(a) A proforma cost sheet of a company provides the following data : | Cost per unit | ₹ | |-------------|---| | Raw material |…

(a) Using the operating-cycle/working-capital estimation method, working capital = current assets - current liabilities. Activity = 70,000 units per year; production, wages and overheads accrue evenly. Assume 12 months and 52 weeks per year.

• Raw material consumption = 70,000 × ₹52 = ₹36,40,000. Average raw material stock = one month = ₹36,40,000/12 = ₹3,03,333.33.
• Direct wages = 70,000 × ₹19.50 = ₹13,65,000. Wage payment lag = 1.5 weeks, so outstanding wages = ₹13,65,000 × 1.5/52 = ₹39,375.
• Overheads = 70,000 × ₹39 = ₹27,30,000. Overhead payment lag = one month, so outstanding overheads = ₹27,30,000/12 = ₹2,27,500.
• Sales = 70,000 × ₹130 = ₹91,00,000. Cash sales = 1/4, hence credit sales = 3/4 × ₹91,00,000 = ₹68,25,000. Debtors for two months = ₹68,25,000 × 2/12 = ₹11,37,500.
• Minimum cash balance = ₹1,20,000.

Current assets = raw material stock + debtors + cash = ₹3,03,333.33 + ₹11,37,500 + ₹1,20,000 = ₹15,60,833.33. Current liabilities = wages outstanding + overheads outstanding = ₹39,375 + ₹2,27,500 = ₹2,66,875. Working capital = ₹15,60,833.33 - ₹2,66,875 = ₹12,93,958.33.

Final answer: working capital required = ₹12,93,958.33 (₹38,81,875/3). No work-in-progress, finished-goods or raw-material creditor period is included because such periods are not given.

(b) Standard costing is a management accounting technique in which predetermined standards are set for material, labour and overheads under efficient operating conditions. Actual costs are recorded, compared with standards, and variances are computed, analysed and corrected. It is used for cost control by exception, budgeting, performance evaluation, pricing, inventory valuation, make-or-buy decisions, profit planning and continuous improvement.

A variance is the difference between standard and actual cost. A controllable variance arises from factors within a manager’s responsibility and authority, e.g. material usage, labour efficiency, idle time, waste, spoilage and overhead spending. An uncontrollable variance arises from external or non-controllable factors, e.g. market price changes, inflation, taxes, exchange rates, natural calamities, strikes and government policy. To differentiate, use responsibility accounting: identify the responsible cost centre, separate price and efficiency/usage components, study root cause, and test whether the manager could have influenced the cause in that period. For example, a raw-material price rise may be uncontrollable, but excessive usage is usually controllable; a wage-rate increase may be uncontrollable, but labour efficiency is controllable.

Strategic actions: for controllable adverse variances, take corrective action through training, process redesign, quality improvement, tighter supervision, supplier development and incentives. For uncontrollable variances, revise standards, use flexible budgets, hedge input/currency risk, enter long-term contracts, diversify suppliers, redesign products to reduce exposure, or pass on costs where market permits. Appraise managers mainly on controllable variances, so uncontrollable factors do not distort accountability. Thus standard costing links cost control with strategy, responsibility and performance management.

(c) The statement means differentiation makes a product appear unique and superior on attributes valued by customers. This reduces substitutability and price competition, builds brand loyalty and switching costs, supports premium pricing, creates entry barriers and gives a “distinctive aura” or brand identity. It is the basis of Porter’s differentiation strategy. However, advantage is real only when customers value the uniqueness, willingness to pay exceeds differentiation cost, and rivals cannot easily imitate it.

Products can be differentiated on:

• Physical/functional attributes: quality, features, performance, durability, reliability, design, packaging, safety.
• Service attributes: after-sales service, delivery speed, warranty, installation, customer support, complaint handling.
• Symbolic/emotional attributes: brand image, status, lifestyle, trust, prestige, heritage.
• Innovation/technology attributes: R&D, patents, digital features, automation, network effects.
• Customization attributes: personalization, tailor-made solutions, co-creation.
• Convenience/channel attributes: distribution reach, online access, location, ambience, ease of purchase.
• Price/value attributes: premium positioning or value-for-money.
• Sustainability/ethical attributes: eco-friendliness, social responsibility, fair trade.
• People/process attributes: employee competence, service quality, customer experience.

Successful differentiation must be important to buyers, distinctive, communicable, defensible, affordable and consistent. Risks include imitation, over-differentiation, cost escalation and changing customer tastes. Hence well-differentiated products do create competitive advantage and a distinctive aura, but only when the differentiation is valued, sustainable and profitably delivered.