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Part A
Supply Chain, Decision Making, CVP Analysis for KVK Industries
(a) Supply Chain and Value Chain link for KVK Industries
KVK industries is a leading manufacturing company located in GCC Countries. It has a manufacturing plant at Bahrain and UAE. The company is one of the leading exporters of its products to other GCC Countries and to other parts of the world. The company could connect its value chain with its suppliers’ company, but it was not able to connect with the value chain of its distributing organizations (logistics companies). Due to this, KVK Industries has been spending a lot and its costs are becoming uncontrollable.
An initial investigation and analysis revealed that the supply chain activities are not managed well. The company is seriously looking for ways and means of improving its performance through cutting its costs. The CEO (Chief Executive Officer) of KVK Industries wants to study intensively about its supply chain activities and thereby to cut certain non-valuing activities within it. The supply chain of this KVK industries has been presented as under:
(Source: taken from http://www.ironsystems.com/services/supply-chain-management)
(b) Inventory & Cost & Sales Details of KVK Industries for the year 2018
The inventory, cost & sales details of PSA Ltd for the year 2018 are given below:
(c) Units and Costs Details about one of its products “Product “M” (Estimations) for 2019
The company has estimated the variable cost per unit, fixed costs and the number of units to that will be produced in four quarters of 2019.
(d) Promote or not to promote Product “N”
The company has been seriously thinking how to improve the sale of product “N” in the market. It considers seriously about providing extra promotional activities like advertising to promote the sale of product N. It needs to decide whether promotion should be done or not. The cost and other details of N as follows:
The company has been seriously thinking whether it needs to go additional promotional aspects like advertising or not. The company has estimated that it will get certain benefits out of sales but at the additional fixed costs (as given above)
Required
Horngren (2012) argues that customers want companies to use the value chain and supply chain to deliver every improving levels of performance.
(1). Explain the meaning of supply chain management and value chain analysis and Discuss how value chain and supply chain analysis help companies (with reference to KVK Industries) in controlling costs. (20 marks)
(2). Using the Inventory, Cost and Sales details of KVK Industries for the year 2018 given above in (b),
(i) Construct the schedule of cost of goods manufactured (10 marks)
(ii) Prepare an Income Statement for KVK Industries for the year 2018. (10 marks)
(3). Using the information given above (given in c) for Product M, ascertain the following:
(i) Total Cost for the respective output levels of Product M in different years (5 marks)
(ii) Total Cost per unit for those levels of output (5 marks)
(4) Calculate operating income for the two options for product “N” (given in d) (giving additional promotion or keeping the existing situation) and advice the company accordingly. (10 marks)
(20 + 10 + 10 + 10 + 10 = 60 marks)
Supply Chain, Decision Making, CVP Analysis for KVK Industries
(a) Supply Chain and Value Chain link for KVK Industries
KVK industries is a leading manufacturing company located in GCC Countries. It has a manufacturing plant at Bahrain and UAE. The company is one of the leading exporters of its products to other GCC Countries and to other parts of the world. The company could connect its value chain with its suppliers’ company, but it was not able to connect with the value chain of its distributing organizations (logistics companies). Due to this, KVK Industries has been spending a lot and its costs are becoming uncontrollable.
An initial investigation and analysis revealed that the supply chain activities are not managed well. The company is seriously looking for ways and means of improving its performance through cutting its costs. The CEO (Chief Executive Officer) of KVK Industries wants to study intensively about its supply chain activities and thereby to cut certain non-valuing activities within it. The supply chain of this KVK industries has been presented as under:
(Source: taken from http://www.ironsystems.com/services/supply-chain-management)
(b) Inventory & Cost & Sales Details of KVK Industries for the year 2018
The inventory, cost & sales details of PSA Ltd for the year 2018 are given below:
| Information | Beginning value ($) | End year value ($) | Cost for the current period (2018) |
| Direct Materials purchased | 140,000 | ||
| Stock of Materials | 26,000 | 12,000 | |
| Work in Process | 16,000 | 18,000 | |
| Finished Goods | 40,000 | 28,000 | |
| Direct Labour cost | 154,000 | ||
| Overheads | |||
| Indirect Labour | 6,600 | ||
| Factory Insurance | 5,000 | ||
| Depreciation on Machinery | 4,600 | ||
| Machinery Repairs | 3,000 | ||
| Factory Utilities | 3,300 | ||
| Miscellaneous manufacturing overheads | 2,500 | ||
| Sales | 398,000 | ||
| Selling Expenses | 15,450 | ||
| Administrative Expenses | 9,560 |
The company has estimated the variable cost per unit, fixed costs and the number of units to that will be produced in four quarters of 2019.
| Period | Expected units to be produced (units) | Variable cost per unit ($) | Fixed Costs for the year 2019 ($) |
| First quarter | 100,000 | 30 | $ 800,000 to be distributed equally to respective quarters |
| Second Quarter | 200,000 | 30 | |
| Third Quarter | 500,000 | 30 | |
| Fourth Quarter | 400,000 | 30 |
The company has been seriously thinking how to improve the sale of product “N” in the market. It considers seriously about providing extra promotional activities like advertising to promote the sale of product N. It needs to decide whether promotion should be done or not. The cost and other details of N as follows:
| Information | Existing situation | After promotional activities undertaken |
| Number of products produced and sold | 1,200 units | 1,500 units |
| Variable cost per unit | $ 48 | $ 48 |
| Fixed Costs | $ 40,000 | $ 50,000 |
| Selling Price per unit | $ 200 | $ 200 |
Required
Horngren (2012) argues that customers want companies to use the value chain and supply chain to deliver every improving levels of performance.
(1). Explain the meaning of supply chain management and value chain analysis and Discuss how value chain and supply chain analysis help companies (with reference to KVK Industries) in controlling costs. (20 marks)
(2). Using the Inventory, Cost and Sales details of KVK Industries for the year 2018 given above in (b),
(i) Construct the schedule of cost of goods manufactured (10 marks)
(ii) Prepare an Income Statement for KVK Industries for the year 2018. (10 marks)
(3). Using the information given above (given in c) for Product M, ascertain the following:
(i) Total Cost for the respective output levels of Product M in different years (5 marks)
(ii) Total Cost per unit for those levels of output (5 marks)
(4) Calculate operating income for the two options for product “N” (given in d) (giving additional promotion or keeping the existing situation) and advice the company accordingly. (10 marks)
(20 + 10 + 10 + 10 + 10 = 60 marks)
