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Each question is worth two marks.
Selling price $320
Material costs $80
Conversion costs $60
Time on bottleneck resource 6 minutes
What is the return per hour for Product X?
Which of the above reasons could have caused the difference between the expected rate of learning and the actual rate of learning?
What is the expected annual residual income of the initial investment?
Sales price per unit
Variable cost per unit
Sales volume in units
The actual results for the period were as follows:
What is the sales quantity contribution variance?
Which TWO of the circumstances favour a penetration pricing policy?
Information relating to XYZ1 and XYZ2 is as follows:
Sales volume (units) 10 million 2.4 million
Average order size (units) 8 1.2
The total packing and despatching cost pool for Winnie Co is $18 million each year.
What is the packing and despatching cost per unit of XYZ1 (to two decimal places)?
What will its operating profit be if its sales increase by 15%?
Which of the above are required in order to calculate the breakeven sales revenue for the company?
Selling price per unit $58 $28
Marginal costs per unit $26 $16
R Co wishes to earn a profit of $3,600 next month.
Using the given product mix, what total volume of sales units would be needed to achieve a target profit of $3,600?______________units
If the choice of selling price is based on a minimax regret decision rule, which price would be selected?
The following scenario relates to questions 16–20.
Trend Co has several new products in development. Information relating to three of these products is as follows:
Luxury car seat
The estimated labour time for the first unit is 12 hours but a learning curve of 75% is expected to apply for the first eight units produced. The cost of labour is $15 per hour.
The cost of materials and other variable overheads is expected to total $230 per unit. Trend Co plans on pricing the seat by adding a 50% mark up to the total variable cost per seat, with the labour cost being based on the incremental time taken to produce the eighth unit.
Another product which Trend Co has in development is a new design of high chair for feeding young children. Based on previous experience of producing similar products, Trend Co had assumed that a learning rate of 85% would apply to the manufacture of this new design but after the first phase of production had been completed, management realised that a learning rate of 80% had been achieved.
Trend Co has also developed a new type of office chair and management is trying to formulate a budget for this product. They have decided to match the production level to demand, however, demand for this chair is uncertain.
Management have collected the following information:
Worst possible outcome 10,000 0.3
Most likely outcome 22,000 0.5
Best possible outcome 35,000 0.2
The selling price per unit is $25. The variable cost per unit is $8 for any production level up to 25,000 units. If the production level is higher than 25,000 units then the variable cost per unit will decrease by 10% and this reduction will apply to all the units produced at that level.
Total fixed costs are estimated to be $75,000.
Trend Co uses cost-plus pricing when setting prices for its products.
What was the actual rate of learning which occurred (to two decimal places)?
The following scenario relates to questions 21–25.
Anoma Co is a hairdressing salon which provides both 'cuts' and 'treatments' to clients. All cuts and treatments at the salon are carried out by one of the salon's three senior stylists. The salon also has two salon assistants and two junior stylists.
Every client attending the salon is first seen by a salon assistant, who washes their hair; next, by a senior stylist, who cuts or treats their hair depending on which service the client wants; then finally, a junior stylist who dries their hair. The average length of time spent with each member of staff is as follows:
Assistant 0.1 0.3
Senior stylist 1.0 1.5
Junior stylist 0.6 0.5
The salon is open for eight hours each day for six days per week. It is only closed for two weeks each year. Staff salaries are $40,000 each year for each senior stylist, $28,000 each year for each junior stylist and $12,000 each year for each of the assistants. The cost of cleaning products applied when washing clients’ hair is $1.50 per client. The cost of all additional products applied during a 'treatment' is $7.40 per client. Other salon costs (excluding labour and raw materials) amount to $106,400 each year.
Anoma Co charges $60 for each cut and $110 for each treatment.
The senior stylists' time has been correctly identified as the bottleneck activity.
The following scenario relates to questions 26–30.
CIB Co makes sofas. It has recently received a request from a customer to provide a one-off order of sofas, in excess of normal budgeted production. The order would need to be completed within two weeks.
The following cost estimate has already been prepared:
200 m2 at $17 per m2
50 m2 at $8.20 per m2
200 hours at $16 per hour
300 hours at $12 per hour
500 hours at $3 per hour
Total production cost
General fixed overheads at 10% of total production cost
A quotation now needs to be prepared on a relevant cost basis so that CIB Co can offer as competitive a price as possible for the order.
The following scenario relates to three requirements.
Rock Co’s management currently focus on two distinct stakeholder groups: shareholders and customers, and has two objectives:
All operational (non-management) staff at the resorts receive comprehensive training and are employed in secure, long-term contracts, which is unusual in this industry.
Guests who visit the resorts pay one upfront fee and then enjoy unlimited food, drink and use of the resort facilities. When a guest arrives at a resort they are personally greeted by a concierge, offered a drink and cold towel while their luggage is transferred to their luxury room. All rooms are scrupulously clean and contain complimentary drinks, snacks, toiletries, bathrobes and slippers. The rooms are all equipped with appliances, which Rock Co’s management believe that guests need during their stay, including satellite television, coffee- maker, refrigerator and hairdryer. If a guest requests something that is not available in the room, a call to the reception ensures that it arrives within ten minutes.
An extract from Rock Co’s management accounting data is as follows:
Actual 20X6 Competitor ‘Loungers’
Average number of guests per week
Average revenue per week ($)
Average staff costs per week:
Average weekly spend on repairs ($)
Ratio of operational staff to guests
Average rooms available per week**
Market share %
*The actual 20X7 figures are based on the year to date figures (ten weeks).
**Rooms are designed for double occupancy.
Note: General inflation is 2% higher in 20X7 compared to 20X6.
Extracts from TripEvent, an influential online customer forum:
‘I love Rock Co; the service and attention to detail is exemplary and the resorts are always pristine. However, their competitor “Loungers” has full body dryers, ionised water taps and a range of professional haircare equipment in all their rooms.’
‘Our third time back to Rock Co this year and we continue to be amazed by the wonderful level of service. One thing though is the menus don’t seem to have changed much from one visit to the next.’
‘We booked Rock Co on the spur of the moment but then found that we couldn’t get a flight. We called Rock Co’s administrative centre to change our booking to another resort where we could get a flight to and were told that it would not be a problem. However, it took two more calls and three emails to get confirmation and then our credit card was charged twice in error. Of course, it was eventually all resolved, the incorrect charge refunded, a complimentary limousine provided to and from the airport and we received the most amazing customer service at the resort, but it was frustrating at the time.’
‘When I made my booking, I was assured that my bed would be made with the special anti-allergic bedding which I need for a good night’s sleep and that my favourite blend of tea would be available. When I arrived, neither of these requirements were met. To be fair to Rock Co though, everything was in order two hours later when I went to bed.’
This part of the scenario relates to requirements (a) and (b).
Information regarding the size of the market in Moscow for the supply of medical staff is as follows:
Size of national market for supply of temporary nurses
Size of national market for supply of temporary doctors
The increase in the national market for the supply of temporary nurses is due to a shortage of full-time nurses in Moscow.
All agencies in Moscow, including Medi Co, charge a single market rate for the supply of each type of staff: $1,000 per week for supplying a nurse and $2,000 per week for supplying a doctor. In quarter 1, Medi Co held 30% of the market for the supply of temporary nurses and 40% for the supply of temporary doctors.
Medi Co uses quarterly rolling budgets. At the end of quarter 1, it prepared its budgeted revenue figures for quarter 2. It based these budgeted figures on the assumption that the company would continue to maintain the market share it had in quarter 1. It also assumed that it would maintain its standard contribution margin of 80% for both nurses and doctors.
Medi Co’s actual figures for quarter 2 are as follows:
Total revenue from supply of nurses
Total revenue from supply of doctors
Actual contribution margin for both nurses and doctors
This part of the scenario relates to requirement (c).
The market size and market share variances have also been calculated for quarter 2 for one of Medi Co’s competitors, Bridget Co. These variances are as follows:
Bridget Co holds the same percentage of each market as Medi Co. It also uses rolling budgets and prepares its budgeted revenue figures using exactly the same assumptions as Medi Co. However, when Bridget Co’s sales director had to provide the market size figures for quarter 2 to the accounts department, he deliberately reported these figures 30% lower by excluding the market segment relating to maternity units. The accounts department were unaware of this.
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