Case Problem-Vajra Tools
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Transcript of Case Problem-Vajra Tools
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8/2/2019 Case Problem-Vajra Tools
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Case Problem Vajra Tools
Nandita Mehta has just earned a University degree (Post graduate) in
Management. She has taken position of Executive Assistant to the president at Vajra
Tools. The company manufactures tungsten carbide drill steels for mining industry of 2sizes inch diameter & 1 inch diameter. The manufacturing takes place in three
departments. In the tip fabricating department tungsten carbide tips are manufactured
from powdered wolfram. In the steel forging department, the steel rods are slotted and
prepared for the insertion of the tips. The assembly department puts the tips & steel
rods together in a brazing process.
Each department has two severe general capacity limits. The first constraint
prohibits further capital expenditure because of a weak liquid position arising from past
losses. The second constraint is the local labor situation in Vasai, which makes the
hiring of more labor or using overtime virtually impossible. The capacity of each
department in (lakh of hrs) is 1.5, 2.75 & 3.5 for Departments A , B & C resp.
The finance manager has just completed the budget for the forthcoming year
2012-13. Due to lackluster performance of several mutual funds, bearish stock markets
& hence renewed investor confidence in Gold, the company is expected to operate at
full capacity. The Manager has prepared analysis of the last year 2011-12 . ( Rs/ unit )
inch 1 inch
Quantity ( units ) 175000 225000
Selling Price 60 70
Material Costs: Steel ? ?
Tungsten ? ?
Dept A Labor 5 4
B 8 12
C 8 5
Variable Overheads ? ?
Fixed Overheads ? ?
Total Cost ? ?
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8/2/2019 Case Problem-Vajra Tools
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The market survey performed by the Sales Manager showed that the company
could sell as many of either type of rods as it could produce. However the Sales
Manager urged that the needs of 3 big Gold Mines must be satisfied in full even though
doing so meant producing a large no of inch rods. The quantities required by these
three gold mines amounted to 2L pieces of each type of steel rod. He also suggestedthat balance capacity is to be used to produce 1 inch rods. He submitted the budgeted
income statement as per this suggested plan.
Nandita as her first assignment is asked by the President to comment on the
budgeted income statement. Specifically the President wants to know how much it will
cost the company in lost profit to supply the full needs of the three big Gold Mining
Customers. He feels it might be more profitable to allocate balance resourses in
optimum manner to both products.
Nandita gathered the following additional information before making herrecommendations. Wolfram is purchased at 10/kg. The inch tip uses 200 grams & 1
inch tip uses 300 grams. The special alloy steel costs 2/kg. The inch rod uses 1.5 kg
& 1 inch rod uses 2 Kg. The hourly wage rate in 3 departments A, B & C is 20, 16 & 10
resp. The availability of steel is 800,000 kg & of Tungsten (or Wolfram ) is 110,000 kg.
The variable overheads are allocated as 40% of labor cost. Fixed overheads of 85 L are
allocated on basis of prime cost.
Tip fabricating (Dept A ) is a skilled process. The small tips require detailed work.
The labor in this department is difficult to replace.
Required: Cost volume profit statement with comments on sensitivity analysis of
solution for the forthcoming year as per
1. The Sales Manager2. The President3. Optimum plan