Quiz B Decision marking – part B

Time: 3 minutes per question X 70 questions = 210 minutes

1 Cima p2 sept 2014

The objective of QLJ is to earn the maximum total possible profit for the month from production X and Y. Which of the
resources are the binding constraints?

1
3 Bpp course exam Q3
Sunny Co manufactures and sells suitcases. Currently sales are 1,000 units at a selling price $73.50. Market research has
established that for every $15 increase in price, sales will fall by 200 units. Calculate the demand function for Sunny.
A P = 73.50 – 0.075Q
B P = 148.50 – 0.075Q
C P = 148.50 – 0.015Q
D P = 73.50 – 0.015Q

4 PILOT MA2 Q3
Four vertical lines have been labelled G, H, J and K at different levels of activity on the following profit-volume chart:

Which line represents the total contribution at that

level of activity?
A Line G
B Line H
C Line J
D Line K

5 JUN 2015 Q1
C Co uses material B, which has a current market price of $0·80 per kg. In a linear program, where the objective is to maximise
profit, the shadow price of material B is $2 per kg. The following statements have been made:
(i) Contribution will be increased by $2 for each additional kg of material B purchased at the current market price
(ii) The maximum price which should be paid for an additional kg of material B is $2
(iii) Contribution will be increased by $1·20 for each additional kg of material B purchased at the current market price
(iv) The maximum price which should be paid for an additional kg of material B is $2·80
Which of the above statements is/are correct?
A (ii) only
B (ii) and(iii)
C (i) only
D (i) and (iv)

6 DEC 2016 Q6 adapted

Jorioz Co makes joint products X and Y. $120,000 joint processing costs are incurred. At the split-off point, 10,000 units of
X and 9,000 units of Y are produced, with selling prices of $1.20 for X and $1.50 for Y. The units of X could be processed
further to make 8,000 units of product Z. The extra costs incurred in this process would be fixed costs of $1,600 and
variable costs of $0.50 per unit of input. The selling price of Z would be $2.25. The company current profit is $100,000.
What would be the outcome if product X is further processed?
A Profit would be reduced BY $1,600
B Profit would be increased BY $400
C Profit would be increased TO $113,900
D Profit would be reduced TO $99,400

2
7JUN 2015 Q1 adapted
C Co uses material B, which has a current market price of $0·80 per kg. In a linear program, where the objective is to maximise
profit, the shadow price of material B is $2 per kg which is relevant for up to 3,000kg. C Co has the opportunity to purchase
additional 1,000 kg of material B at $1.50. If the material B is purchased at the premium price, the profit of the
company will ________ (increase / decrease) by $_________

8
State true or false.
(i) Price elasticity of demand is a measure of the responsiveness of the demand changes to price.
(ii) Price elasticity of demand of more than 1 means that large change in price can cause a proportionately
small change in quantity demanded.
(iii) When there is no change in the cost structure, an increase in price for a product with price elasticity of
demand less than 1 would likely results in an increase in profit.
(iv) A product with price elasticity of demand of -1.2 is more elastic than a product with price elasticity of
demand of -2.5.

9
HOBBIT has received a request to make a special version of one of its basic products. This special version will use 2,000
units of material RING. Material RING is no longer used by HOBBIT but there are 2,000 units left in inventory that had
been purchased at $4.00 per unit. The current purchase price is $4.75 per unit. HOBBIT believes it could sell material
RING for $3.00 per unit. However material RING is similar to material CHIME that is currently in use by HOBBIT and can
be purchased for $6.50 per unit. It could use material RING in place of material CHIME. However, it could cost $2.75 per
unit to modify material RING so that it can be used in place of material CHIME. What is the relevant cost per unit of
material RING for the manufacture of special version?
A. $3.00
B. $3.75
C. $4.00
D. $4.75

10 JUN 2006 Q18 MA2

A company manufactures and sells four types of component. The labour hours available for manufacture are restricted but
any quantities of the components can be bought-in from an outside supplier in order to satisfy sales demand. The following
further information is provided:
Components A B C D
Selling price per unit (£) 12·00 15·00 18·00 20·00
Variable manufacturing costs per unit (£) 6·00 8·00 9·00 11·50
Bought-in price per unit (£) 11·00 11·50 13·00 16·00
Labour hours per unit 1.0 0·8 1.0 0·8
In in order to maximise profit, the component has to highest priority to be made in house is ________and the
component is likely be purchased is _______________

3
11
Which TWO of the following statements are INCORRECT?
(i) Stimulation, sensitivity analysis and market research can be used to derived probabilities when there is
no market data.
(ii) “What if” analysis that can be carried in MS EXCEL software is an example of stimulation.
(iii) In stimulation models, random numbers are used to assign values to variables
(iv) Sensitivity analysis assesses the percentage change in an outcome of a decision before the decision
would change
A (i) and (ii)
B (i) and (iii)
C (ii) and (iv)
D (iii) and (iv)

12 DEC 2016
Hare Events is also considering a new category of 10 km race during the running festival. It expects the race will have an
entry fee of $20 per competitor and variable costs of $8 per competitor. Fixed costs associated with this race will be
$48,000. If the selling price per competitor, the variable cost per competitor and total fixed costs for this 10 km
race all increase by 10%, which of the following statements will be true?
A Break-even volume will increase by 10% and break-even revenue will increase by 10%
B Break-even volume will remain unchanged but break-even revenue will increase by 10%
C Break-even volume will decrease by 10% but break-even revenue will remain unchanged
D Break-even volume and break-even revenue will both remain the same

13
Jahit Co is in the midst of preparing minimum price quotation for a special contract. The contract requires 5,000 hours of
semi-skilled workers. Semi-skilled workers are paid on hourly basis with minimum guaranteed hours. Due to the recent
cancellation of an order the company expects to have available 2,000 idle semi-skilled hours available to work on the job.
The remaining hours could be worked as overtime at time and half (basic pay is $40 per hour) or hire additional semi-
skilled labour on a casual basis at $75 per hour. What is the relevant cost for semi-skilled workers?

14 DEC 2016 Q1
A company makes a single product with the following data:
$ $
Selling price 25
Material 5
Labour 7
Variable overhead 3
Fixed overhead 4
(19)
Profit per unit 6
Budgeted output is 30,000 units.
In relation to this data, which of the following statements is correct?
A The margin of safety is 40%
B The contribution to sales ratio is 24%
C The volume of sales needed to make a profit of $270,000 is 45,000 units
D If budgeted sales increase to 40,000 units, budgeted profit will increase by $100,000

4
15 Dec 2010 Q3 adapted
Objective function is to maximize contribution 9x and 8y
Constraints functions
material P 3x + 2y ≤ 5,000
material Q 1x + 0.5y ≤ 1,600
labour R 4x + 5y ≤ 9,600
sales Y y ≤ 2,000
Non-negativity x, y ≥ 0
The binding constraints are material P and labour R. The total contribution for the current optimal point is $17,514.34. The
shadow price for material P is _____________________

Information relevant for Q16 – Q18

Let M = the number of units of Product M produced and sold in June

Let E = the number of units of Product E produced and sold in June

16 List the (1) OBJECTIVE function and the (2) LABOUR constraint function for a linear programming graph.

The binding constraints are material A and B and the contribution at the current optimal production plan is $64,800.
17 The shadow price for labour is ___________

5
18 The demand is unlimited. If PTP can produce more units, its profit will increase. The binding constraints are material A
and B. Which TWO of the following action would results in increase in production units.
A Invest in a new machine to increase available machine hours.
B Working in shift instead of 9-5pm so that the factory can run 16 hours per day instead of 8 hours
C Purchase more of material A from an overseas supplier
D Use more skilled labour so that less rejected goods.

19 GLEIM Q72 pg 565

The legal department of a firm prepared the decision tree below for a possible patent infringement suit.

1,600,000
80% Win trial $2,000,000
Trial 1,580,000
1,580,000
20%Lose trial ($100,000)
(20,000)

Settle
$800,000
1,475,000
$2,000,000
1,400,000
File suit
Trial 1,370,000 _ 70% win trial
1,370,000
Settle (30,000) ($100,000)
30% Lose trial

$500,000

$0

Based on the decision tree, the firm should:

A Not file the suit
B File suit and settle if injunction granted
C File suit and settle if injunction not granted
D File suit to trial

20 JUN 2006 Q18 MA2 adapted

A company manufactures and sells four types of component. The labour hours available for manufacture are restricted.
The following further information is provided:
Components A B C D
Selling price per unit (£) 12·00 15·00 18·00 20·00
Variable manufacturing costs per unit (£) 6·00 8·00 9·00 11·50
Bought-in price per unit (£) 11·00 11·50 13·00 16·00
Labour hours per unit 1.0 0·8 1.0 0·8
What should be the order of priority for production in order to maximise profit

6
21
Which of the following statements are TRUE?
(i) Maximax, maximin and minimum regret is only suitable for one-off decision
(ii) Maximin is suitable for a risk neutral decision maker
(iii) Maximax ignores the risk of losses
(iv) Maximax, maximin and minimum regret can be used when the probabilities of the outcomes cannot
be determined.
A (i) and (ii)
B (i), (ii) and (iv)
C (i), (iii) and (iv)
D (iii) and (iv)

22 Ex BPP textbook
The price of good is $1.20 unit and annual demand is 800,000 units. Market research indicates that an increase in price of
$0.10 per unit will result in a fall demand of 75,000 units. What is the price elasticity of demand (PED)?

Information relevant for Q23 and Q24 DEC 2008

• Shifters Haulage (SH) is considering changing some of the vans it uses to transport crates for customers. The new
vans come in three sizes; small, medium and large. SH is unsure about which type to buy. The capacity is 100 crates for
the small van, 150 for the medium van and 200 for the large van.
• Demand for crates varies and can be either 120 or 190 crates per period, with the probability of the higher demand
figure being 0·6.
• The sale price per crate is $10 and the variable cost $4 per crate for all van sizes subject to the fact that if the capacity of
the van is greater than the demand for crates in a period then the variable cost will be lower by 10% to allow for the fact
that the vans will be partly empty when transporting crates. SH is concerned that if the demand for crates exceeds the
capacity of the vans then customers will have to be turned away.
• SH estimates that in this case goodwill of $100 would be charged against profits per period to allow for lost future
sales regardless of the number of customers that are turned away.
• Depreciation charged would be $200 per period for the small, $300 for the medium and $400 for the large van.
Calculate (23) and (24) as identified in the payoff table below:
Small Van Medium Van Large Van
Capacity 100 150 200
Low demand 120 (23) ?
High demand 190 (24) ?

25 cima nov 2012 p2

OB group sells optics lens. The relationship between the selling price of a lens and the quantity demanded by customers is
that at a price of $6,000 they will be no demand but the demand will increase by 600 lenses for every $300 decrease in
selling price. The variable cost of producing the lens is $1,200. The fixed costs are $12million per year. The division has
the capacity to satisfy the maximum possible demand if required. Calculate the selling price that would maximize profit
from the sale of lences. Note if P = a – bx then marginal revenue will be given by MR = a – 2bx.

7
26 JUN 2006 MA2 Q18
A company manufactures and sells four types of component. The components can be bought-in from an outside supplier.
The following further information is provided:
Components A B C D
Selling price per unit (£) 12·00 15·00 18·00 20·00
Variable manufacturing costs per unit (£) 6·00 8·00 9·00 11·50
Bought-in price per unit (£) 11·00 6·50 13·00 16·00
Labour hours per unit 1.0 0·8 1.0 0·8
Which component(s) to brought in and which component(s) to make in order to maximise profit?
Component A _______ B _________ C_________ D___________

27 ACCA 1.2 DEC 2006 Q23

28
A company makes and sells three products, M, N and Q.
M N Q
CS ratio 60% 40% 50%
Current sales mix 30% 30% 40%
If the mixed of the products produced and sold is changed to: M 50%, N30%, Q 20% what impact would this have on
the breakeven point assuming the sales mix is constant?
A. It would be increase
B. It would be decrease
C. It would remain unchanged
D. It cannot be determined without more information

29
State true or false.
(i) Price penetration is suitable when a product has a short life cycle.
(ii) Price discrimination is not suitable when there is a chance of developing black market.
(iii) Price skimming is suitable when barrier to entry is low.
(iv) Price skimming and price penetration strategies are suitable for new product.

8
30 DEC 2007 Q17 MA2
A company manufactures and sells four products. Details are as follows:
Product P Q R S
$ $ $ $
Contribution per unit 16·0 14·5 17·6 19·0
Net profit per unit 4·6 4·8 5·2 5·0
Contribution per machine hour 5·0 4·8 4·4 3·8
Net profit per machine hour 1·4 1·6 1·3 1·0
Machine hours available in the next period will not be sufficient to meet production requirements. There are no product-
specific fixed costs. What should be the order of priority for production in order to maximise profit?

Information relevant for Q31 and 32 Bpp course exam 1 Q11

31 Calculate the breakeven units for all three products assume constant mix ________________

32 Assuming the breakeven point for all three products in units is 4,000 units. The breakeven units for product F is
__________________

33 PILOT MA2 Q 30 adapted

The following cost details relate to a single product manufactured by JK Ltd:
Per Unit
Direct materials ($5 per kg) $30
Direct labour ($11 per hour) $77
Production overheads $45
During the next period direct labour and material will be restricted to 320,000 hours and 140,000kg respectively. Demand is
expected to be 30,000 units. What will be the limiting factor(s) for the next period?
A Direct material
B Direct labour
C Both direct material and direct labour
D None of the above

9
34 BPP mock exam dec 2015 adapted
State true or false. The following statements have been made about perfect and imperfect information:
(i) Value of perfect information is the maximum amount a company willing to pay to obtain the perfect
information.
(ii) Perfect information is when management accountants do not make any error in their calculations and is
achieved through robust spreadsheet calculation and is achieved through robust spreadsheet design
(iii) Imperfect information means that the all outcomes would been predicted correctly
(iv) The monetary value of imperfect information will always be lower than value of perfect information

35
State true or False. The following statement relates to risk and uncertainty.
(i) A pessimistic person would prefer to choose maximax method to make decision.
(ii) One of advantage of expected value method of making decision that it is useful for making one-off
decision.
(iii) Risk can be estimated using probabilities based on past experience
(iv) Uncertainty cannot be predicted with probabilities since no past experience.

36 DEC 2014 Q17 / specimen adapted

Tree Co is considering employing a sales manager. A market research has shown that a good sales manager can increase
profit by 30%, and average one by 20% and a poor one by 10%. Experience has shown that the company has attracted a
good sales manager 35% of the time, and average on 55% of the time and a poor one 10% of the time. The company’s
normal profits are $360,000 per annum. What is the maximum value the company is willing to pay for the manager?

37 MA2 JUN 2004 Q18

The following data relates to a company with a single product:
Selling price $12·50 per unit
Fixed production costs $77,000 per period
Fixed non-production costs $46,000 per period
Break-even sales per period 24,600 units
What is the contribution per unit?
A $3·13
B $5·00
C $7·50
D $9·30

38
Which of the following is an example of bundling pricing strategy?
A. Charging admission to a nightclub inclusive of free flow of drinks.
B. Charging different price on weekdays and weekends for a movie theater
C. Charging shampoo at 30% mark-up and charging conditioner are charged at 20% mark-up
D. Charging $5 per pair of socks and also offering a bag of 5 pairs for $15.

10
38x Gleim Q22 pg 422 adapted
Regis Company manufactures plugs used in its manufacturing cycle at a variable cost of $72 per unit and $600,000 fixed
overhead. Regis needs 60,000 of this annually. Orlan Company has offered to sell these units to Regis at $66 per unit. If
Regis decides to purchase the plugs, $400,000 of annual fixed overhead will be eliminated. What is the differential cost
between buying and making? ___________ Should the company accept or reject the offer?______________

39 Gleim Q22 pg 422 adapted

Regis Company manufactures plugs used in its manufacturing cycle at a cost of $72 per unit which includes $600,000 fixed
overhead. Regis needs 60,000 of this annually. Orlan Company has offered to sell these units to Regis at $66 per unit. If
Regis decides to purchase the plugs, $400,000 of annual fixed overhead will be eliminated. What is the differential cost
between buying and making? ___________ Should the company accept or reject the offer?______________

40 Specimen Sept 2016

Chair Co uses cost-plus pricing.
Which of the following statements regarding cost-plus pricing strategies are correct?
(1) Marginal cost-plus pricing is easier where there is a readily identifiable variable cost
(2) Full cost-plus pricing requires the budgeted level of output to be determined at the outset
(3) Cost-plus pricing is a strategically focused approach as it accounts for external factors
(4) Cost-plus pricing requires that the profit mark-up applied by an organisation is fixed
A (1), (2) and (4)
B (1) and (2) only
C (3) and (4)
D (1) and (3)

41 Ex BPP textbook
Sausage Plc makes two products, the Mash and Sauce. Unit variable costs as follows:
Mash Sauce
($) ($)
Direct materials ($1 per kg) 1 3
Direct labour ($3 per hour) 6 3
Variable overhead 1 1
8 7
During July, the available direct labour is limited to 8,000 hours. In this case, Sauce has production priority over Mash
(rank). Sales and demand in July is expected to be 3,000 units for Mash and 5,000 units for Sauce. Quantify the optimal
quantity to be produced for Mash and Sauce in order to maximize profit?
Mash __________ Sauce ________________

42
What is the impact to the line in a profit-volume chart when fixed cost increases and all selling price per unit and
variable cost per unit remain the same?
A The line moves up and the slopes become steeper
B The line moves down and the slopes becomes flatter
C The line moves up but remains parallel to the original line.
D The line moves down but remains parallel to the original line.

11
43 ACCA 1.2 JUN 2005 Q24
A company manufactures and sells two products (X and Y) which have contribution per unit of $8 and $20 respectively.
The company aims to maximize profit. Two materials (G and H) are used in the manufacture of each product. Each
material is in short supply: 2,000kg of G and 3,600 kg of H are available next period. The company holds no stocks and it
can sell all its units it can produced.

What is the amount (in kg) of material G and material H used in each unit of product X?
Material G ________

Material H ________

44
Chair 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:
Demand Probability
(units)
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.
Using probabilistic budgeting, what is the expected budgeted contribution of the product?
A $282,000
B $357,000
C $287,600
D $362,600

12
45
Which of the following items should be consider in an outsourcing decision?
A Costs of buying
B Supplier’s ability to deliver
C Variable costs of making
D The impact on the company’s ability to accept special order
E Total costs of making
F Company’s know-how might be leak to competitors.

46
The profit/volume chart for a single company is as follows:

What is the contribution to sales ratio?

A 16%
B 28%
C 40%
D 72%

The following scenario relates to questions 47–49. specimen

The Hi Life Co (HL 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:
$
Direct materials:
Fabric 200 m2 at $17 per m2 3,400
Wood 50 m2 at $8·20 per m2 410
Direct labour:
Skilled 200 hours at $16 per hour 3,200
Semi-skilled 300 hours at $12 per hour 3,600
Factory overheads 500 hours at $3 per hour 1,500
–––––––
Total production cost 12,110
General fixed overheads as 10% of total production cost 1,211
–––––––
Total cost 13,321

47
The fabric is regularly used by HL Co. There are currently 300 m2 in inventory, which cost $17 per m2. The current
purchase price of the fabric is $17·50 per m2. The wood is regularly used by HL Co and usually costs $8·20 per m2.
However, the company’s current supplier’s earliest delivery time for the wood is in three weeks’ time. An alternative
supplier could deliver immediately but they would charge $8·50 per m2. HL Co already has 500 m2in inventory but 480
m2of this is needed to complete other existing orders in the next two weeks. The remaining 20 m2 is not going to be
needed until four weeks’ time. What is the cost of the fabric and the wood which should be included in the
quotation?

13
Fabric ____________ Wood______________

48
The skilled labour force is employed under permanent contracts of employment under which they must be paid for 40
hours per week’s labour, even if their time is idle due to absence of orders. Their rate of pay is $16 per hour, although any
overtime is paid at time and a half. In the next two weeks, there is spare capacity of 150 labour hours. There is no spare
capacity for semi-skilled workers. They are currently paid $12 per hour or time and a half for overtime. Due to a contract
with the union, the maximum overtime hour is 240 hours. New labour with the required skill will not be employed in such a
short notice. The labourers have to re-directed from other product. The other product has a contribution of $200 per unit
and requires 5 hours of semi-skilled labour hours to make. What cost should be included in the quotation for skilled
labour and semi-skilled labour?
Skilled______________Semi-skilled_______________________

49
Of the $3 per hour factory overheads costs, $1·50 per hour reflects the electricity costs of running the cutting machine
which will be used to cut the fabric and wood for the sofas. The other $1·50 per hour reflects the cost of the factory
supervisor’s salary. The supervisor is paid an annual salary and is also paid $15 per hour for any overtime he works. He
will need to work 20 hours overtime if this order is accepted. What is the cost which should be included in the
quotation for factory overheads? Electricity _________ Supervision _____________

50
Which statement correctly describes the treatment of the general fixed overheads when preparing the quotation?
A The overheads should be excluded because they are a sunk cost
B The overheads should be excluded because they are not incremental costs
C The overheads should be included because they relate to production costs
D The overheads should be included because all expenses should be recovered

51
Which of the following statements about relevant costing are true?
(1) An opportunity cost will always be a relevant cost even if it is a past cost
(2) Fixed costs are always general in nature and are therefore never relevant
(3) Committed costs are never considered to be relevant costs
(4) An opportunity cost represents the cost of the best alternative forgone
(5) Notional costs are always relevant as they make the estimate more realistic
(6) Avoidable costs would be saved if an activity did not happen and so are relevant
(7) Common costs are only relevant if the viability of the whole process is being assessed
(8) Differential costs in a make or buy decision are not considered to be relevant
A (2), (3), (4) and (6)
B (1), (2), (5) and (7)
C (3), (4), (6) and (7)
D (1), (5), (6) and (8)

14
Information relevant for Q52 and 53 2016 September Q9 adapted
A jewellery company makes rings (R) and necklaces (N).The resources available to the company have been analysed and two
constraints have been identified:
Labour time 3R + 2N ≤ 2,400 hours
Machine time 0·5R + 0·4N ≤ 410 hours
Demand for R 200 ≤ R ≤ 600
The management accountant has used linear programming to determine that R = 500 and N = 400.

52 Identify constraints which have slack? Tick where relevant

Labour time
Machine time
Demand for R

53 Quantify the surplus?

The following scenario relates to questions 54–59. Sept 2016

Mylo runs a cafeteria situated on the ground floor of a large corporate office block. Each of the five floors of the building are
occupied and there are in total 1,240 employees. Mylo sells lunches and snacks in the cafeteria. The lunch menu is freshly
prepared each morning and Mylo has to decide how many meals to make each day. As the office block is located in the city
centre, there are several other places situated around the building where staff can buy their lunch, so the level of demand for
lunches in the cafeteria is uncertain. Mylo has analysed daily sales over the previous six months and established four
possible demand levels and their associated probabilities. He has produced the following payoff table to show the daily profits
which could be earned from the lunch sales in the cafeteria:

Demand level Probability Supply level

450 620 775 960
$ $ $ $
450 0·15 1,170 980 810 740
620 0·30 1,170 1,612 1,395 1,290
775 0·40 1,170 1,612 2,015 1,785
960 0·15 1,170 1,612 2,015 2,496

54
If Mylo adopts a maximin approach to decision-making, which daily supply level will he choose?
A 450 lunches
B 620 lunches
C 775 lunches
D 960 lunches

55
If Mylo adopts a minimax regret approach to decision-making, which daily supply level will he choose?
A 450 lunches
B 620 lunches
C 775 lunches
D 960 lunches

56
The human resources department has offered to undertake some research to help Mylo to predict the number of employees
who will require lunch in the cafeteria each day. This information will allow Mylo to prepare an accurate number of lunches each
day. What is the maximum amount which Mylo would be willing to pay for this information (to the nearest whole

15
$)?
A $191
B $359
C $478
D $175

57
Which of the following statements is/are true if Mylo chooses to use expected values to assist in his decision-
making regarding the number of lunches to be provided?
(1) Mylo would be considered to be taking a defensive and conservative approach to his decision
(2) Expected values will ignore any variability which could occur across the range of possible outcomes
(3) Expected values will not take into account the likelihood of the different outcomes occurring
(4) Expected values can be applied by Mylo as he is evaluating a decision which occurs many times over
A 1, 2 and 3
B 2 and 4
C 1 and 3 only
D 4 only

58
Mylo is now considering investing in a speciality coffee machine. He has estimated the following daily results for the new
machine:
$
Sales (2000 units) 4,000
Variable costs (3,000)
––––––
Contribution 1,000
Incremental fixed costs (800)
––––––
Profit 200
––––––

The sensitivity of the investment to a change in selling price is _________ %

The sensitivity to a change in the sales volume is ___________ %

The sensitivity to a change in the fixed costs is ___________%

59 NCA CIMA P2 SEPT 2012 simplified

CDF is evaluating a contract. 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. 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. What is the relevant cost for the machine?

16
60 CIMA

What is the expected value of monthly profit?

61 Gleim Q56 adapted

The Childers Company sell widgets. The company’s break even at annual sales of 70,000 units. Annual sales volume was
100,000 units, and the company reported a profit of $210,000. The annual fixed costs for the company is
_____________________.

62 Gleim Q6 adapted pg 416

Which of the following costs are relevant? Can choose more than ONE
A The cost of a device that is necessary if a special order is accepted
B Joint product costs incurred to be considered in sell-at-split versus a process-further decision
C The costs of alternative uses of plant space, to be considered in a make-or-buy-decision
D The costs of obsolete inventory acquired several years ago, to be considered in a keep-versus-disposal decision

63 Gleim Q12 pg 418

What is the opportunity cost of making component part in a factory given no alternative use of capacity?
A The variable manufacturing cost of the component
B The total manufacturing cost of the component
C Contribution of the component
D Zero

64 CPA MA textbook
A company generates a 12 per cent contribution on its weekly sales of $280 000. A new product, Z, is to be introduced at a
special offer price in order to stimulate interest in all the company's products, resulting in a 5 per cent increase in weekly
sales of the company's other products. Product Z will incur a variable unit cost of $2.20 to make and $0.15 to distribute.
Weekly sales of Z, at a special offer price of $1.90 per unit, are expected to be 3 000 units. The effect of the special
offer will be to increase the company's weekly profit by:
A $330
B $780
C $12,650
D $19,700

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65 ACCA 1.2 DEC 2001 adapted
Camden has two divisions. Information for 30 September is as follows:
Division A Division B Total
$’000 $’000 $’000
Sales 500 350 850
Variable cost 300 120 420
Contribution 200 170 370
Fixed costs 150 200 350
Net profit 50 (30) 20
The specific fixed costs for A and B is $100,000 and $70,000 respectively.
Which division(s) should remain open if Camden wishes to maximize profit?

66 Kaplan Q65
Q plc makes two products - Quone and Qutwo - from the same raw material. The selling price and cost details of these
products are as shown below:
Quone Qutwo
Selling price $ $
20 18
Direct material ($2.00 per kg) 8 5
Direct labour 2 3
Variable overhead 2. 1.50
12 9.50
Contribution per unit 8 8.5
The maximum demand for these products is 1,000 units per week for Quone and 1,500 units per week for Qutwo. What
would the shadow price of these materials be if material were limited to 2,500 kgs per week?

18
67
The following chart is the PV chart for product X, Y and Z

Line Z
Line Y
$10,000

0
200 600 Sales revenue in thousand

- $10,000

State TRUE or FALSE.

A The breakeven sales revenue when selling at constant mix is $200,000
B The highest contribution product is product Z
C The fixed cost is $10,000
D Product Y has a negative contribution

68
The following chart is a breakeven chart.

Total units

Which of the following is the contribution?

A a only
B b+c
C c+a
D b+a

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69 BPP course exam 1 2016
Grow It Co is trying to formulate its optimal production plan. It grows two products tomatoes and beans. Each batch
of plants can be sold for $30 and $18 respectively.
Variable costs per unit of the two products are as follows:
Tomatoes Beans
$ $
Fertiliser (@ $1 per 100g) 2 5
Labour (@$8 per hour) 16 8
Other variable costs 1 1
Total 19 14
Next month, only, 100 kg of material and 5,000 labour hours are available. The company aims to maximise its profits each
month. The company wants to use a linear programming model to establish an optimal production plan. The model
considers “t” to be number of batches of tomatoes to grow and “b” the number of batches of beans.Which of the following
objecti ve functions and constraints statements (relating to material and labour respectively) is correct?
Objective function Material constraint Labour constraint
A 30t + 18b 0.2t + 0.5b 2t + b ≤5000
B 11t + 4b 0.2t + 0.5b ≤100 2t + b ≤5000
C 11t + 4b 2t + 5b ≤100 16t +8b≤5000
D 30t + 18b 2t + 5b ≤100 16t +8b≤5000

70 CIMA P! SEPT 2011

A company is considering whether to develop an overseas market for its products. The cost of developing the new market
is estimated to be $250,000. There is a 70% probability that the development of the new market will succeed and a 30%
probability that the development of new market will fail and no further expenditure will be incurred.

If the market is successful the profit from the new market will depends on the prevailing market rates. There is a 50%
chance the exchange rates will be in line with expectations and a profit of $500,000 will be made. There is a 20% chance
that exchange rates will be favourable and a profit of $630,000 will be made and a 30% chance that exchange rates will be
adverse and a profit of $100,000 will be made.

Using a decision tree, calculate the EV of developing an oversea markets. Determine should the oversea market
be develop.

20