%. Skilled labour hours required will also be reduced
resulting in direct manufacturing labour to reduce by 50%. Accordingly, what would the revised estimate cost
per unit be if value engineering is applied?

Options
(a) ₹45,000 per statue
(b) ₹42,500 per statue
(c) ₹30,250 per statue
(d) ₹43,000 per statue

MCQ 4
Raj the designer does not agree with Jay’s proposition given in (3) above. He feels that inferior quality material
would affect the durability of the statue and hence would affect the demand for it in the long run. Instead of
value engineering, he feels that 10% increased spending in marketing can increase the selling price per
statue to ₹50,000 per statue. The target profit required is 25% of revenue. Given this scenario, what is the
target cost per statue?
Options
(a) ₹33,750 per statue
(b) ₹37,500 per statue
(c) ₹35,000 per statue
(d) ₹36,250 per statue

MCQ 5
Given the situation in (4) what would be revised estimated cost per statue after increasing the spend on
marketing?
Options
(a) ₹45,000 per statue
(b) ₹42,500 per statue
(c) ₹30,250 per statue
(d) ₹43,000 per statue

MCQ 6
What is the estimate profit earned per statue as per (3) (adopting value engineering) and (4) (increasing
marketing spend)?

Options Profit per statue with value Profit per statue after increased
engineering as per (3) marketing spend as per (4)

(a) ₹14,750 ₹7,000

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 (b) ₹2,500 ₹7,000

(c) ₹11,250 ₹12,500

Case Scenario A2
Fix It is a company that provides home services to clients within few urban cities like Mumbai, Delhi
and Kolkata. These services include (1) home repairs like plumbing, electrical etc. and (2) appliance
repair services.
The company receives enquiries at its call centre for the specific service required. The call centre
assistants log the enquiry and provide a quote for the specific service. If acceptable to the customer,
the enquiry is then converted into a service request (sales) and is attended to by professionals
employed by the company for these various services. A request can have multiple requirements
included, for example a single request can include both plumbing and electrical work. The company
has a huge turnover due to the high demand for such services in urban areas. The company has been
in operation for the last 2 years. The management wishes to assess current performance in order to
set targets and benchmarks for future use. They wish to concentrate on both fi nancial and non-
financial information. The Building Block model suggested by Fitzgerald and Moon has been identified
as the framework that will be used to prepare a performance evaluation report.
Given below are certain financial and non-financial information for the current year.
Enquiries received from customers Current year numbers
(i) From existing customers 12,000
(ii) From new customers 8,000
Number of services requested lodged from these enquiries
(i) From existing customers 10,000
(ii) From new customers 7,500
(iii) Total clients serviced last year (both existing and new) 11,000
Volume of activity
(i) Home repairs 14,000
(ii) Appliance repair 5,000
Number of Employees
(i) Home repairs 200
(ii) Appliance repair 50
Complaints
Number of complaints received 2,000
(Last year 1,600 complaints were received)
Number of complaints resolved 1,900
(Last year 1,520 complaints were resolved)
Gross profit on annual sales 30%
MCQ 1
Which of the following is true regarding conversion rate of inquiries into service requests?
i. Conversion rate of existing customers is more than that of new customers
ii. Conversion rate of existing customers is less than that of new customers

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iii. Conversion rate is calculated as [ service requests lodged / enquiries received] × 100
iv. Conversion rate is calculated as [ enquiries received / service requests lodged] ×100
Options
(a) (i) and (iv)
(b) (ii) and (iii)
(c) (i) and (iii)
(d) (ii) and (iv)
MCQ 2
To which dimension do conversion rate of inquiries into service requests and retention of existing customers
fall into?
Options
(a) Flexibility
(b) Resource utilization
(c) Quality control
(d) Competitiveness
MCQ 3
Which of the following is true regarding complaints received?
i. Complaints received is a measure of quality of service dimension
ii. Complaints received is a measure of flexibility dimension
iii. The complaints received have increased by 25% over last year
iv. Complaints received can be a reason for the lower retention of existing customers this year
Options
(a) i and iii
(b) i, iii and iv
(c) ii, iii and iv
(d) iii and iv
MCQ 4
Which of the following is true regarding complaints resolved?
i. Complaints resolved is a measure of quality of service dimension
ii. Complaints resolved is a measure of flexibility dimension
iii. The ratio of complaints resolved to complaints received has remained the same as last year
iv. Inability to resolve complaints can affect competitiveness of business
Options
(a) i, iii and iv
(b) i and iv
(c) iii and iv
(d) ii, iii and iv

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MCQ 5
Which of the following is true about average service performed by an employee?
i. Average service performed by an employee is a measure of resource utilization
ii. Average service performed by an employee is a measure of flexibility
iii. Average service performed for home services is more than that for appliance repair
iv. Average service performed for home services is less than that for appliance repair
Options
(a) i and iv
(b) i and iii
(c) ii and iv
(d) ii and iii

MCQ 6
Which dimension does gross profit on annual sales indicate?
Options
(a) Competitiveness
(b) Financial
(c) Resource utilization
(d) Quality of service

Case Scenario A3
JPY Motors Corp. is a race car manufacturer based in Iwaki (city name). The company manufactures
cars primarily for professional car racers who participate in championships held all across the world.
Race cars need high grade fuel that is specially used in high performance engines. The company has
many engineers from allied fields who constantly research on ways to improve performance. They
have recently proposed a change to the fuel composition that will make a marked improvement to the
performance of the engine. This will have a direct and immediate impact on the training and career
performance of the customers of JPY Ltd, who are all professional car racers.
Improved engine performance has a direct bearing on the careers of professional car racers. Improved
engine performance will enable JPY Ltd to improve its market share in this niche market. This will
have substantial impact on the financials of the company. Changing the fuel composition also
requires the company to get approvals from the Government for meeting emission standards as well
as safety standards for the car. Many environmental groups have hailed this change as the new fuel
composition is made from more sustainable source of fuel, moving away from fossil fuels.
The adoption of new fuel composition will require a change in the engine design and components.
Hence, material requirement for the new model will require changes to the procurement function of
the supply chain. Currently, suppliers for key components like engine and its parts are based in the
vicinity of JPY Motors’s factory in Iwaki. However, the proposed changes will require the company to
purchase the key engine component from suppliers based in Yokohama.

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While manufacturing process undergoes a change due to change in engine design, there will be no
significant variation in the assembly line operations for the new model. Most of the employees in the
assembly line are hired on contractual basis and do not have any union to represent them.
The above consideration to change the fuel composition is being viewed a decision that will affect the
company’s strategic position. Before making their decision public, the senior management wants to
first assess the power and interest of various stakeholders who can influence this decision. As a
management accountant, you need to assist the senior management to understand the type of
information to be given to each stakeholder depending on their power to influence and their interest
in the objective to change fuel composition.

MCQ 1
Which of the following stakeholders are in the high interest and high -power group?
Options
(a) Customers and Government regulators
(b) Customers and Board of Directors
(c) Government Regulators and Current Suppliers of key components
(d) Suppliers of key components and Employees at assembly line operations
MCQ 2
Which of the following stakeholders are in the high interest and low power group?
Options
(a) Current suppliers of key components and Environment activist groups
(b) Government regulators and Environment activist groups
(c) Employees at the assembly line and Current suppliers of key components
(d) Customers and Environment activist groups
MCQ 3
Which of the following stakeholders are in the high power and low interest group?
Options
(a) Employees at the assembly line
(b) Customers
(c) Current suppliers of key components
(d) Government regulators
MCQ 4
Which of the following stakeholders are in the low power and low interest group?
Options
(a) Employees at the assembly line
(b) Customers
(c) Current suppliers of key components
(d) Government regulators

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MCQ 5
With which stakeholders should the company keep informed while implementing the change?
Options
(a) High power and low interest group, because they can be impacted by the decision
(b) Low power and high interest group, because they can join forces with a more powerful stakeholder to
influence the decision
(c) High power and high interest group, because cannot influence the decision
(d) Low power and low interest group, because it is very relevant decision for them
MCQ 6
With which stakeholder should the company ensure that they are satisfied while implementing the change?
Options
(a) High power and low interest group
(b) Low power and high interest group
(c) High power and high interest group
(d) Low power and low interest group

Case Scenario A4
Speed Auto-mobile Limited (SAL) is recently formed Indian automobile company with aspiration to be
global brand in upcoming decade. It enters into strategic alliance with enterprises based in Japan,
Germany, and France for R&D support apart from sharing of latest technologies. SAL striving towards
effectiveness and efficiency by better correlate system, strategy, staff, skill etc.
Mr. Gupta, the Management Accountant of SAL had experience of using 7-S framework in his previous
job and willing to apply the same framework at SAL to support the drive for efficiency and
effectiveness. He made presentation to C-suite. CEO is convinced with utility that 7-S framework is
capable to produce. But she and some of officers have queries regarding the application of Mckinsey’s
7-S; moreover, sceptic about; how SAL going to get maximum out of 7-S?
Mr. Gupta explained that 7-S are divided into two sets i.e., Soft and Hard elements based upon ease
in their identification and degree of influence that management can exercise. He also explained the
successful cases of US companies which used 7-S in drive towards efficiency and effectiveness.
Since concept is new for many of C-suite members, hence, MD-cum-CEO Ms. Catz asked Mr. Gupta to
list out the 7-S with classification into Soft and Hard S elements and also stating reason and
implications thereof.
Chief Strategic Officer Ms. Karen argues that business environment of US and India is not same,
hence not wise to opt and implement 7-S framework applied by US firms. She asked Mr. Gupta to
explain the steps that are involved in implementation of 7-S framework, so that a caution list can be
prepared if it is decided to go ahead. She further raises the issue of change resistance.
HR head Mr. Ajai Singh asked, whether HR practices also covered by any one out of 7 -S, or
combination thereof. He took reference of role a leader play, stories and belief prevailing among
employees, etc.
Chief marketing officer Mr. Andrew extended the point raised by Mr. Ajai and ask whether 7 -S has
bearing on generic strategies adopted by business. He took reference of various automobile

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companies to understand how these companies with different generic strategies get advantage from
7-S framework.
Then, Chief Operating Officer Ms. Anjum Aggarwal whose KRA includes designing and
implementation of SOPs willing to know whether adjustment can be made to all the S elements or only
in some of them.
Some of question posed by C-suite are specified ahead, you are required to select most appropriate
option for each of MCQ.
Students may take note, the C-suite refers to a company's top management positions, where the "C"
stands for "chief." Various chief officers (e.g., CEO, CIO, CFO, etc.) are the occupants of the C -suite.
MCQ 1
In context to question posed by Ms. Anjum, which of the following statement are correct –
i. If one area of the 7-S framework needs adjusting or tweaking for business success, the other S elements
are presumed to be stable or remain constant i.e., ceteris paribus
ii. If one area of the 7-S framework needs adjusting or tweaking for business success, the other S elements
are need adjusting too
iii. Hard S elements are easily identified and influenced by management comparing to Soft S
iv. Soft S elements are easily identified and influenced by management comparing to Hard S

Options
(a) Only statement i and iii are correct
(b) Only statements ii and iii are correct
(c) Only statement i and iv are correct
(d) Only statements ii and iv are correct
MCQ 2
In context of requirement to list out Hard and Soft S elements by Ms. Catz, the ‘hard’ elements of the 7-S
framework include all of the following except which –
Options
(a) Strategy
(b) Structure
(c) Systems
(d) Style
MCQ 3
The McKinsey 7-S Framework is useful in which of these situations?
i. Improving overall business performance
ii. Understanding worker termination process
iii. Examining effects of future change
iv. Aligning departments during a merger
Options
(a) i and iii only

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(b) i and iv only
(c) i, ii and iii only
(d) i, iii and iv only
MCQ 4
In context of requirement to list out Hard and Soft S elements by Ms. Catz, the ‘soft’ elements of the 7 -S
framework include all of the following except –
Options
(a) Skills
(b) Shared values
(c) Systems
(d) Style
MCQ 5
In context of relation among the elements of 7-S framework and with the strategy which of following are
incorrect:
i. Strategy is one among the 7 elements of 7S framework that is core to all remaining elements of 7S
ii. All the element of 7S framework have equal importance
iii. Hard S elements have more important than Soft S elements

Options
(a) i and ii
(b) ii and iii
(c) i and iii
(d) None of the i, ii and iii
MCQ 6
Regarding concern highlighted by Ms. Karen in context to implementation of 7 -S framework and change
resistance, which of following statement are incorrect?
i. Change agents can effectively implement the McKinsey 7-S model using a top-bottom approach
ii. Organisation should identify internal change agents or hire change consultants best suited to implement
your changes.
Options
(a) Statement i only
(b) Statement ii only
(c) Both of the statement i and ii
(d) None of the statement i and ii

Section- B
Case Scenario B1
A company has a division A producing three products called X, Y, Z. Each product can be sold in the
open market in the following manner.

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Maximum external sales are X 800 units, Y 500 units, Z 300 units.
Particulars X Y Z
Selling price per unit ( ` ) 96 92 80

Variable Cost of production in Division A ( ` ) 33 24 28

Labour Hours required per unit in Division A 6 8 4

Product Y can be transferred to Division B, but the maximum quantity that might be required for
transfer is 300 units of Y.
Division B could buy similar product in the open market at a price of ` 45 per unit.
The number of hours needed for external sales are 10,000.
MCQ 1
When Division A has capacity of 8,000 hours, which of the following statements are true?
i. There is a shortfall 4,400 hours to meet both external production and request of 300 units of Y from
Division B
ii. The constraining factor is labour hours, which needs to be utilized optimally
iii. Contribution per hour of X is `10.50, Y is `8.50 and Z is `13
iv. Due to limited capacity Division A will incur an opportunity cost due to lost sales if it caters to the request
of Division B

Options
(a) i and ii
(b) ii, iii and iv
(c) i, iii and iv
(d) all of the above
MCQ 2
When Division A has capacity of 8,000 hours, what will be optimum mix of production for external sales?
Options
(a) X - 800 units, Y - 500 units and Z - 300 units
(b) X - 800 units, Y - 600 units and Z - 300 units
(c) X - 800 units, Y - 250 units and Z - 300 units
(d) X - 733 units, Y - 500 units and Z - 300 units
MCQ 3
Given that Division A has a capacity of 8,000 hours. If Division A accepts to produce 300 units of Y for Division
B, what will be the contribution lost from reduced sales?
Options
(a) Contribution lost from reduced sales of X - `8,400 and Z - `3,900

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(b) Contribution lost from reduced sales of Y - `17,000 and Z - `3,900

(c) Contribution lost from reduced sales of Y - `17,000 and X - `8,400

(d) Contribution lost from reduced sales of Y - `17,000 and X - `4,200

MCQ 4
Given that Division A has a capacity of 8,000 hours. If Division A accepts to produce 300 units of Y for Division
B, what should be the transfer price that should be charged to Division B?
(a) `24 per unit

(b) `45 per unit

(c) `94.66….. per unit

(d) `92 per unit

Case Scenario B2
PowerOn manufactures batteries that power medical devices like medical imaging systems,
defibrillators, ventilators and monitoring devices. PowerOn has customers who are medical
equipment manufacturers who use these while making medical devices and machines. Bata id is the
latest model of battery that PowerOn has developed. It is safe, stable and longer lasting. These are
very important attributes since the performance of medical devices can get affected by them.
PowerOn wishes to arrive at a price for Bataid batteries. The market has many similar batteries
available. However, Bataid is of a much higher quality as compared with the rest. The nearest
comparable battery is Bat 1.

Particulars Bataid Bat 1

Operating cost per hour `2 per hour `1 per hour

Probability of battery failing 1% 11%

Price of a battery per unit ? `20,000

Due to the critical nature of the medical devices in which it is used, the cost of a battery failing to the
buyer has been arrived as `1,00,000. Both batteries Bataid and Bat 1 can be used for an average of
8,000 hours.
Note- True economic value/ Objective value to be determined in this scenario from the point of view
of PowerOn, the battery manufacturer.
MCQ 1
Calculate the difference in operating cost (in `) per battery.
Options
(a) 2,000
(b) 4,000
(c) 6,000

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(d) 8,000
MCQ 2
Calculate the savings (in `) to buyer due to more stable performance of battery.
Options
(a) 4,000
(b) 6,000
(c) 8,000
(d) 10,000
MCQ 3
Calculate the value differential (in `) of using Bataid.
Options
(a) 1,000
(b) 2,000
(c) 4,000
(d) 6,000
MCQ 4
Calculate the probable price (in `) PowerOn can charge the medical equipment manufacturer based on the
True Economic Value method.
Options
(a) 38,000
(b) 18,000
(c) 23,000
(d) 22,000

Case Scenario B3
A1 is an organization that does trading of milk and milk products and operates within a large district
in Uttar Pradesh, India. Milk producers (dairy farmers) sell quality milk and milk products which is
then sent to retailers to be sold to customers. Each day the milk producers get the milk to the
collection centre in the village. A sample of milk is drawn from individual lots to test the milk for
quality. Once the quality check is passed, measurement of milk is done carefully, and the milk
collected is recorded in the name of the individual milk producer. The milk is then brought to the main
collection centre where further quality check is done. Once the quality test is passed, the milk is then
packaged and dispatched in specially designed vans with coolers to retailers spread across various
locations within the district. Consumers get their daily milk supplies from the retailers.
MCQ 1
From the viewpoint of A1, procurement of good quality milk from dairy farmers best describes which of the
following situations?
Options
(a) Value chain management
(b) Upstream supply chain management

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(c) Downstream supply chain management
(d) Triple Bottom Line
MCQ 2
From the viewpoint of A1, ensuring distribution of milk packets to retailers well within the expiry date (milk
being a perishable commodity) best describes which of the following situations?
Options
(a) Value chain management
(b) Upstream supply chain management
(c) Downstream supply chain management
(d) Triple Bottom Line
MCQ 3
In the recent years, A1 has been battling complaints about decreasing quality of products. Hence it is thinking
of taking strategic decisions. One among them is to own dairy farms where the livestock are kept, instead of
procuring the milk from dairy farmers individually. It is felt that this would standardize the rearing the livestock
cattle (breed of cattle, their feed, milk collection procedure etc). This will also give better control over milk
production and therefore improve quality of milk output. Which scenario best describes this scenario?
Options
(a) Value chain management
(b) Upstream supply chain management
(c) Downstream supply chain management
(d) Triple Bottom Line
MCQ 4
The decision enumerated in (iii) above has raised concerns with the dairy farmers who stand to lose their
livelihood. A1 has assured them that all the dairy farmers will be given employment within the dairy farms
owned by the organization. Moreover, milk production will be based on sustainable methods which will ensure
the good health of the livestock cattle as also that of the environment. The customers also benefit by getting
farm fresh milk. A happy customer will be a loyal customer, thus ensuring the sustainability of business. A1
aims to develop a framework that will monitor and ensure the well being of the livestock cattle and its dairy
farmers, ensure sustainability practices that ensure that production is done is an eco -friendly manner. Which
scenario best describes this scenario?
Options
(a) Value chain management
(b) Upstream supply chain management
(c) Downstream supply chain management
(d) Triple Bottom Line

Case Scenario B4
Nova Automobile Limited (NAL) is an Indian bike manufacturer that specializes in environmentally
friendly 'hybrid' bikes. Its bikes are powered by both electric batteries and CNG. Despite being in its
initial years, NAL has already earned a good reputation for the quality and dependability of its bikes.

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NAL has made significant investments in the development of hybrid engines and is now looking to
expand its market reach to nearby countries. The majority of shares in NAL are held by two venture
capital firms that are supporting the company's growth plans……continue….…
MCQ 1
Which of the following option allow the Nova to expand its market reach without sparing any of its resources,
rather its will generating cash inflows –
Options
(a) Joint venture
(b) Strategic Alliance
(c) Setting-up plant in those countries
(d) Licensing
MCQ 2
Since brand is big resource to attain and sustain competitive advantage, hence Nova don’t want to
compromise with quality that may harm the repute which it earns; therefore, intended to keep control over
quality through active participation while preserving it independence in addition to least possible resource
application, then which form is best for Nova.
Options
(a) Joint venture
(b) Strategic Alliance
(c) Setting-up plant in other countries
(d) Licensing
MCQ 3
NAL's board of directors is considering a joint venture with Country B's Anumaj Automobiles Limited (AAL),
because Country B, which is a neighbouring country to India has a rapidly growing market for environmentally
friendly bikes. Though AAL does not currently produce hybrid vehicles, but it does have excess capacity in
its factory.
AAL is also interested in proposal because their sale during proceeding three years has been declining due
to the safety issued in their bikes. Even couple of blast issues report in their bike in recent past, engine caught
fire in both the cases; resultantly petrol tank bust results in blast.
Managing performance of Joint-venture is difficult due to which of the following limitations.
i. Difference in Culture and management styles in both the companies (JV partners)
ii. Difference in financial reporting framework in both the countries
iii. Difference in attitude towards risk and quality in both the companies (JV partners)
Options
(a) i and ii only
(b) i and iii only
(c) ii and iii only
(d) All i, ii and iii
MCQ 4
Which of the following primary activity shall be substantial source of enlarged value for proposed JV of Nova
and AAL.

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Options
(a) Inbound logistics
(b) Outbound logistics
(c) Marketing and sales
(d) After sale services

Section- C
Case Scenario C1
Following are the scores of six firms as per Argenti's A score model.

Firm Defects Mistake Symptoms of trouble

i 10 0 4

ii 2 15 0

iii 10 15 0

iv 15 0 0

v 0 30 0

MCQ 1
You are required to identify healthy firms –
Options
(a) i and ii only
(b) i and iii only
(c) ii and iii only
(d) All i, ii and iii
MCQ 2
You are required to identify firms at Risk –
Options
(a) ii and iii only
(b) i and iii only
(c) i and ii only
(d) All i, iv and v
MCQ 3
Argenti's A score model has following dimensions or group –
i. Defects
ii. Mistakes
iii. Warning

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iv. symptoms of failure
Options
(a) i, ii and iii
(b) ii, iii and iv
(c) i, ii and iv
(d) All i, ii, iii and iv

Case Scenario C2
Nutty Bites produces many edible snacks that are very popular especially among children. Peanuts,
Peanut oil are essential ingredients in many of its products. They are currently facing this ethical
issue: Medical studies have indicated peanut allergic reactions are on the rise. The prevalence is more
profound among children. Reactions can range from hives around the mouth to potentially life-
threatening reactions when exposed even to the slightest trace of peanuts. There is growing media
campaign to force companies like Nutty Bites to make disclosure about the presen ce of peanut on its
package labelling.
Nutty Bites is a mid-size company that has a growing market. Risk to peanut exposure can come not
just from the presence of peanuts in its products. Some of its bought-in ingredients (raw material
input) are cooked in peanut oil. There are risks of “cross-contamination” amongst products. Let us
say, an equipment has been used produce cookies that has peanuts. Next, the equipment is used,
without being cleaned, to produce chips that does not have peanuts as an ingredient. Some portion
of the peanuts / peanut oil could contaminate that specific batch of chips produced. Since labels of
chips would not mention “peanuts” as an ingredient, it poses a potential risk of causing allergic
reaction to a customer unaware of this contamination. Management of Nutty Bites has called for a
meeting to discuss this issue. “The issue need not be addressed at all. After-all Nutty Bites is doing
nothing against the law” is the opinion of many members on the board of the company.
MCQ 1
Would you agree with the popular opinion with the management of Nutty Bites that “The issue need not be
addressed at all. After-all Nutty Bites is doing nothing against the law”?
Options
(a) Yes, the health and safety of consumers cannot be the responsibility of Nutty Bites. Hence, the issue
need not be addressed at all.
(b) No, food safety is a fiduciary duty that Nutty Bites owes to the society. Corporate Social Responsibility
(CSR) is the duty an organization has towards a wider community. Hence, Nutty Bites has to take steps
to address the problem.
(c) Yes, Nutty Bites is doing nothing against the law. Hence the issue need not be addressed at all.
(d) Yes, Nutty Bites need not take any action as there is no lawsuit filed against the company from the
customers.

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MCQ 2
Which of the following scenarios has a less chance of happening if Nutty Bites does not take any action?
Options
(a) On consuming the product, if the consumer faces a medical issue that gets traced back to the product
manufactured by Nutty Bites, it could result in bad publicity that could damage its brand value
(b) It can increase the risk of potential legal action for tort or committing a civil wrong
(c) Operating in an ethical environment can increase employee morale and well being
(d) Profitability from sale of the products for the current month (short run) will be impacted
MCQ 3
Which is not a non-financial consideration while considering any potential responses to address the health
and safety issue?
Options
(a) Disclosure about the presence of peanut on its package labelling
(b) Machine sanitization to remove traces of peanut oil
(c) Increase in selling price of products to recoup the cost of making proposed changes
(d) Audit of upstream supply chain to get information of which bought in ingredients (raw material input) are
cooked in peanut oil.

Case Scenario C3
NEC is a multiple product manufacturer. NEC produces the unit, and all overheads are associated with the
delivery of units to its customers:

Particulars Budget Actual

Overheads (`) 4,000 3,900

Output (units) 2,000 2,100

Customer Deliveries (no.’s) 20 19

MCQ 1
Efficiency Variance by adopting ABC approach in ` are –
Options
(a) 400 (F)
(b) 100 (A)
(c) 100 (F)
(d) 400 (A)
MCQ 2
Expenditure Variance by adopting ABC approach in ` are –
Options

Page 17 of 18
(a) 100 (A)
(b) 400 (F)
(c) 400 (A)
(d) 100 (F)

Case Scenario C4
Medicare produces specialized medical equipment used by a number of medical practitioners. It has
identified a Critical Success Factor (CSF) “Customers should find zero defects with the medical
equipment. Aim for zero defective sale units.”
MCQ 1
The Critical Success Factor identified above aims to reduce which of the following Cost of Quality (COQ) to
the very minimum:
Options
(a) Cost of External Failure
(b) Cost of Internal Failure
(c) Preventive cost
(d) Appraisal cost
MCQ 2
Which of the following would be a Key Performance Indicator that directly relates the “zero defective sale
“CSF identified above?
Options
(a) Training hours imparted to manufacturing staff about in quality control for manufacturing process
(b) Cost of product returns and replacement cost
(c) Cost of inspection and testing
(d) Quality certifications from external agencies

Page 18 of 18
A1 1 (a)
Reason – Target profit per statue is 25% of ₹45,000. Therefore, target profit is ₹11,250 per
statue. Hence, target cost = selling price – target profit = ₹45,000 - ₹11,250 = ₹33,750 per
statue. Option (b) ₹36,000 calculates that cost by taking profit to be 25% of cost i.e. 20% of
selling price. Therefore, target cost is ₹45,000 - ₹9,000 = ₹36,000 per statue. Options (c) and
(d) are incorrect options.
2 (b)
Reason – Option (b) ₹42,500 per statue is the correct option. The calculation is given:
Cost Amount (₹)
Design cost 5,00,000
Direct materials 20,00,000
Direct manufacturing labour 25,00,000
Variable manufacturing overhead 20,00,000
Fixed manufacturing overhead 5,00,000
Marketing 10,00,000
Total Estimated Cost 8,500,000
Es mated Cost per statue = ₹85,00,000 / 200 statues = ₹42,500 per statue.
3 (c)
Reason – With 60% saving in direct material cost and 50% saving in direct manufacturing
labour, the revised estimate cost per statue if value engineering is adopted would be:
Cost Amount (₹)
Design cost 5,00,000
Direct materials 8,00,000
Direct manufacturing labour 12,50,000
Variable manufacturing overhead 20,00,000
Fixed manufacturing overhead 5,00,000
Marketing 10,00,000
Total Estimated Cost 60,50,000
Es mated Cost per statue = ₹60,50,000 / 200 statues = ₹30,250 per statue.
4 (b)
Reason – The target profit per statue is 25% of ₹50,000. Therefore, target profit is ₹12,500
per statue. Hence, target cost = selling price – target profit = ₹50,000 - ₹12,500 = ₹37,500
per statue.
5 (d)
Reason – The revised estimate cost per statue would be:
Cost Amount (₹)
Design cost 5,00,000
Direct materials 20,00,000
Direct manufacturing labour 25,00,000
Variable manufacturing overhead 20,00,000
Fixed manufacturing overhead 5,00,000
Marketing 11,00,000
Total Estimated Cost 86,00,000
Estimated Cost per statue = ₹86,00,000 / 200 statues = ₹43,000 per statue.
6 (a)
 Reason – Refer below given calculations. Jay the product manager’s proposal of adopting
value engineering as per (4) is more profitable as compared to Raj the designer’s proposal.
Adopting value engineering may be encouraged. At the same time, designer Raj’s opinion is
also critical since it affects the durability of the product, which also impacts the long run
demand for these products. Hence, the management of Art Décor has to take strategic
decisions on the quality of statues it wants to launch. Pricing will also be affected by the
external competitive market conditions.
Particulars Estimates as per value Estimates as per
engineering (3) marketing spend (4)
Selling price per statue ₹45,000 ₹50,000
Estimated cost per statue ₹30,250 ₹43,000
Profit per statue ₹14,750 ₹7,000
A2 1 (b)
The correct answer is statements ii and iii are true.
Conversion rate is calculated as [service requests lodged / enquiries received] * 100
Conversion rate of enquiries into requests Existing New Existing plus new
customers
Enquiries 12,000 8,000 20,000
Requests 10,000 7,500 17,500
Conversion rate of enquiries into requests 83.33% 93.75% 87.50%

2 (d)
The correct answer is the conversion rate of inquiries into service requests and retention of
existing customers fall into the Competitiveness dimension.
3 (b)
The correct answer is statements i, iii and iv are true regarding customer complaints.
The number of complaints received is a measure of quality of service, higher the complaints
lower the quality of service. The company received 2,000 complaints this year as against 1,600
last year. This is a 25% (400/ 1,600) increase. It is possible that lower quality of service resulted
in a lower retention due to which the number of existing customers fell by 1,000 this year.
4 (d)
The correct answer is statements ii, iii and iv are true regarding resolution of customer
complaints.
Resolution of customer complaints is a measure of flexibility in the operations of the company.
Ability to handle and resolve multiple complaints builds flexibility. The ratio of complaints
resolved to total complaints has remained 95% (this year 1,900 / 2000 complaints and last year
1,520 / 1,600 complaints).
5 (a)
The correct answer is i and iv. Average service performed by an employee is a measure of
resource utilization. It shows efficiently the human resource is being used. The average service
performed for home repairs is 70 per employee (14,000 activities / 200 employees) while the
average service performed for appliance repair is 100 per employee (5,000 activities / 50
employees).
6 (b)
The correct answer is the gross profit over annual sales is measure for financial dimension.
A3 1 (b)
 The correct answer is Customers and Board of Directors. Customers who are professional car
racers will be directly impacted by JPY’s decision as it affects both their training and career
performance. JPY Motors manufactures cars primarily for professional car racers, hence
customers have both high power and high influence over this objective. The change will
improve market share in this niche market segment and will have substantial financial impact
on the company. The Board of Directors as stakeholders will have high power and high
influence over this objective.
2 (a)
The correct answer is Current suppliers of key components and Environment activist groups.
Current suppliers of key components will be adversely impacted by this decision since
procurement for the new engine model will happen from Yokohama. However, despite having
high interest, they do not have the power to influence this decision directly. Environment activist
groups have a high interest since the fuel composition impacts the environment directly, which
in the case of this change will be a positive impact due to the sustainable nature of the fuel.
However, they too do not have the power to influence the decision directly.
3 (d)
The correct answer is Government regulators. They have high power since the fuel
composition change can be implemented only with their approval. However, they are not
directly interested in the objective.
4 (a)
The correct answer is Employees at the assembly line. While manufacturing process
undergoes a change due to change in engine design, there will be no significant variation in
the assembly line operations for the new model. Most of the employees in the assembly line
are hired on contractual basis and do not have any union to represent them. Hence assembly
line employees have low power and low interest in this decision.
5 (b)
The correct answer is low power and high interest group. This group will comprise of current
suppliers of key components and environment activist groups. While they have low power, they
can join more powerful groups like the customers (professional car racers) and then try to
influence the decision. By keeping the group informed, the company is showing consideration
towards this group. This may make them less inclined to try to indirectly influence by joining
forces with other groups. Similarly, environment activist groups do not have direct power to
influence the decision. However, they are in a position to influence indirectly say by influencing
the news media perception about the change. Hence, this group should also be given
consideration and be kept informed about the change while it is being implemented.

6 (a)
The correct answer is high power and low interest group. These would be the government
regulators who need to give approval for the fuel composition change. They have high power
since the fuel composition change can be implemented only with their approval. While they are
not directly interested in this decision, they have the power to influence it. Hence, the company
should ensure that relevant information is provided to keep them satisfied while implementing
the change.
A4 1 (b)
The goal of the 7-S framework is to depict how effectiveness can be achieved in an
organization through the interactions of seven key and interconnected elements that are
Structure, Strategy, Skill, System, Shared Values, Style, and Staff. Since all the S of 7-S impact
each other due to interconnectedness, hence if one area of the 7-S framework needs adjusting
or tweaking for business success, the other S elements are need adjusting too.
 The seven components of McKinsey's 7-S model are divided into two groups: hard S and soft
S. The Hard S elements are Strategy, Structure, and Systems. The Soft S elements are Style,
Staff, Skills, and Shared values. Since there is substantial involvement of human element in
Soft S elements, which make change management relatively difficult; further Soft S elements
are highly intangible and invisible in nature hence identification of underlying sub-set of Soft S
elements are relatively difficult. Therefore, Hard S elements are easily identified and influenced
by management comparing to Soft S.

2 (d)
Strategy, Structure, and Systems are feasible and easy to identify. These can be found in
strategy statements, corporate plans, organizational charts, and other documentations. They
are easier to change than the others. Therefore, called Hard S elements.
While Skills, Staff, Style, and Shared Values are called Soft S elements.

3 (d)
Reason - Understanding worker termination process is not covered by any S element of the
7-S Framework. While rest three are objectives or use-cases of 7-S.

4 (c)
Reason - Strategy, Structure, and Systems are feasible and easy to identify. These can be
found in strategy statements, corporate plans, organizational charts, and other
documentations. They are easier to change than the others. Therefore, called hard S elements.
While Skills, Staff, Style, and Shared Values are not change-feasible. These are harder to
describe since capabilities, values and elements of corporate culture are continuously
developing and changing. They are highly determined by the people at work in the
organization. Hence these are harder to change directly, and typically take longer to do so.
Therefore, called soft S elements.
Note - Effective companies, however, tend to pay as much attention to these soft S factors as
to the hard S’s.

5 (c)
All the elements of 7S framework have equal importance, while shared values are core to rest
of elements. Hard and Soft S are different from each other only in respect to identification and
influence that can be exercised by the management.
6 (d)
Reason - The change implementation stage is the most critical stage of any change initiative,
and only well-implemented changes will avoid resistance to change and prevent overall change
failures. Hence change agents can effectively implement the McKinsey 7-S model using a top-
bottom approach. Moreover, the organisation should identify internal change agents or hire
change consultants best suited to implement your changes.
Note - A change agent, or agent of change, is someone who promotes and enables change to
happen within any group or organization. In business, a change agent is an individual who
promotes and supports a new way of doing something within the company.
B1 1 (d)
The correct answer is all of the above are true when Division A has 8,000 hours of actual
capacity.
 Division A needs 10,000 hours for external sales and 2,400 hours for meeting Division B’s
request. Hence the total hours required is 12,400. Actual capacity is 8,000 hours. Hence there
is a shortfall of 4,400 hours.
Since labour hours is the constraint, it should be used optimally for which the contribution per
labour hour has to be calculated.
If Division A has to cater to the request from Division B, it has to account for opportunity cost
from lost sales.
Particulars X Y Z
Selling Price per unit ₹96 ₹92 ₹80
Less: Variable Cost per unit ₹33 ₹24 ₹28
Contribution per unit ₹63 ₹68 ₹52
Labour hours per unit 6 8 4
Contribution per hour ₹10.50 ₹8.50 ₹13.00
Ranking high to low II III I
2 (c)
The correct answer is X - 800 units, Y - 250 units and Z - 300 units. The optimum production
mix for external sales is calculated as –
Total hours available = 8,000 hours. The products are ranked as per their contribution per hour.
Product Z yields the maximum contribution per labour hour, followed by X and Y (Refer to
earlier part). Hence, hours will first be allotted to Z, then to X and the last to Y.
Priority External Quantity units Hours per Total Hours Remaining
Sales unit needed hours
1 Z 300 4 1,200 6,800
2 X 800 6 4,800 2,000
3 Y 250 8 2,000 NIL
The entire demand of Product Z will be produced first. This requires 1,200 hours. Out of the
balance 6,800 hours, Product X will require 4,800 hours. This leaves a balance of 2,000 hours
for Product Y. Product Y requires 8 hours per unit. Hence, maximum production of product Y =
2,000 hours/ 8 = 250 units.

3 (d)
Contribution lost from reduced sales of Y = ₹17,000 and X = ₹4,200.
If Division A accepts to produce 300 units of Y for Division B, the total hours required for internal
sales would be 2,400 hours. This can be catered to by curtailing its external sales. 2,000 hours
from production of external sales of Product Y is first diverted and the balance 400 hours are
diverted from production of Product X. Hence this results in lost contribution, an opportunity
cost that has to be included in transfer pricing.
Contribution Lost from Reduced External Sales –
= Product Y (2,000 hours × contribution per hour of ₹8.5) + Product X (400 hours × contribution
per hour of ₹10.5)
= ₹17,000 + ₹4,200 = ₹21,200

4 (c)
If Division A accepts to produce 300 units of Y for Division B, what should be the transfer price
range that can be charged to Division B would be ₹94.66 per unit.
 On a per unit basis, lost contribution works out to ₹21,200/ 300 units = ₹70.66. Please refer
to earlier parts for explanation for lost contribution.
Transfer Price = Marginal Cost p.u. + Contribution Lost from Reduced External Sales
= ₹24 + ₹70.66 = ₹94.66
Since Division B can buy at ₹45, it would be cheaper to purchase the component from outside.

B2 1 (d)

Particulars Amount `

Difference in Operating Cost per battery 8,000

(higher expense incurred by buyer)

Bataid = `2 per hour

Bat 1 = `1 per hour

For 8,000 hours = 8,000 × (`2 - `1)

2 (d)

Particulars Amount `

Savings to buyer due to more stable performance of battery 10,000

Cost of battery failing = `1,00,000

Difference in probability of battery failure (1% vs 11%) = 10%

Lower cost of failure to buyer = 10% × `1,00,000

3 (b)

Particulars Amount `

Value Differential of using Bataid 2,000

(MCQ 2 – MCQ 1)

4 (d)

Particulars Amount `

1. Difference in Operating Cost per battery 8,000

(higher expense incurred by buyer)
Bataid = `2 per hour
Bat 1 = `1 per hour
 For 8,000 hours = 8,000 × (`2 - `1)

2. Savings to buyer due to more stable performance of 10,000

battery
Cost of battery failing = `1,00,000
Difference in probability of battery failure (1% vs 11%) = 10%
Lower cost of failure to buyer = 10% × `1,00,000

3. Value Differential of using Bataid 2,000

(Step 2 – Step 1)

4. Price of per unit Bat 1 battery 20,000

(cost of next best alternative)

5. True economic value of per unit Bataid 22,000

B3 1 (b)
The correct answer is upstream supply chain management. Procurement of good quality milk
from dairy farmers refers to procurement of raw materials from suppliers, which is upstream
supply chain management.
2 (c)
The correct answer is downstream supply chain management. Distribution of milk within
expiry date is a post-manufacturing activity that deals with the movement of finished goods to
the retailer and therefrom the final customer.
3 (a)
The correct answer is value chain management. A 1 essentially wants to do vertical
integration to ensure that the quality of milk produced can be controlled. This decision relates
to the procurement function of Porter’s Value Chain Analysis.
4 (d)
The correct answer is Triple Bottom Line. This is framework that organizations can adopt to
ensure that their operations are being carried out in sustainable manner with respect to
Profit, People and the Planet.
B4 1 (d)
Licensing involves obtaining permission from an entity (licensor) to manufacture and sell one
or more of its products (or even rendering services on behalf of said licensor) within a defined
market area for a set period in return for a royalty.
Hence if Nova decides to be licensor of their hybrid-bikes by allowing other automobile
manufacturers to manufacture and sell its bikes, may expand its market reach without sparing
any of its resources. Instead, they will get royalty payment (undoubtedly there will no control
on quality directly and technology is also transferred to licensees).

2 (b)
Reason - A strategic alliance is an arrangement between two or more enterprises to undertake
a mutually beneficial project while each retains its independence.
Strategic Alliance agreement is less complex and less binding than a joint venture. In joint
venture two businesses pool resources to create a separate business entity, whereas in case
 strategic alliance they retain their independence. So NAL through strategic alliance can control
the quality while.
On the other hand, setting up plants in other countries would require huge capital outlay,
whereas licensing lead not control of NAL over quality.
Note - Since independence is retained under the Strategic Alliance, hence it become difficult
to put common performance measures in place and to collect and analyse management
information for same because security of confidential information is a concern.

3 (b)
Reason – Limitations that become root cause of problems in measuring and managing the
performance of JV.
 Establishing objective in is never easy, because the parties involved in complex business
structures may have different values, vision, risk appetites and timescales. This
shortcoming highlights the inevitable need of goal congruence.
 The approaches and attitude of parties towards factors that are critical for performance
such as quality, control and risk, etc. may be different, hence a common minimum
programme needs to be devised.
 Since different sets of resources, skills and knowledge contributed by parties, hence
assigning accountability for performance is key issue. Accountability shall be clearly
established and communicated at the outset.
 Lack of trust is a critical aspect, because for performance measurement and evaluation
detailed information is required, whereas parties of complex business structures may be
hesitant to share information freely if they lack trust in each other. Control and reporting
framework shall be mutually decided and climate of trust shall be foster by opting
compatible management style.
 Cultural conflicts may result in poor performance, hence shared values shall be redefined
so that they may be more liberal and serve the purpose.

4 (c)
Reason – Bangladesh has a rapidly growing market for environmentally friendly bikes, hence
managing marketing mix to drive higher margin (through high perceived value) will be easy for
JV of PAL and AAL; therefore, marketing and sales activities shall be substantial source of
enlarged value.
C1 1 (c)
Reason – The maximum score allotted is 100 (being 43 from Defects, 45 from Mistake and 12 from
Symptoms of trouble). For a firm to be cleared as healthy, its overall score must be less than the
maximum acceptable score of 25 (with 10 and 15 being the maximum acceptable scores in defects
and mistakes respectively). If a firm scores anything in Symptoms of trouble this is immediately
seen as an indicator that the firm is at risk. A firm that scores more than 25 overall, even if it scores
below the individual thresholds in either of Defects (10) or Mistake (15), would still be considered
at risk. In case of 1st (i) firm Symptoms of trouble score is 4, while in case 4th (iv) firm Defects
score is more than 10 whereas in case of 5th (v) firm Mistake scores are 30, which more than
acceptable limit of 15, hence Firm 1 (i), 4 (iv) and 5 (v) are at risk. On contrary firm 2 (ii) and 3 (iii)
are healthy.

2 (d)
Reason – The maximum score allotted is 100 (being 43 from Defects, 45 from Mistake and 12 from
Symptoms of trouble). For a firm to be cleared as healthy, its overall score must be less than the
 maximum acceptable score of 25 (with 10 and 15 being the maximum acceptable scores in defects
and mistakes respectively). If a firm scores anything in Symptoms of trouble this is immediately
seen as an indicator that the firm is at risk. A firm that scores more than 25 overall, even if it scores
below the individual thresholds in either of Defects (10) or Mistake (15), would still be considered
at risk. In case of 1st (i) firm Symptoms of trouble score is 4, while in case 4th (iv) firm Defects
score is more than 10 whereas in case of 5th (v) firm Mistake scores are 30, which more than
acceptable limit of 15, hence Firm 1 (i), 4 (iv) and 5 (v) are at risk. On contrary firm 2 (ii) and 3 (iii)
are healthy.
3 (c) by definition. Warning ins not a dimension of this model.
C2 1 (b)
The correct answer is No, food safety is a fiduciary duty that Nutty Bites owes to the society.
Corporate Social Responsibility (CSR) is the duty an organization has towards a wider
community. Hence, Nutty Bites has to take steps to address the problem.
2 (d)
The correct answer is Profitability from sale of the products for the current month (short run)
will be impacted. In the very immediate future, as mentioned the span of current month, it is
unlikely that the profit will be impacted. However, in the long-term health and safety concerns
about the product can lead to potential financial penalties, legal issues that can impact the
brand image.
3 (c)
The correct answer is Increase in selling price of products to recoup the cost of making
proposed changes is a financial consideration. The rest are non-financial considerations.
C3 1 (a)
Efficiency Variance = Cost Impact of undertaking activities more/ less than standard = (21
deliveries* – 19 deliveries) × ₹200 = ₹400 F
2 (a)
Expenditure Variance = Cost impact of paying more/ less than standard for actual activities
undertaken = 19 deliveries × ₹200 – ₹3,900 = ₹100 (A) * 20 deliveries/ 2,000 units × 2,100 units
C4 1 (a)
Medicare aims to have zero defective unit sales. This implies that they wish to reduce cost of
sale returns, warranty costs, cost of product recalls and any other cost incurred due to a
complaint from the customer. The other costs namely internal failure costs, preventive costs
and appraisal costs are costs incurred at the discretion of Medicare. Taking sufficient
preventive and appraisal measures and also ensuring that defects are detected before the
products reach customers by reworking on defects or scrapping them altogether, would all put
together ensure that cost incurred on defective goods due to customer complaints is kept at
minimum.
2. (b)
The correct option is cost of product returns and replacement. Where the sales to customers
are expected to be of zero defects, there should ideally be no cost of product returns and
replacement cost. Any such incidence captured in the KPI Dashboard should then be
investigated by Medicare to detect any weakness in the area identified as critical to success.
Training hours imparted to manufacturing staff about quality control is a preventive cost, not
directly related to zero defective sales, although it aims at reducing defects by imparting
appropriate training to the staff. Cost of inspection and testing aims to find out defects before
the product reaches the customer, it is an appraisal cost. Quality certifications from external
agencies is an appraisal cost incurred to improve customer perception about the quality of the
product. Quality certification by itself does not prevent defects or ensures zero defective sales.