Deck 2: P1 Management Accounting

Question 1

Explain the advantages of management participation in budget setting and the potential problems that may arise in the use of the resulting budget as a control mechanism. Select all the correct answers.

A) A purposes of budgeting is to act as a control mechanism, with actual results being compared against budget.
B) Another purpose of a budget is to set targets to motivate managers and optimize their performance.
C) The participation of managers in the budget setting process has several advantages. Managers are more likely to be motivated to achieve the target if they have participated in setting process has several advantages. managers are more likely to be motivated to achieve the target if they have participated in setting the target.
D) Participation in budget setting can reduce the information asymmetry gap that can arise when targets are imposed by senior management. Imposed targets are likely to make managers feel demotivated and alienated and result in poor performance.
E) Participation in budget setting can cause problems; in particular, managers may attempt to negotiate budgets that they feel are easy to achieve which gives rise to "budget padding" or budgetary slack.
F) Managers will not 'empire build' because they don't believe that the size of their budget reflects their importance within the organization.

Answer 1

A,B,C,D,E

Question 2

A company is preparing its annual budget and is estimating the number of units of Product A that it will sell in each quarter of year 2. Past experience has shown that the trend for sales of the product is represented by the following relationship: y = a + bx where y = number of sales units in the quarter a = 10,000 units b = 3,000 units x = the quarter number where 1 = quarter 1 of year 1 Actual sales of Product A in Year 1 were affected by seasonal variations and were as follows: Quarter 1:14,000 units Quarter2: 18,000 units Quarter 3: 18,000 units Quarter 4: 20,000 units Calculate the expected sales of Product A (in units) for each quarter of year 2, after adjusting for seasonal variations using the additive model.

A) The expected sales for year 2 Quarter 4 was 32700 units
B) The expected sales for year 2 Quarter 4 was 32000 units
C) The expected sales for year 2 Quarter 4 was 33000 units
D) The expected sales for year 2 Quarter 4 was 40000 units

Answer 2

B

Question 3

Assume that you have made profit calculations based on standard profit calculation methods and activity based costing methods. In which ways will this information be beneficial to the management team? Select all the true statements.

A) Under an activity based costing system the various support activities that are involved in the process of making products or providing services are identified.
B) The cost drivers that cause a change to the cost of activities are also identified and used as the basis to attach activity costs to a particular product or service.
C) Through the tracing of costs to product in this way ABC establishes less accurate costs for the product or service.
D) The identification of cost drivers provides information to management to enable them to take actions to improve the overall profitability of the company.
E) Operational analysis will provide information to management on how costs can be incurred and managed.

Answer 3

A,B,D

Question 4

JL is preparing its cash budget for the next three quarters. The following data have been extracted from the operational budgets: 11ec37eb_8ba5_976d_97b9_6975f1757454__00 Additional information is available as follows: • JL sells 20% of its goods for cash. Of the remaining sales value, 70% is received within the same quarter as sale and 30% is received in the following quarter. It is estimated that trade receivables will be $125,000 at the beginning of Quarter 1. No bad debts are anticipated. • 50% of payments for direct material purchases are made in the quarter of purchase, with the remaining 50% in the quarter following purchase. It is estimated that the amount owing for direct material purchases will be $60,000 at the beginning of Quarter 1. • JL pays labour and overhead costs when they are incurred. It has been estimated that labour and overhead costs in total will be $303,600 per quarter. This figure includes depreciation of $19,600. • JL expects to repay a loan of $100,000 in Quarter 3. • The cash balance at the beginning of Quarter 1 is estimated to be $49,400 positive. Required: Prepare a cash budget for each of the THREE quarters. What will the closing balance of cash flows in quarter THREE be?

A) $100 200
B) $170 400
C) $145 000
D) $150 200
E) $130 200
F) $160 690
G) $184 900

Question 5

JRL manufactures two products from different combinations of the same resources. Unit selling prices and unit cost details for each product are as follows: 11ec37eb_8ba6_33ae_97b9_3dcf38a0720d__00 * Refer to your answer in the previous question. The optimal solution to the previous question shows that the shadow prices of skilled labour and direct material A are as follows: Skilled labour $ Nil Direct Material A $11.70 Explain the relevance of these values to the management of JRL. Select ALL the true statements.

A) The shadow price equals the additional contribution that would be earned from one extra unit of a scarce resource.
B) In a situation such as this, where a number of resources are scarce, the shadow price of any particular scarce resource will depend on whether or not the resource is not binding.
C) The shadow price for skilled labour is NIL because although there is a shortage of skilled labour it does have a constraining effect on output of JR as other resources are more scarce.
D) Since material A is one of the binding constraints, if the availability of material A could be increased by one unit, this would change the optimal plan.
E) The decrease in contribution as a result of this change is the value of the shadow price of material A. The shadow price thus represents the maximum premium that should be paid for an additional unit of material A.

Question 6

A master budget comprises the...

A) budgeted income statement and budgeted cash flow statement only.
B) budgeted income statement and budgeted balance sheet only.
C) budgeted income statement and budgeted capital expenditure only
D) budgeted income statement, budgeted balance sheet and budgeted cash flow statement only.

Question 7

A university is trying to decide whether or not to advertise a new post-graduate degree programme. The number of students starting the programme is dependent on economic conditions. If conditions are poor, it is expected that the programme will attract 40 students without advertising. There is a 60% chance that economic conditions will be poor. If economic conditions are good it is expected that the programme will attract only 20 students without advertising. There is a 40% chance that economic conditions will be good. If the programme is advertised and economic conditions are poor, there is a 65% chance that the advertising will stimulate further demand and student numbers will increase to 50. If economic conditions are good, there is a 25% chance the advertising will stimulate further demand and numbers will increase to 25 students. The profit expected, before deducting the cost of advertising, at different levels of student numbers are as follows: 11ec37eb_8ba9_19e2_97b9_417bb6c0eea9__00 The cost of advertising the programme will be $15,000. Required: Demonstrate, using a decision tree, whether the programme should be advertised.

A) Yes, the programme should be advertised as the profit will be $82 000
B) Yes, the programme should be advertised as the profit will be $92 000
C) No, the programme should not be advertised as there will be a loss $82 000
D) No, the programme should not be advertised as there will be a loss $92 000

Question 8

A marketing manager is trying to decide which of four potential selling prices to charge for a new product. The state of the economy is uncertain and may show signs of recession, growth or boom. The manager has prepared a regret matrix showing the regret for each of the possible outcomes depending on the decision made. 11ec37eb_8ba9_6803_97b9_c9e171e1b4ec__00 If the manager applies the minimax regret criterion to make decisions, which selling price would be chosen?

A) $40
B) $45
C) $50
D) $55

Question 9

'A zero-based budgeting system involves establishing decision packages that are then ranked in order of their relative importance in meeting the organization's objectives'.  Which of the following is true regarding he difficulties that a not-for-profit organization may experience when trying to rank decision packages. Select ALL true statements.

A) The activities that are being proposed in a budget are described in variable packages. There will often be more less than one decision package proposed for an activity.
B) The activities that are being proposed in a budget are described in decision packages. There will often be more than one decision package proposed for an activity.
C) Some of these packages will be inclusive and will require operations to select the best solution to the issue involved.
D) Some of these packages will be mutually inclusive and will require management to select the best solution to the issue involved.
E) Each decision package is evaluated. Its costs are compared to its benefits and net present values or other measures calculated.
F) Management may decide to reject packages even though the activity was done last year. In this way the organization is said to be starting from a zero base with each package given due consideration.
G) Management may decide to accept packages even though the activity was done last year. In this way the organization is said to be starting from a 100% cost base with each package given due consideration.
H) In a public sector body, for example, decision packages will relate profit making activities.
I) In a public sector body, for example, decision packages will relate to very disparate activities.

Question 10

A company sells and services photocopying machines. Its sales department sells the machines and consumables, including ink and paper, and its service department provides an after sales service to its customers. The after sales service includes planned maintenance of the machine and repairs in the event of a machine breakdown. Service department customers are charged an amount per copy that differs depending on the size of the machine. The company's existing costing system uses a single overhead rate, based on total sales revenue from copy charges, to charge the cost of the Service Department's support activities to each size of machine. The Service Manager has suggested that the copy charge should more accurately reflect the costs involved. The company's accountant has decided to implement an activity-based costing system and has obtained the following information about the support activities of the service department: 11ec37eb_8ba9_b625_97b9_19c5422953c7__00 Calculate the annual profit per machine for each of the three sizes of machine, using the current basis for charging the costs of support activities to machines.

A) The profit per machine for the medium machine was: $1276
B) The profit per machine for the medium machine was: $1376
C) The profit per machine for the medium machine was: $1350
D) The profit per machine for the medium machine was: $1250

Question 11

XY, a not-for-profit charity organization which is funded by public donations, is concerned that it is not making the best use of its available funds. It has carried out a review of its budgeting system and is considering replacing the current system with a zero-based budgeting system. Select ALL the potential advantages AND disadvantages for the charity of a zero-based budgeting system.

A) It avoids the complacency inherent in the traditional incremental approach where it is assumed that future activities will be very similar to current ones.
B) It discourages a questioning approach by focusing attention not only on the cost of the activity but on the benefits it provides. The charity managers will not articulate the benefits encouraging them to think clearly about the activities.
C) Preparation of the decision packages will normally require the environment of many employees. This environment may produce useful ideas and promote job satisfaction.
D) The creation of decision packages and their subsequent ranking by top management is very time consuming and costly. The charity will need to assess whether the benefits of the system outweigh the costs involved.
E) In an organization like a charity, the decision packages are not very disparate and difficult t compare.
F) In applying traditional budgeting, 'activities' may result in functional departments rather than cross functional activities and thus distract attention from the real cost-reduction issues.

Question 12

QR uses an activity based budgeting (ABB) system to budget product costs. It manufactures two products, product Q and product R. The budget details for these two products for the forthcoming period are as follows: 11ec37eb_8ba8_cbc1_97b9_9be13a65b02c__00 The total budgeted cost of setting up the machines is $74,400. Select TWO potential benefits of using an activity based budgeting system.

A) Activity based budgeting allows the ranking of activities and the determination of how limited resources should be allocated across competing activities.
B) Activity based budgeting provides a clear framework for understanding the link between turnover and the level of activity.
C) Activity based budgeting is useful for the review of quality systems utilization.
D) Activity based budgeting allows the identification of value added and non-value added activity and ensures that any budget cuts are made to non-value added activities.

Question 13

A medium-sized manufacturing company, which operates in the electronics industry, has employed a firm of consultants to carry out a review of the company's planning and control systems. The company presently uses a traditional incremental budgeting system and the inventory management system is based on economic order quantities (EOQ) and reorder levels. The company's normal production patterns have changed significantly over the previous few years as a result of increasing demand for customized products. This has resulted in shorter production runs and difficulties with production and resource planning. The consultants have recommended the implementation of activity based budgeting and a manufacturing resource planning system to improve planning and resource management. Select ALL the benefits for the company that could occur following the introduction of an activity based budgeting system.

A) Under an activity based budgeting system, resource allocation is linked to the strategic plan is prepared after considering alternative strategies. This approach ensures that new activities that are required to meet the company's strategic objectives are included in the budget.
B) Under an activity based budgeting system the focus is on existing resources and operations. Adjustments are then made for changes in activity and price which results in past inefficiencies being perpetuated. Under a traditional budgeting system, only resources that are needed to perform activities required to meet the budgeted production and sales volumes are included.
C) Activity based techniques including activity based budgeting focus on the outputs of a process rather than the input to the process. This approach provides a clear framework for understanding the link between costs and the level of activity. It allows the ranking of activities and the determination of how limited resources should be allocated across competing activities.
D) ABB systems present costs under functional headings i.e. the emphasis is on the nature of the cost. The weakness of this approach is that it gives little indication of the link between the level of activity and the cost incurred.
E) The approach under an activity based system is to make arbitrary cuts in order to meet overall financial targets.
F) Activity based budgeting allows the identification of value added and non-value added activities and ensures that cuts are made to non-value added activities. ABB is also useful for review of capacity utilization.

Question 14

JRL manufactures two products from different combinations of the same resources. Unit selling prices and unit cost details for each product are as follows: 11ec37eb_8ba9_8f14_97b9_6dc3ea66353b__00 Identify, using graphical linear programming, the weekly production schedule for products J and L that will maximize the profits of JRL during the next four weeks.

A) Optimum plan (including major customer order) is therefore: W 900 units R 700 units X 2,100 units
B) W 1, 000 units R 600 units X 2,000 units
C) W 910 units R 800 units X 2,200 units
D) R 650 units
E) W 950 units R 750 units X 2,300 units

Question 15

GH manufactures a product using skilled labour and high quality materials. The company operates a standard costing system and a just-in-time (JIT) purchasing and production system. The standard selling price and variable costs for one unit of the product are as follows: 11ec37eb_8baa_2b57_97b9_e7e297f9ad54__00 11ec37eb_8baa_2b58_97b9_27a8ce40dc17__00 Calculate the following variances for October, taking account of the more detailed information regarding the labour mix: (i) The total labour efficiency variance (ii) The total labour mix variance (iii) The total labour yield variance Select the correct statements.

A) Labour yield variance: $ 144 000 A
B) Labour mix variance: $ 66 000 F
C) Labour efficiency variance: $ 78 000 A
D) Labour efficiency variance: $ 78 000 F
E) Labour efficiency variance: $ 88 000 F
F) Labour mix variance: $ 75 000 F
G) Labour efficiency variance: $ 98 000 A
H) Labour mix variance: $ 63 000 A

Question 16

A company has to choose between three mutually exclusive projects. Market research has shown that customers could react to the projects in three different ways depending on their preferences. There is a 30% chance that customers will exhibit preferences 1, a 20% chance they will exhibit preferences 2 and a 50% chance they will exhibit preferences 3. The company uses expected value to make this type of decision. The net present value of each of the possible outcomes is as follows: 11ec37eb_8ba7_6c2f_97b9_253cb1dd1010__00 A market research company believes it can provide perfect information about the preferences of customers in this market. What is the maximum amount that should be paid for the information from the market research company?

A) $145 000
B) $140 000
C) $125 000
D) $135 000

Question 17

GH manufactures a product using skilled labour and high quality materials. The company operates a standard costing system and a just-in-time (JIT) purchasing and production system. The standard selling price and variable costs for one unit of the product are as follows: 11ec37eb_8baa_0446_97b9_3b1b54f340ae__00 Prepare a statement that reconciles the budgeted contribution with the actual contribution for October. Your statement should show the variances in as much detail as possible. What was the actual contribution for October?

A) $ 1,324,000
B) $ 1,414,000
C) $ 1,594,000
D) $ 1,494,000
E) $ 1,198,000

Question 18

TP makes wedding cakes that are sold to specialist retail outlets which decorate the cakes according to the customers' specific requirements. The standard cost per unit of its most popular cake is as follows: 11ec37eb_8ba8_5690_97b9_754834df169f__00 The general market prices at the time of purchase for Ingredient A and Ingredient B were $23 per kg and $20 per kg respectively. TP operates a JIT purchasing system for ingredients and a JIT production system; therefore, there was no inventory during the period. Prepare a statement which reconciles the flexed budget material cost and the actual material cost. Your statement should include the material price planning variances, and the operational variances including material price, material mix and material yield. What was the material price planning variance for ingredient A?

A) The Material price planning variance - Ingredient A was $73 000 F
B) The Material price planning variance - Ingredient A was $72 000 F
C) The Material price planning variance - Ingredient A was $71 000 F
D) The Material price planning variance - Ingredient A was $75 000 F

Question 19

RFT, an engineering company, has been asked to provide a quotation for a contract to build a new engine. The potential customer is not a current customer of RFT, but the directors of RFT are keen to try and win the contract as they believe that this may lead to more contracts in the future. As a result, they intend pricing the contract using relevant costs. The following information has been obtained from a two-hour meeting that the Production Director of RFT had with the potential customer. The Production Director is paid an annual salary equivalent to $1,200 per 8-hour day.  110 square meters of material A will be required. This is a material that is regularly used by RFT and there are 200 square meters currently in inventory. These were bought at a cost of $12 per square meter. They have a resale value of $10.50 per square meter and their current replacement cost is $12.50 per square meter. 30 liters of material B will be required. This material will have to be purchased for the contract because it is not otherwise used by RFT. The minimum order quantity from the supplier is 40 liters at a cost of $9 per liter. RFT does not expect to have any use for any of this material that remains after this contract is completed.  60 components will be required. These will be purchased from HY. The purchase price is $50 per component. A total of 235 direct labour hours will be required. The current wage rate for the appropriate grade of direct labour is $11 per hour. Currently RFT has 75 direct labour hours of spare capacity at this grade that is being paid under a guaranteed wage agreement. The additional hours would need to be obtained by either (i) overtime at a total cost of $14 per hour; or (ii) recruiting temporary staff at a cost of $12 per hour. However, if temporary staff are used they will not be as experienced as RFT's existing workers and will require 10 hours supervision by an existing supervisor who would be paid overtime at a cost of $18 per hour for this work. 25 machine hours will be required. The machine to be used is already leased for a weekly leasing cost of $600. It has a capacity of 40 hours per week. The machine has sufficient available capacity for the contract to be completed. The variable running cost of the machine is $7 per hour. The company absorbs its fixed overhead costs using an absorption rate of $20 per direct labour hour. Select ALL the true statements.

A) The cost for the production director meeting was a relevant cost.
B) Material A was a relevant cost.
C) Material B was a relevant cost.
D) The components are to be purchased from HY at a cost of $50 each. This is a relevant cost because it is future expenditure that will be incurred as a result of the work being undertaken.
E) The machine is currently being leased and it has spare capacity so it will either stand idle or be used on this work. The lease cost will be a relevant cost or $10 per hour.
F) The company absorbs its fixed overhead costs using an absorption rate of $20 per direct labour hour. This is a relevant cost.
G) The relevant cost is $7010
H) The relevant cost is $7080
I) The relevant cost is $7100

Question 20

The term 'budgetary slack' refers to the:

A) Lead time between the preparation of the functional budgets and the approval of the master budget by senior management
B) Difference between the budgeted output and the actual output
C) Difference between budgeted capacity utilization and full capacity
D) Intentional over estimation of costs and/or under estimation of revenue in a budget

Question 21

Explain how probability analysis could be used to assess the risk of the evaluated projects. Select all the true statements.

A) The company can determine a range of possible outcomes for each of the cash flows in the project, for example, a high, low and medium estimate of each cash flow could be determined.
B) The net present value (NPV) of the project, if all high, low or medium estimates occurred, can be calculated along with the combined probabilities of their occurrence.
C) The probabilities can be combined to calculate the expected value of each cash flow element and of the project as a whole
D) The NPVs of a sample range of possible outcomes and the probability of each NPV can be calculated. If a small sample is taken the distribution of outcomes can be used to calculate the zero activities deviation of the NPVs and the probability of success of the projects.

Question 22

LM operates a parcel delivery service. Last year its employees delivered 15,120 parcels and travelled 120,960 kilometers. Total costs were $194,400. LM has estimated that 70% of its total costs are variable with activity and that 60% of these costs vary with the number of parcels and the remainder vary with the distance travelled. LM is preparing its budget for the forthcoming year using an incremental budgeting approach and has produced the following estimates: • All costs will be 3% higher than the previous year due to inflation • Efficiency will remain unchanged • A total of 18,360 parcels will be delivered and 128,800 kilometers will be travelled. Calculate the following costs to be included in the forthcoming year's budget:  (i) the total variable costs related to the number of parcels delivered.  (ii) the total variable costs related to the distance travelled.

A) Parcel related cost for next year = $112,308; Distance related costs for next year = $79,590
B) Parcel related cost for next year = $109,118; Distance related costs for next year = $89,699
C) Parcel related cost for next year = $112,118; Distance related costs for next year = $59,699
D) Parcel related cost for next year = $105,306; Distance related costs for next year = $30,590
E) Parcel related cost for next year = $115,306; Distance related costs for next year = $31,590

Question 23

A company produces a product that requires two materials, Material A and Material B. Details of the material quantities and costs for August are given in the table below. 11ec37eb_8bab_15bd_97b9_9d7728ca5c86__00 Budgeted and actual output of the product for August was 12,000 units. The material yield variance for August is:

A) $1,340 A
B) $1,590 A
C) $1,740 A
D) $1,340 F
E) $1,840 A

Question 24

A company produces a product that requires two materials, Material A and Material B. Details of the material quantities and costs for August are given in the table below. 11ec37eb_8baa_eeac_97b9_abac52f24573__00 Budgeted and actual output of the product for August was 12,000 units. The material mix variance for August is:

A) $ 1, 540 Favourable
B) $ 1, 540 Adverse
C) $ 1, 288 Favourable
D)

Question 25

11ec37eb_8bab_63de_97b9_cd36936cf705__00 Select the benefits to a company of using sensitivity analysis in investment appraisal. (Select all the true statements.)

A) Sensitivity analysis enables a company to determine the effect of changes to variables on the planned outcome.
B) Sensitivity analysis enables a company to assess the risk associated with a project.
C) Sensitivity analysis enables identification of fixed costs that are of special significance.
D) Sensitivity analysis enables risk management strategies to be put in place to focus on those variables of special significance.

Question 26

A company uses a standard costing system. The company's sales budget for the latest period includes 1,500 units of a product with a selling price of $400 per unit. The product has a budgeted contribution to sales ratio of 30%. Actual sales for the period were 1,630 units at a selling price of $390 per unit. The actual contribution to sales ratio was 28%. The sales volume contribution variance for the product for the latest period is:

A) $15, 600 F
B) $17, 800 F
C) $55, 600 F
D) $32, 900 F

Question 27

A major company sells a range of electrical, clothing and homeware products through a chain of department stores. The main administration functions are provided from the company's head office.  Each department store has its own warehouse which receives goods that are delivered from a central distribution center. The company currently measures profitability by product group for each store using an absorption costing system. All overhead costs are charged to product groups based on sales revenue. Overhead costs account for approximately one-third of total costs and the directors are concerned about the arbitrary nature of the current method used to charge these costs to product groups. A consultant has been appointed to analyses the activities that are undertaken in the department stores and to establish an activity based costing system. The consultant has identified the following data for the latest period for each of the product groups for the X Town store: 11ec37eb_8bac_9c5f_97b9_cde81d3e783b__00 Calculate the total profit for each of the product groups: …. using the current absorption costing system;

A) The profit or loss in $ was….  Clothing 122; Electrical 56; Homeware (178)
B) The profit or loss in $ was…. Clothing (175); Electrical 86; Homeware 22
C) The profit or loss in $ was…. Clothing 85; Electrical 36; Homeware (28)
D) The profit or loss in $ was…. Clothing 192; Electrical (56); Homeware 148

Question 28

A flexible budget is a budget that is:

A) set prior to the control period and not subsequently changed in response to changes in activity period has expired
B) continuously updated by adding a further accounting period when the earliest accounting period has expired
C) changed in response to changes in the level of activity
D) changed in response to changes in costs

Question 29

CDF is a manufacturing company within the DF group. CDF has been asked to provide a quotation for a contract for a new customer and is aware that this could lead to further orders. As a consequence, CDF will produce the quotation by using relevant costing instead of its usual method of full cost plus pricing. The following information has been obtained in relation to the contract: Material D 40 tons of material D would be required. This material is in regular use by CDF and has a current purchase price of $38 per ton. Currently, there are 5 tons in inventory which cost $35 per ton. The resale value of the material in inventory is $24 per ton. Components 4,000 components would be required. These could be bought externally for $15 each or alternatively they could be supplied by RDF, another company within the DF manufacturing group. The variable cost of the component if it were manufactured by RDF would be $8 per unit, and RDF adds 30% to its variable cost to contribute to its fixed costs plus a further 20% to this total cost in order to set its internal transfer price. RDF has sufficient capacity to produce 2,500 components without affecting its ability to satisfy its own external customers. However, in order to make the extra 1,500 components required by CDF, RDF would have to forgo other external sales of $50,000 which have a contribution to sales ratio of 40%. Labour hours 850 direct labour hours would be required. All direct labour within CDF is paid on an hourly basis with no guaranteed wage agreement. The grade of labour required is currently paid $10 per hour, but department W is already working at 100% capacity. Possible ways of overcoming this problem are: • Use workers in department Z, because it has sufficient capacity. These workers are paid $15 per hour. • Arrange for sub-contract workers to undertake some of the other work that is performed in department W. The sub-contract workers would cost $13 per hour. Specialist machine The contract would require a specialist machine. The machine could be hired for $15,000 or it could be bought for $50,000. At the end of the contract if the machine were bought, it could be sold for $30,000.  Alternatively, it could be modified at a cost of $5,000 and then used on other contracts instead of buying another essential machine that would cost $45,000. The operating costs of the machine are payable by CDF whether it hires or buys the machine. These costs would total $12,000 in respect of the new contract. Supervisor The contract would be supervised by an existing manager who is paid an annual salary of $50,000 and has sufficient capacity to carry out this supervision.  The manager would receive a bonus of $500 for the additional work. Development time 15 hours of development time at a cost of $3,000 have already been worked in determining the resource requirements of the contract. Fixed overhead absorption rate CDF uses an absorption rate of $20 per direct labour hour to recover its general fixed overhead costs. This includes $5 per hour for depreciation. Calculate the relevant cost of the contract to CDF. You must present your answer in a schedule that clearly shows the relevant cost value for each of the items identified above. You should also explain each relevant cost value you have included in your schedule and why any values you have excluded are not relevant. Ignore taxation and the time value of money. Select all the true statements.

A) Machine operating costs is a relevant cost.
B) Development Cost is a relevant cost.
C) General fixed overhead costs are relevant costs.
D) Direct labour cist is a relevant cost
E) The total relevant cost was $84 990
F) The total relevant cost was $94 740
G) The total relevant cost was $104 320

Question 30

XY can choose from four mutually exclusive projects. The projects will each last for one year and their net cash inflows will be determined by market conditions. The forecast net cash inflows for each of the possible outcomes are shown below. 11ec37eb_8baa_c79b_97b9_7f78d06cbf0c__00 If the company applies the maximax criterion the project chosen would be:

A) Project A
B) Project B
C) Project C
D) Project D

Question 31

XY can choose from four mutually exclusive projects. The projects will each last for one year and their net cash inflows will be determined by market conditions. The forecast net cash inflows for each of the possible outcomes are shown below. 11ec37eb_8baa_a08a_97b9_e1b8b8a7053f__00 If the company applies the maximin criterion the project chosen would be:

A) Project A
B) Project B
C) Project C
D) Project D

Question 32

'Public sector organizations are often judged by their economy, efficiency and effectiveness. Consequently, they should use an approach to budgeting other than incremental budgeting.' Required: Explain ONE advantage and TWO disadvantages of public sector organizations using incremental budgeting. Select all true statements.

A) An incremental; approach is not as easy and fast to implement than other forms of budgeting approaches e.g. zero based budgeting.
B) Public sector organizations tend to be fairly complex and in many cases outputs cannot be measured in monetary terms therefore the link between inputs and outputs is difficult to establish. An incremental approach can therefore provide a cost effective approach to budgeting.
C) Under an incremental approach to budgeting, existing operations and the current budgeted allowance for these existing activities are taken as the base level for preparing the budget.
D) The main advantage of incremental budgeting is that the cost of past activities becomes fixed and any inefficiencies or wastage is perpetuated.
E) The incremental approach means that budget holders in public sector organizations will be encouraged to use up this year's budget will be as high as possible.
F) The incremental approach encourages managers in public sector organizations to look at the efficiency and effectiveness of activities undertaken.

Question 33

RS is a travel company providing daily tours of a major European capital city. The market is highly competitive and RS has commissioned some market research to help with the pricing decision for a new tour. The research identified the probability of three possible market conditions and the number of tickets that would be sold each day at three different price levels. 11ec37eb_8baa_7979_97b9_2ba8b65631dc__00 Demonstrate, using a decision tree and based on expected value, which ticket price RS should choose.

A) RS should charge a ticket price of $70.
B) RS should charge a ticket price of $80.
C) RS should charge a ticket price of $90.
D) RS should charge a ticket price of $100.
E) RS should charge a ticket price of $75