Transcript
Page 1: MCQ Answers With Workings

Sales mix variance:SCPU

T 7200 9200 760C 31000 29900 94S 7800 6900 940

46000 46000

Sales quantity variance:ASV@SM BSV SCPU

T 9200 8000 760C 29900 26000 94S 6900 6000 940

Total contribution to be earned with the optimum production plan given in (b):Product Units CPU Total contributionG 4100 $ 0.80 $ 3,280 H 4600 $ 1.40 $ 6,440 J 800 $ (2.10) $ (1,680)K 2417 $ 3.60 $ 8,701

$ 16,741

Optimum production plan excluding the contract: G H J K

Ranking based on answer to (a) 2nd 1st 3rd Material B allocation (kg) 720 600 3,680 Production plan (units) 3,600 3,000 3,067

Product J will not be continued as it has a negative contribution.Product Units CPU Total contributionG 3,600 $ 0.80 $ 2,880 H 3,000 $ 1.40 $ 4,200 J 0 $ (2.10) $ - K 3,067 $ 3.60 $ 11,040

$ 18,120 Avoidable specific fixed cost of J $ 1,000 Profit $ 19,120

Incremental benefit without the contract = 19120 - 16741 = $ 2,379 Hence: - the amount penalty at which GHK would be indifferent between meeting the contract or paying the penalty if $2,379. - since the penalty payable is $5,000, it would be better to serve the contract.Material B usage per unit:

ASV@AM ASV@SM

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G (2/10) 0.2 kgH (2/10) 0.2 kgJ (4.5/10) 0.45 kgK (12/10) 1.2 kg

Product W Product R Product XContract Others Contract Others Contract

Selling price ($) 80 90 116 126 140Variable costs ($) 61 61 92 92 106Contribution per unit ($) 19 29 24 34 34Material B per unit (kg) 4 4 6 6 5Contribution per kg ($/kg) 4.75 7.25 4.00 5.67 6.80Ranking 5 2 6 4 3Material B allocation (kg) 700 2000 0 4800 2000New production plan (units) 175 500 0 800 400Contribution of new plan ($) 3325 14500 0 27200 13600

Production plan in (a) (units) 400 500 400 250 400Contribution of plan in (a) ($) 7600 14500 9600 8500 13600

Additional contribution that can be earned if the major customer is not supplied in fullHence, lowest value of penalty the major customer need to insert

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Variance-1520000

103400846000

-570600

Variance912000366600846000

2124600

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Product XOthers

150106

445

8.801

80001600

70400 $ 129,025

160070400 $ 124,200

$ 4,825 $ 4,825

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Q1 B Budget contribution (100000*20%)+(200000*40%) -100000Actual contribution (200000*20%)+(100000*40%) 80000

-20000

Q2 A Fixed cost per unit will decrease as the volume of production increases.

Q3 A Contribution per unit = 9 - 4 = $5Target sales volume =(80000+100000)/5 = 36000 unitsTarget sales revenue =36000*9 = $ 324,000

Q4 A

Q5 C - m represent profit. Increase in fixed cost will reduce the profit. - k represent margin of safety. Increase in fixed cost will cause the break even point to increase, hence margin of safety will decrease. - f represent break even revenue. Increase in fixed cost will cause the break even revenue to increase - p represent the net loss when volume is equal to zero, hence increase in fixed cost will cause the net loss to increase.

Q6 C - t represent margin of safety. Increase in fixed cost will cause the break even point to increase, hence margin of safety will decrease.

Q7 C - increase in profit = increase in contribution = 1400*(20) = $ 28,000

Actual sales volume = 2500 + 800 = 3300Actual contribution = 50000 + 16000 = $66,000Contribution per unit = 66000/3300 = $ 20.00

Q8 B (i) quantity discount will lower the variable cost per unit, hence improve c/s ratio.(ii) training program will improve labour efficiency and reduce labour cost per unit, hence improve c/s ratio.(iii) price reduction will reduce the c/s ratio(iv) this allow the company to focus high price market, hence improving c/s ratio(v) lower price could increasse demand but c/s ratio will be lower.

Q9 A Superior Standard BasicContribution per unit 550 500 220Weighted average contribution per unit = (550*20%)+(500*30%)+(220*50%) =Break even point (no. of contracts)Break even revenue:

Superior (2703*30%)*1000Standard (2703*30%)*750Basic (2703*50%)*400

Q10 B R S TC/S ratio 0.6 0.4 0.5Current sales revenue mix 22.2% 33.3% 44.4%New sales revenue mix 20% 50% 30%

Proportion of product with highest c/s ratio was reduced, hence weighted average c/s ratio will be lower.

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Q11 C Increase in total fixed cost will move the profit line downward in parallel, hence no change in gradient.Change in selling price and variable cost per unit will change the gradient of the line.

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- k represent margin of safety. Increase in fixed cost will cause the break even point to increase, hence margin of safety will decrease. - f represent break even revenue. Increase in fixed cost will cause the break even revenue to increase - p represent the net loss when volume is equal to zero, hence increase in fixed cost will cause the net loss to increase.

- t represent margin of safety. Increase in fixed cost will cause the break even point to increase, hence margin of safety will decrease.

quantity discount will lower the variable cost per unit, hence improve c/s ratio.training program will improve labour efficiency and reduce labour cost per unit, hence improve c/s ratio.

this allow the company to focus high price market, hence improving c/s ratio

Weighted average contribution per unit = (550*20%)+(500*30%)+(220*50%) = $ 370 2,703 contracts

540,600 608,175 540,600 1,689,375 Closest to $1,690,000

Proportion of product with highest c/s ratio was reduced, hence weighted average c/s ratio will be lower.

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Increase in total fixed cost will move the profit line downward in parallel, hence no change in gradient.Change in selling price and variable cost per unit will change the gradient of the line.

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Q1 A Profit is maximised by maximising total contribution. This is on the assumption total fixed cost remain constant.

Q2 A

Q3 C A B C DContribution per unit $ 1.00 $ 2.00 $ 3.00 $ 4.00 Hours per unit 0.2 0.5 0.333333 0.5Contribution per hour $ 5.00 $ 4.00 $ 9.00 $ 8.00 Ranking 3 4 1 2Hours allocation (hours) 3000 Nil 6000 1000

Q4 B Production plan (units) 15000 Nil 18000 2000

Q5 A

Q6 B

Q7 D Shadow price enable managers to understand financial consequences of contraints clearly. It is an advantage.

Q8 A Raw materials Direct labourQuantity required to produce: kgs hours

X 20000 4000Y 22000 4125Z 42000 10500

84000 18625Quantity available 90000 18000

Surplus 6000 Shortage 625

Q9 A X Z YContribution per unit $ 11.00 $ 9.00 $ 6.00 Kg per unit 5 4 6Contribution per kg $ 2.20 $ 2.25 $ 1.00 Ranking 2 1 3

Q10 D

Q11 A

Q12 B I II IIIContribution per kg 4.375 5 8Ranking 3 2 1Materials allocation: - to meet contract requirement 8000 - to meet other demand 15000 12000

8000 15000 12000Production plan (units) 1000 3000 2000

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Q13 D

Q14 DA Is not true. Ranking should be based on contribution per limiting factorB Is not true. Linear programming is suitable when there are more than one limiting factors.C Is not true. The word always is inaccurate.

Q15 A Product Y: Product X:Material G per unit = 1000/100 = 10 Material G per unit = 1000/125 = Material H per unit = 1800/90 = 20 Material H per unit = 1800/150 =

Q16 A There are three upper corners. X (units)1st: Material H line intercept with Y-axis 02nd: Material G line intercept with X-axis 1253rd: Material G line intercept with Material H line 60

Using simultaneous equation; at the interception point:10x + 8y = 1000 Equation 120x + 12y = 1800 Equation 2

Equation 1 * 2:20x + 16y = 2000 Equation 3Equation 3 - Equation 2:4y = 200 y = 50Therefore:10x + 8(50) = 1000 x = 60

Q17 C Plot the following objective function on the graph:4x + y = 4000 (the 4000 is a self created figure)

The furthest corner the objective function will touch is at point K.

Q18 A At line labelled (2), when:x = 7000; y = 0x = 0; y = 10000

The above combination will be provided by equation:10x + 7y = 70000

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Shadow price enable managers to understand financial consequences of contraints clearly. It is an advantage.

Direct labour

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Is not true. Linear programming is suitable when there are more than one limiting factors.

Material G per unit = 1000/125 = 8 Material H per unit = 1800/150 = 12

Y (units) Total contribution90 $ 1,800 - highest profit

0 $ 1,000 50 $ 1,480

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Q1 D This is a true statement.

Q2 B Price elasticity of demand = 40/20 = 2

Q3 B Variable costs 10Fixed costs (10000/2000) 5Full cost 15Profit (15*20%) 3Selling price 18

Q4 C Pricing strategy is part of strategic planning. High initial selling price is skimming strategy.

Q5 D Profit is maximised when, MR = MCMR = 50 - 0.05Q MC = 15

50 - 0.05Q = 15 Q = 700

P = 50 - 0.025(700) P = $ 32.50

Q6 D Demand, when P=20: Q = (50-20)/0.025 = 1200

Contribution = (20-15)1200 = $6000

Q7 C 40 - 0.06Q = 10 Q =500

P = 40 - 0.03(500) = $ 25.00

Q8 A Q = (40-31)/0.03 = 300Profit = ((31-10)*300)-3500 = $ 2,800.00

Q9 A The line represent the price demand linear equation which is P = a - bQ

b = 25/40000 = 0.000625a = 25Hence: P = 25 - 0.000625Q

Q10 D Is price discrimination by time.

Q11 C Selling price $ 10.00 $ 9.50 $ 10.50 $ 11.00 Variable cost $ 6.00 $ 6.00 $ 6.00 $ 6.00 Contribution per unit $ 4.00 $ 3.50 $ 4.50 $ 5.00

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Demand (units) 40000 44000 36000 31000Total contribution $ 160,000 $ 154,000 $ 162,000 $ 155,000

Highest

Q12 A b = 50/100 = 0.5 a = 100 + 0.5(1000) = 600 P = 600 - 0.5Q MR = 600 - Q MC = 35 600 - Q = 35 Q = 565 P = 600 - 0.5(565) = $ 317.50

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Pricing strategy is part of strategic planning. High initial selling price is skimming strategy.

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Q1 B A) is a sunk costB) incremental revenue will result future cash inflowC) is a sunk costD) is a sunk cost

Q2 D - all sunk costs are unavoidable, hence irrelevant.

Q3 C A) the word always is inaccurateB) not necessarily, it depend on type of decision.D) not necessarily.

Q4 A Relevant cost of existing machine: Scrap value (opportunity cost, if the machine continue in use)

Relevant cost of new machine: Purchase cost Production cost savings (80000*6)

Total differential cost (50000-20000)

The fixed cost is common to both the machine, hence it is not relevant.

Q5 B Shared fixed costs are common or general costs which are unavoidable.

Q6 C Purchase cost per unit $ 13.00 Irrelevant costs:Variable production cost per unit $ 11.00 - depreciation is a non-cash itemDifferential cost of buying $ (2.00) - apportioned overheads are unavoidable

Q7 D Purchase cost per unit $ (13.00)Variable production cost per unit $ 11.00 Loss in contribution $ 4.00 Differential benefit of buying $ 2.00

Q8 C The discounted price is higher than the variable cost, will result in contribution per unit of $3.

Q9 B Shared fixed costs are common or general costs which are unavoidable.

Q10 D A) is a sunk cost, hence the statement is true.B) is future incremental cost, hence the statement is true.C) non-cash expenses, statement is trueD) the word always is inaccurate.

Q11 B A) is a sunk cost - irrelevantB) incremental cost - relevantC) idle time is a spare capacity during which direct labour are being paid, hence no incremental cost- irrelevantD) non-cash expenses - irrelevant

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Q12 A OT cost = $8*150%*350 hours = $ 4,200 Cost of diverting labour:

Contribution lost = ((14/7) + 8)* 350 = $ 3,500 Therefore: - it would be cheaper to divert the labour.

Q13 A TotalProfit 80.00Contribution from Shop S -60.00Avoidable fixed cost of S: (70-(200*60%*500/1500)) 30.00Revised budgeted profit 50.00

Q14 B Material T (500*45) $ 22,500 - regularly used and need to be replacedMaterial V in stock (200*40) $ 8,000 - no longer in use, hence no need to replace - resale value is an opportunity costMaterial V to be purchased (200*52) $ 10,400

$ 40,900

Q15 B L M NExternal purchase price $ 57 $ 55 $ 54 Variable production costs $ (45) $ (40) $ (30)Cost savings if produced internally $ 12 $ 15 $ 24 Machine hours per unit 3 5 4Cost savings per hour $ 4.00 $ 3.00 $ 6.00 Production ranking 3 4 1Ranking to purchase 2 1 4

Q16 C Consultant salary $36000 per annum (i.e. $3000 per month) is a committed costs, hence irrelevant.Car running costs $6000 is an indifferential costs, hence it is irrelevantBonus payable to junior consultant of $5000, is an increemental cost.Cost of hiring external consultant of $4500, is an incremental cost.Therefore: - it is cheaper to hire external consultant.

Q17 D (i) Relevant - this information is needed to calculate the incremental revenue(ii) Irrelevant - cost of growing the potatoes will not be affected by sales approach.(iii) Relevant - this is an incremental cost(iv) Relevant - this information is needed to calculate the incremental revenue

Q18 (i) Irrelevant - sunk costsD (ii) Irrelevant - because of the above

(iii) Relevant - incremental costs(iv) Relevant - to calculate incremental revenue(v) Relevant - to calculate incremental revenue

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(vi) Relevant - to calculatr incremental costs and revenue(vii) Relevant - to calculate incremental revenue

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$ (50,000)

$ (500,000) $ 480,000 $ (20,000)

$ (30,000)

Irrelevant costs: - depreciation is a non-cash item - apportioned overheads are unavoidable

The discounted price is higher than the variable cost, will result in contribution per unit of $3.

C) idle time is a spare capacity during which direct labour are being paid, hence no incremental cost- irrelevant

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P $ 50 $ (20) $ 30

6 $ 5.00

23

Consultant salary $36000 per annum (i.e. $3000 per month) is a committed costs, hence irrelevant.

(ii) Irrelevant - cost of growing the potatoes will not be affected by sales approach.

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Q1 B A) Is not true. Risk and uncertainties are closely related but not the sameB) Is true. High standard deviation indicates high risk.C) Not true. Risk can be measure. (example includes measure of probability and standard deviation).D) Not true. Decision tree is more suitable to reflect the complex decision scenario.

Q2 B Exepceted value: =(0.6*1000000)+(0.3*300000)+(0.1*40000) = $ 694,000

Q3 A

Q4 B EV of building new premises =(0.8*2000000)+(0.2*1000000)-1000000 =To be indifferent, the EV of upgrading old premises = $800,000Therefore, cost of upgrading premises should not be higher or lower than: =(0.7*2000000)+(0.3*1000000)-800000 = $ 900,000

Q5 D EV of selling price =(20*0.25)+(25*0.4)+(30*0.35) = $ 25.50 EV of variable cost =(8*0.2)+(10*0.5)+(12*0.3) = $ 10.20 EV of contribution =(25.50-10.20)*1000 = $ 15,300

Q6 C Contrribution per unit need to exceed: =13500/1000 = $13.50This can be achieved under the following combinations:

SP/unit Prob. VC/unit Prob. Cont/unit Combined probability $ 25.00 40% $ 8.00 20% $ 17.00 $ 25.00 40% $ 10.00 50% $ 15.00 $ 30.00 35% $ 8.00 20% $ 22.00 $ 30.00 35% $ 10.00 50% $ 20.00 $ 30.00 35% $ 12.00 30% $ 18.00

Q7 A Project Minimum MaximumA $ 440 $ 560

Q8 B B $ 400 $ 580 C $ 360 $ 480 D $ 320 $ 420

Q9 B Selling Maximumprice regret $ 40.00 $ 20,000 $ 45.00 $ 10,000 $ 50.00 $ 20,000 $ 55.00 $ 30,000

Q10 A Maximin and minimax regret methods are suitable for risk averters.

Q11 A Expected value: Project A =(400*0.3)+(500*0.5)+(600*0.2) = 490

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Project B =(300*0.3)+(350*0.5)+(400*0.2) = 345 Project C =(500*0.3)+(450*0.5)+(650*0.2) = 505

Q12 A EV of deisions with perfect information:Demand Decision Cashflow Prob. EVWeak Project C 500 0.3 150Average Project A 500 0.5 250Good Project C 650 0.2 130

530EV of decision without perfect info. 505Value of perfect information 25

Q13 B Maximin criterion:Membership fee Minimum

$ 600 360 $ 800 400 $ 900 360 $ 1,000 320

Q14 A Minimax regret criterion:Membership level

Membership fee Low Average High $ 600 $ (40) $ - $ - $ 800 $ - $ (40) $ (60) $ 900 $ (40) $ (75) $ (45) $ 1,000 $ (80) $ (100) $ (120)

Q15 D Development Prob. Marketing Prob. Profit/(loss)Successful 70% Success 50% $ 250,000

70% Reasonable 30% $ 150,000 70% Failure 20% $ (80,000)

Unsuccessful 30% $ (150,000)

Q16 C EV analysis does not takes into account risk preferences of decision maker.

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C) Not true. Risk can be measure. (example includes measure of probability and standard deviation).

$ 800,000

Combined probability8.0%

20.0%7.0%

17.5%10.5%63.0%

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Maximumregret

$ (40) $ (60) $ (75) $ (120)

Com. Prob. EV35% $ 87,500 21% $ 31,500 14% $ (11,200)30% $ (45,000)

100% $ 62,800


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