mcq answers with workings

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Costing methodSales mix variance:ASV@AMASV@SMSCPUVarianceT72009200760-1520000C310002990094103400S780069009408460004600046000-570600Sales quantity variance:ASV@SMBSVSCPUVarianceT92008000760912000C299002600094366600S690060009408460002124600Total contribution to be earned with the optimum production plan given in (b):ProductUnitsCPUTotal contributionG4100$0.80$3,280H4600$1.40$6,440J800$(2.10)$(1,680)K2417$3.60$8,701$16,741Optimum production plan excluding the contract:GHJKRanking based on answer to (a)2nd1st3rdMaterial B allocation (kg)7206003,680Production plan (units)3,6003,0003,067Product J will not be continued as it has a negative contribution.ProductUnitsCPUTotal contributionG3,600$0.80$2,880H3,000$1.40$4,200J0$(2.10)0.0K3,067$3.60$11,040$18,120Avoidable specific fixed cost of J$1,000Profit$19,120

Incremental benefit without the contract = 19120 - 16741 = $2,379Hence: - 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 $5,000, it would be better to serve the contract.Material B usage per unit:G (2/10)0.2kgH(2/10)0.2kgJ(4.5/10)0.45kgK(12/10)1.2kgProduct WProduct RProduct XContractOthersContractOthersContractOthersSelling price ($)8090116126140150Variable costs ($)61619292106106Contribution per unit ($)192924343444Material B per unit (kg)446655Contribution per kg ($/kg)4.757.254.005.676.808.80Ranking526431Material B allocation (kg)70020000480020008000New production plan (units)17550008004001600Contribution of new plan ($)3325145000272001360070400$129,025

Production plan in (a) (units)4005004002504001600Contribution of plan in (a) ($)760014500960085001360070400$124,200

Additional contribution that can be earned if the major customer is not supplied in full$4,825Hence, lowest value of penalty the major customer need to insert$4,825

CVPQ1BBudget contribution (100000*20%)+(200000*40%)-100000Actual contribution (200000*20%)+(100000*40%)80000-20000Q2AFixed cost per unit will decrease as the volume of production increases.Q3AContribution per unit = 9 - 4 = $5Target sales volume =(80000+100000)/5 =36000unitsTarget sales revenue =36000*9 =$324,000Q4AQ5C - 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.Q6C - t represent margin of safety. Increase in fixed cost will cause the break even point to increase, hence margin of safety will decrease.Q7C - increase in profit = increase in contribution = 1400*(20) =$28,000Actual sales volume = 2500 + 800 = 3300Actual contribution = 50000 + 16000 = $66,000Contribution per unit = 66000/3300 = $20.00Q8B(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.Q9ASuperiorStandardBasicContribution per unit550500220Weighted average contribution per unit = (550*20%)+(500*30%)+(220*50%) =$370Break even point (no. of contracts)2,703contractsBreak even revenue:Superior(2703*30%)*1000540,600Standard(2703*30%)*750608,175Basic(2703*50%)*400540,6001,689,375 Closest to $1,690,000Q10BRSTC/S ratio0.60.40.5Current sales revenue mix22.2%33.3%44.4%New sales revenue mix20%50%30%Proportion of product with highest c/s ratio was reduced, hence weighted average c/s ratio will be lower.Q11CIncrease 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.

Limiting factorsQ1AProfit is maximised by maximising total contribution. This is on the assumption total fixed cost remain constant.Q2AQ3CABCDContribution per unit$1.00$2.00$3.00$4.00Hours per unit0.20.50.33333333330.5Contribution per hour$5.00$4.00$9.00$8.00Ranking3412Hours allocation (hours)3000Nil60001000Q4BProduction plan (units)15000Nil180002000Q5AQ6BQ7DShadow price enable managers to understand financial consequences of contraints clearly. It is an advantage.Q8ARaw materialsDirect labourQuantity required to produce:kgshoursX200004000Y220004125Z42000105008400018625Quantity available9000018000Surplus6000Shortage625Q9AXZYContribution per unit$11.00$9.00$6.00Kg per unit546Contribution per kg$2.20$2.25$1.00Ranking213Q10DQ11AQ12BIIIIIIContribution per kg4.37558Ranking321Materials allocation: - to meet contract requirement8000 - to meet other demand150001200080001500012000Production plan (units)100030002000Q13DQ14DAIs not true. Ranking should be based on contribution per limiting factorBIs not true. Linear programming is suitable when there are more than one limiting factors.CIs not true. The word always is inaccurate.Q15AProduct Y:Product X:Material G per unit = 1000/100 = 10 Material G per unit = 1000/125 = 8Material H per unit = 1800/90 = 20 Material H per unit = 1800/150 =12Q16AThere are three upper corners.X (units)Y (units)Total contribution1st: Material H line intercept with Y-axis 090$1,800 - highest profit2nd: Material G line intercept with X-axis1250$1,0003rd: Material G line intercept with Material H line6050$1,480Using simultaneous equation; at the interception point:10x + 8y = 1000Equation 120x + 12y = 1800Equation 2Equation 1 * 2:20x + 16y = 2000Equation 3Equation 3 - Equation 2:4y = 200 y = 50Therefore:10x + 8(50) = 1000 x = 60Q17CPlot 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.Q18AAt line labelled (2), when:x = 7000; y = 0x = 0; y = 10000The above combination will be provided by equation:10x + 7y = 70000

PricingQ1DThis is a true statement.Q2BPrice elasticity of demand = 40/20 = 2Q3BVariable costs10Fixed costs (10000/2000)5Full cost15Profit (15*20%)3Selling price18Q4CPricing strategy is part of strategic planning. High initial selling price is skimming strategy.Q5DProfit is maximised when, MR = MCMR = 50 - 0.05QMC = 1550 - 0.05Q = 15 Q =700 P = 50 - 0.025(700) P =$32.50Q6DDemand, when P=20: Q =(50-20)/0.025 =1200Contribution = (20-15)1200 = $6000Q7C40 - 0.06Q = 10 Q =500 P = 40 - 0.03(500) =$25.00Q8A Q =(40-31)/0.03 =300Profit = ((31-10)*300)-3500 =$2,800.00Q9AThe line represent the price demand linear equation which is P = a - bQb = 25/40000 =0.000625a = 25Hence: P = 25 - 0.000625QQ10DIs price discrimination by time.Q11CSelling price$10.00$9.50$10.50$11.00Variable cost$6.00$6.00$6.00$6.00Contribution per unit$4.00$3.50$4.50$5.00Demand (units)40000440003600031000Total contribution$160,000$154,000$162,000$155,000HighestQ12A 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

Relevant costQ1BA) is a sunk costB) incremental revenue will result future cash inflowC) is a sunk costD) is a sunk costQ2D - all sunk costs are unavoidable, hence irrelevant.Q3CA) the word always is inaccurateB) not necessarily, it depend on type of decision.D) not necessarily.Q4ARelevant cost of existing machine: Scrap value (opportunity cost, if the machine continue in use)$(50,000)

Relevant cost of new machine: Purchase cost$(500,000) Production cost savings (80000*6)$480,000 $(20,000)

Total differential cost (50000-20000)$(30,000)The fixed cost is common to both the machine, hence it is not relevant.Q5BShared fixed costs are common or general costs which are unavoidable.Q6CPurchase cost per unit$13.00Irrelevant costs:Variable production cost per unit$11.00 - depreciation is a non-cash itemDifferential cost of buying$(2.00) - apportioned overheads are unavoidableQ7DPurchase cost per unit$(13.00)Variable production cost per unit$11.00Loss in contribution$4.00Differential benefit of buying$2.00

Q8CThe discounted price is higher than the variable cost, will result in contribution per unit of $3.Q9BShared fixed costs are common or general costs which are unavoidable.Q10DA) 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.Q11BA) 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 - irrelevantQ12AOT cost = $8*150%*350 hours =$4,200Cost of diverting labour:Contribution lost = ((14/7) + 8)* 350 =$3,500Therefore: - it would be cheaper to divert the labour.Q13ATotalProfit80.00Contribution from Shop S-60.00Avoidable fixed cost of S: (70-(200*60%*500/1500))30.00Revised budgeted profit50.00

Q14BMaterial 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

Q15BLMNPExternal purchase price$57$55$54$50Variable production costs$(45)$(40)$(30)$(20)Cost savings if produced internally$12$15$24$30Machine hours per unit3546Cost savings per hour$4.00$3.00$6.00$5.00Production ranking3412Ranking to purchase2143Q16CConsultant 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,