(1) 1,4,5

(2) A

(3) Y,Y,Y,N

(4) D

(5) T,F

(6) B

(7) A

(8) D

(9) C

(10) D

(11) A,C

(12)T,F,T

(13) Rs 9,000

(14) C

(15)B,D

(16) STORY

(a) Issues in upgrading the existing information system

The issues involved in an upgrade of the existing system include achieving the potential advantages
at minimum cost and anticipating and managing necessary changes.

(i) Advantages of upgrade:

A networked system would allow the transmission of information both to and from
(17) D

(18) T,T

(19) 3.41

(20) T,T

(21) B

(22)Capping

(23)C

(24)B,D

(25)B

(26)C

(27) T,F

(28)D

(29)

(30) A,B

(31) TC= 120/125% = 96

PROD= VC-TC= 96-46 = 50

FC= 10000 X60/ 50 = 12,000 UNITS

ANS: D

(32)B

(33) B,C

(34) $ 50.95

Variable costs: $

Year 1: (30+6+4) X 25000 1000 000

Year 2: (25+5+3) X100 000 3300 000
Year 3: (20+4+2) X 75 000 1950 000

R &D (850 000+ 90 000) 940 000

Other Fixed costs (500+500+500+700+500+300) 3000 000
Total lifecycle costs 10 190 000
Total unit costs 200 000
Lifecycle cost per unit $ 50.95
(35) T, T, T, F

(36) A

(37) C,D

(38) D

(39) $362.50

Sales (800 units @ $ 362.50) 440 000

Investment (30% x 500 000) 150 000
Cost 290 000
Target cost per unit (290 000/800) $ 362.50

(40) B

(41)

Year 1 Year 2 Year 3 Year 4 Total

$ 000 $ 000 $ 000 $ 000 $ 000
R&D 900 300 1200
Marketing costs 300 300 100 100 800
Production 400 400 750 300 1850
Customer service 100 150 250 50 550
Disposal 200 200
Total 4600

Life cycle cost per unit = 50 000 = $ 92.00

(42) Return per factory hour= 30-10/0.25= $ 80.00

(43) Ans: 2.4

Throughput per unit= (50-14) = $ 36

Throughput per bottleneck= 36/0.05 = 720

Factory cost= [(1620 000+ (18000 x10)] = 1800 000

Factory cost per unit= 1800 000/6000

TPAR= 720/300 = 2.4

(44) A,B

(45) C

(46)A,B
TRIPLE

(47) $ 65.00

Traditional cost per unit Product D

Material 20
Labour ($6 x 0.5) 3
Direct cost 23
Production overhead ($ 28 x 1.5) 42 (48)
Total production per unit 65
W1: Total Machine Hours:

Products Hours/Unit Production Units Total Hours

D 1.5 750 1125
C 1 1250 1250
P 3 7000 21000
Total 23 375

(49) $ 9818

Type of overhead Driver % Total overhead Level of driver Cost/driver

Material Movement 15 98 175 120 818.13

Handling

Product D

Activity Material Level of Activity Cost

Handling 12 818.13 x 12= 9818

(50) Number of inspections

(51) C

-------------------------------------------------------------------------------------------------------------------------------------

(87) B

(88) Ranking:

1st: Z3, 2nd: Z2, 3rd: Z1

Z1 Z2 Z3
Selling Price $ $ $
Material 200 150 100
Labour (50) (20) (10)
Variable overhead (45) (25) (10)
Contribution 70 60 50
Material per unit 7 4 2
Contribution/Kg 10 15 25
Ranking 3 2 1

(89) B

(90) 200%

BEP= 20 000= 500 x(SP-20)

20 000/500= 40

40= selling price- 20

60= selling price

Profit markup on marginal cost

=(60-20)/20 100= 200%

(91) C

Commission= 5% x 60= 3

BEP= (10000 x 15)/(60-12-15-3-3)= 5 556

MOS= (10000-5556/10000) x 100= 4.4%

(92) $ (25+30+20)= $ 75

(93) $ 2.802M

45% x 1.5M= 675000

FC= (1 300 000- 675 000)= 625 000

BEF= 625 000/0.48= $ 1.302M

Total sales= $ (1.5M+1.302M)= $ 2.802M

(94) A

(95) $ 2750

FP1 FP2 Total

Input to further processing 5500 4000
Finished output 4950 3800
$ $ $
Revenue from sales FP1/FP2 44550 34200
Relevant further processing costs (11000) (12000)
Revenue from sales of CP1/CP2 (33000) (20000)
Sales of CP1/CP2 550 2200 2750

(96) Choice 4

EV Choice 1: (1.0 x 9500)= 9500

EV Choice 2: [(0.3x14000)+(0.3x 10000)+ (0.4x5000)]= 9200

EV Choice 3: [(0.4x 10000)+(0.6x 9000)]= 9400

EV Choice 4: [(0.7x8000)+ (0.3x14000)]= 9800

(97) C

(98) A,D

(99) $(8+4.50)= $ 12.50

(100) A,B

(101) A

Total contribution= (10000x8)+(2500.25x6)= 95001.50

Total contribution original= (10000x8)+(2500x6)= 95000

Shadow Price= (95001.50-95000)= $ 1.50

Total production= (10000x5)+(12000x4)= 98000

Additional= (98000-60000)= 38000

(102) Fall, Fall

(103) A

(104) W, Y, X, Z

W X Y Z
$ $ $ $
Variable cost 8 5 8 12
External 9 7.1 10 13
Extra cost 1 2.1 2 1
Direct Labour 0.1 0.3 0.25 0.20
Extra cost per direct labour 10 7 8 5
Priority Internal 1 3 2 4
Priority External 4 2 3 1

(105) A

(106)B

(107) D

Project 1= (70000x0.1)+(10000x0.4)+(-7000x0.5)=7500

Project 2= (25000x0.1)+(12000x0.4)+(5000x0.5)=9800

Project 3= (50000x0.1)+(20000x0.4)+(-6000x0.5)=10000

EV with perfect information= (0.1x70000)+(0.4x20000)+(0.5x5000)= 17500

Value of perfect information= (17500-10000)= 7500

(108) $376

Additional purchase (5 tonnes x $ 50)= 250

Relevant cost of Material M= 126

(Higher of $ 126 or {3x $35})=376

(110) P1

P1 P2 P3 P4
$ $ $ $
Best Possible 30000 31500 32000 31500
Most Likely 24000 26250 28000 27000
Worst Possible 18000 17500 16000 13500
18000 17500 16000 13500

(111) 1.968M

BEP= 2400 000-400 000= 2000 000

Contribution= 360 000/2000 000= 18%

Variable= 82% x 2400 000= 1.968M

(112) A

W X Y Z
 $ $ $ $
Extra cost 1 6 3 2
Total cost 4000 12000 9000 8000
Fixed cost (5000) (8000) (3000) (7000)
(1000) 4000 3000 1000

(113) P2

P1 P2 P3 P4
$ $ $ $
Best Possible 30000 31500 32000 31500
Most Likely 24000 26250 28000 27000
Worst Possible 18000 17500 16000 13500

P1 P2 P3 P4
$ $ $ $
Best Possible 2000 500 0 1500
Most Likely 4000 1750 0 1000
Worst Possible 0 500 2000 4500
4000 1750 2000 4500

(114) A

(115) $ 1500

Project 1= (80 000x0.2)+(50 000x0.4)+(-5000x0.4)= 34000

Project 2= (60 000x0.2)+(25 000x0.4)+(10 000x0.4)=26000

Perfect information= (80 000x0.2)+(50 000x0.4)+(10 000x0.4)= 40 000

Value= 40 000-34 000-4 500= 1500

(116) $ 5.188M

A B C
$ $ $
Sales 20 18 24
Variable cost (11) (12) (18)
Contribution 9 6 6

Weighted Contribution= (9x2)+(6x3)+(6x5)/2+3+5= 6.6

Weighted sales= (20x2)+(18x3)+(24x5)/2+3+5= 21.4

C/S Ratio= 6.6/21.4 x 100= 0.3084112

Sales needed= 1200 000+400 000/0.3084112= $ 5.188M

(117) C

(118) $ 96

P= a-bQ

b= 25/6250= 0.004

When P= 145, Q= 5000

145= a-0.004(5000)

145=a-20

a=165

Therefore: P= 165-0.004Q

MR= 165-0.008Q

MR=MC

165-0.008Q=27

Q= 17250

P= 165-0.004(17250)= 96

(119)

A B C Total
$000 $000 $000 $000
Sales price 360 720 200 1280
Variable cost 90 240 110 440
Contribution 270 480 90 840
Fixed costs 180 360 60 600

C/S Ratio= 840/1280 x 100= 0.65625

BEP= 600 000/0.65625 = $914 286

(120) $4

2x+4Y= 10 001.........1) x 2

4X+2Y= 14 000.........2) x1

4X+8Y= 20 002...........1)
4X+2Y= 14 000...........2)

(1)- (2)

6Y= 6002

Y= 6002/6=1000.33

Replace Y=1000.33 on 1)

4X+8(1000.33)= 20 002

4X+8002.64=20 002

4X= 11 999.36

X= 2999.8333

Original contribution= (12x3000)+(18x1000)= 54000

Contribution now= (12x2999.8333)+(18x1000.33)=54004

Shadow Price= 54004-54000= $4

(121) A,E

(161) C

(162) B,D

(163) D

(164) $ 880

Material Actual Mix Standard Mix Difference Standard Price Variance

(Units) (Units) (Units) ($) (Units)
P 820 750 70 (A) 3.00 210 (A)
Q 1740 1500 240 (A) 2.50 600 (A)
R 2300 2250 50 (A) 4.00 200 (A)
S 2640 3000 360 (F) 5.25 1890 (F)
Total 880 (F)

(165) D

(166) A,B

(167) C

(168) $1325 (A)

Budgeted Profit:
X= (800x10)=8000

Y=(1000x6)=6000

Z=(600x12)=7200

Weighted profit= 21200/2400=8.8333

Variance= (2400-2250)x 8.8333= 1325(A)

(169) B

(170) True, True

(171) $59000

(172) A,C

(173) A

Material Actual Mix Standard Mix Difference Standard Price Variance

(Units) (Units) (Units) ($) (Units)
R 1900 1800 100 63 6300 (A)
S 2800 3000 200 50 10000 (F)
T 1300 1200 100 45 4500 (A)
6000 6000 800 (A)

Difference: 4900-4800= 800-100=700(A)

(174) Rolling

(175) B

(176) $ (19552-20800)= $ 1248

(177) B

(178) $645 (A)

(179) A

(180) $1475

Product Actual Mix Standard Mix Difference Profit Variance

(units) (units) (units) ($) ($)
X 700 750 50 10 500 (A)
Y 1200 937.5 262.5 6 1575(F)
Z 350 562.5 212.5 12 2550 (A)
Total 2250 2250 1475 (A)

(181) B
(182) $ 40

120 units should use (X $ 3.50)= 420

Did use= 410

Variance= (420-410)x $ 4= $40

(183) C

(184) A,C

(185) D

(186) A,B

(187) C

(188) Rolling budget

(189) D

(190) D

(254) D

(255) 8+(16-8-1)= $15

(256) C

(257) B

(258) B,C

(259) D

(260) C

(261)A

(262) C

(263) Internal business

(264) B

(265) B

(266) B

(267) D

(268) A
(269) $8, $ 16

(270) B

(271) A,D

(272) 23%

Capital employed at start of 20X2= $(2+0.2+0.8+0.1)= $ 3.1M

Capital employed at end of 20X2= $(1.6+0.2+0.6+0.1)= $ 2.5M

Mid capital employed= $(3.1+2.5)/2= $2.8M

Profit= $ (0.5+0.35-0.2)= $ 0.65M

ROI= 0.65/2.8 x 100= 23%

(273) $5

$000 $000
Sales (7000 units x $154) 1078
Variable costs in Division B (7000 units x $33) 231
Costs of transfers (14000x $43) 602 833
245
Fixed costs 160
Operating Profit 85
Notional interest (16% x 500 000) 80
Residual Income 5

(274) D

(275) 30.9%

Profit Capital employed

$ $
Original forecast 65000 210000
Effect of machine sale (2500) (6000)
Effect of machine purchase 5200 15000
67700 219000

Revised ROI= 67700/219000 x100= 30.9%

(276) B

(277)

(1) Quantitative

(2) Quantitative
(3) Quantitative

(4) Qualitative

(5) Qualitative

(6) Qualitative

(7) Qualitative

(8) Quantitative

(278) Process efficiency

(279) Economy, Efficiency, Effectiveness

(280) B

(281) D

(282) B

(283) A

(341) A

(342) 15000 units

MOS= Sales- BEP

BEP= 13000/40%= 32500

MOS= 62500-32500= 30000

Per unit= 30000/2= 15000

(343) A

(344) True, False

(345)

(346)

(347) D

(348) C

(349) True, False, False, True

(350)B

(351)
(352) D

(353) Relevant cost= (4+7) x10= $110

(354) $4957.50

Opp cost= (945x 2.75)= 2598.75

Incremental purchase= (1500-945)x4.25= 2358.75

Total= 2598.75+2358.75= 4957.50

(355) $225

Selling Price 300 255 240 225

Contribution 186 141 126 111
Demand 1800 2400 3600 4200
Total 334800 338400 453600 466200

(356) True, False

(357) D

(358) False, True

(359) A

Good Manager= (30%x180 000x35%)= 18900

Average Manager= (20%x180 000x20%)= 16200

Poor Manager= (10%x180 000x 20%)=3600

Total= 18900+16200+3600= 38700

Net= 38700-40000= ($1300)

(360)

(361) B

(362) B

(363) B

P= a-bQ

b= -0.50/200= -0.0025

When P=6, Q= 4000

6= a-0.0025(4000)

6=a-10

a=16

P= 16-0.0025Q

(363) D

(364) B,C

(365) A

(366) Y,Y,Y,N

(367) C

(368) $1400

Contribution:7

X= 58-26=32

Y=28-16=12

CS= (32x3)+(12x2)/5= 24

Total cost= 30000+3600/24= 1400

(152) RB CO

(a) The manager has adopted a full cost plus pricing strategy, this mean that profit margin of 50% is
added to the budgeted full cost of the product.

The selling price will be as follows:

Full cost= Rs400

Mark up= 50% = Rs 200

Selling Price= Rs 600

Advantage:

Quick, easy and cheap to apply, pricing can be delegated to junior management. It ensures costs are
covered and the organisation makes a profit. The cost of collecting marketing information is avoided.

Disadvantages of this pricing strategy:

Its focus is internal; internal costs and target. It takes no account of market conditions and this is
why the selling price of the company bears no resemblance to that of competitors. By adopting a
fixed mark-up, it prevents the company from reacting to competitor’s pricing decisions.

Absorption bases used when calculating cost are decided arbitrarily.

(b) Two alternative strategies:

(i) Market Penetration Pricing: This strategy involves charging low prices when a product is first
launched in order to achieve high sales volumes and hence gain significant market share. It is also
used to discouraged competitors to enter the market.

(ii) Market Skimming Pricing: This strategy involves charging higher prices when a product is first
launched. Heavy spending is done on advertising and promotion to exploit any price insensitivity in
the market.

(c) Demand equation:

P= a-bQ

a=750, b= 10/1000=0.01

Equation: P=750-0.01Q

(e) Cost behaviour can be modelled using simple linear equation in the form y= a+bx, where a
represents the fixed costs are $120 000 (15000 x 80); b represents variable costs ($400-$80) of $320.
This model assumes fixed costs are constant over all range of output and a constant unit variable
cost.

(d) Price elasticity of demand measures the responsiveness of quantity demanded with respect to
changes in price. The mathematical formula is as follows:

Percentage change in quantity demanded/Percentage change in price

The value of elasticity of demand can vary from zero to infinity. An aware of the concept of elasticity
can assist in management with pricing decisions. In case of inelastic demand, price should be raised
because revenue is increased and total costs will reduce. Conversely, elastic demand will cause
revenue and profits to fall.

(155) GAMCO
(a) Profit outcome

Price per unit $30 $35

Contribution to 100,000 units ($30/$35- $12) $18 $23
Contribution above 100,000 units ($30/$35- $12) $19 $24

1 2 3 4 5 6
$ $ $ $ $ $
Sales price 30 30 30 35 35 35
Sales volume 120 000 110 000 140 000 108 000 100 000 94 000
Unit contribution 19 19 19 24 23 23
Total contribution 2280 000 2090 000 2660 000 2592 000 2300 000 2162 000
Fixed costs (450 000) (450 000) (450 000) (450 000) (450 000) (450 000)
Advertising costs (900 000) (900 000) (900 000) (970 000) (970 000) (970 000)
Profit 930 000 740 000 1310 000 1172 000 880 000 742 000

(b)

1 2 3 4 5 6
$ $ $ $ $ $
Sales price 30 30 30 35 35 35
Sales volume 120 000 110 000 140 000 108 000 100 000 94 000
Profit 930 000 740 000 1310 000 1172 000 880 000 742 000
Probability 0.4 0.5 0.1 0.3 0.3 0.4
EV of profit 372 000 370 000 131 000 351 600 264 000 296 800
Total 873 000 912 400

Based on the EV, a price of $35 should be chosen.

(c) The maximin decision rule involves choosing the outcome that offers the least unattractive
outcome, in this instance choosing the outcome which maximises the minimum profit. Management
would therefore choose a selling price of $35 which has the lowest possible profit of $742 000.

(d) Uncertainty in budget: PESTEL

Changes in external environment: political, economic, social, technological, environmental and legal.

242: ZBB
(a) Difficulties when budgeting in the public sector:

(i) The objectives of public sector organisation are more difficult to define in quantifiable way.

(ii) Output is difficult to measure, focus is on input.

(iii) Resources are always kept to a minimum, and each item of expenditure must be justified.

(b) Incremental budget:

It bases the budget on the current year’s result plus an extra amount for estimated growth or
inflation. It is a reasonable procedure if current operations are as effective, efficient and economical.

Zero based budget:

It involves preparing a budget for each cost centre from a zero base/scratch. Every item of
expenditure must be justified in it’s entirely to be included in next year’s budget.

(c) Stages in ZBB:

(i) Define decision packages

(ii) Evaluate and rank each activity

(iii) Allocate resources

(d) Limitations of ZBB:

(i) Extra paperwork

(ii) Training require for management skills

(iii) Ranking process is complex

(iv) All decision have to be made in the budget, management unable to carry out new ideas

(v) More appropriate for public sector as costs are discretionary and placed on value for money.