Variance Analysis
This query is : Resolved
13 November 2009
pl. answer this. This was asked in one management paper.
" A contractor has contracted to supply 10,00,000 precast concrete blocks over a period of 10 months at 1,00,000 blocks per month. at a price of Rs 110 per block. He has estimated that each block would cost him Rs.100. At the end of 3 months he has supplied 2,80,000 blocks and it has cost him Rs.103 per block. Calculate his schedule variance, Cost Variance, estimated cost to completion, estimated cost of completion and expected profit, if he has to pay liquidated damages calculated at Rs 2000/- per day of delay. He can step up his production by incurring an additional cost of Rs 3 per block from hereon and complete the supply in time. Is it worth his efforts?"
Thanks in advance:)
" A contractor has contracted to supply 10,00,000 precast concrete blocks over a period of 10 months at 1,00,000 blocks per month. at a price of Rs 110 per block. He has estimated that each block would cost him Rs.100. At the end of 3 months he has supplied 2,80,000 blocks and it has cost him Rs.103 per block. Calculate his schedule variance, Cost Variance, estimated cost to completion, estimated cost of completion and expected profit, if he has to pay liquidated damages calculated at Rs 2000/- per day of delay. He can step up his production by incurring an additional cost of Rs 3 per block from hereon and complete the supply in time. Is it worth his efforts?"
Thanks in advance:)
Rahul Vora
(Expert)
14 November 2009
Schedule Variance (3 m) - 20000 Adverse
Cost Variance (3 m) - Rs.8.40 Lacs Adverse
Est. Cost to Completion - Rs.1030 Lacs
Est. Cost to Completion (Rs.2000/- delay chgs) - Rs.1030.44 Lacs
And profit thereon - 69.56 Lacs
Est. Cost to Completion (Rs.3 addl. cost) - Rs.1051.60
And profit thereon - Rs.48.40 Lacs
He should not incur the addl. of of Rs.3 per block.
* It is assumed 30 days per month. Also assumed that his speed of production will remain constant @280000 blocks per 3 months
Cost Variance (3 m) - Rs.8.40 Lacs Adverse
Est. Cost to Completion - Rs.1030 Lacs
Est. Cost to Completion (Rs.2000/- delay chgs) - Rs.1030.44 Lacs
And profit thereon - 69.56 Lacs
Est. Cost to Completion (Rs.3 addl. cost) - Rs.1051.60
And profit thereon - Rs.48.40 Lacs
He should not incur the addl. of of Rs.3 per block.
* It is assumed 30 days per month. Also assumed that his speed of production will remain constant @280000 blocks per 3 months
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