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A company currently absorbs production overheads based on labor hours. The overheads absorbed by the two products that are made, L and M, are $4 per unit and $10 per unit respectively. These were based on the budgeted overheads of $7,000 and budgeted labor hours of 1,750. The budgeted output was 500 units of each product.The company is investigating the use of activity based costing (ABC). Analysis has shown that the total production overheads of $7,000 are made up of $4,000 for set up costs and $3,000 for inspection costs. The cost driver for set up costs is the number of set ups and for inspection costs it is the number of inspections. The cost driver rate for set ups is $160 per set up. Product L would need 5 production runs. Both types of product would need 1 set up for each production run. Product L would need 2 inspections for each production run. Product M would need 1 inspection per production run. The products are made in the same department and use the same equipment and staff but they are produced separately. Which of the following statements are correct? Select ALL that apply.
If transfer prices are set at variable costs, the supplying division does not cover its fixed costs. Which of the following does NOT resolve this problem?
Which TWO of the following are reasons why cost-based approaches to transfer pricing are often used in practice?
Which TWO of the following expressions are correct?
A company has a 31 December year end and pays corporation tax at a rate of 30%. Corporation tax is payable 12 months after the end of the year to which the cash flows relate. The company can claim tax allowable depreciation at a rate of 25% reducing balance. It pays $1 million for a machine on 31 December 20X4. The company's cost of capital is 10%. What is the present value of the benefit of the first portion of tax allowable depreciation?
The net present value of the cost of operating a machine for the next 4 years is £6,340. The discount rate used is 10%.What is the equivalent annual cost and the present value of the cost in perpetuity of operating this machine? Use discount factors to 3 decimal places.
A company has recently developed a new lawnmower with an estimated market life of 5 years. Production and sale of the lawnmower will require investment in new production equipment costing $750,000. It is expected that this equipment could be sold back to the original vendor for $50,000 at the end of five years. Purchase of the equipment would be financed by a 5 year fixed rate bank loan at an interest rate of 6%. A manager already employed by the company would be moved from their current position to manage production of the new lawnmower. Their original position would be filled by a new recruit on a fixed annual salary of $35,000. Which of the following statements is NOT correct?
Which of the following statements are fundamental concepts that underlie the Beyond Budgeting approach? 1. Use traditional budgeting in conjunction with other techniques. 2. Use adaptive management processes rather than the more rigid annual budget. 3. Move towards devolved networks rather than centralized hierarchies. 4. Move towards centralized hierarchies rather than devolved networks.
A company is determining the selling price for its new product.At a selling price of $16 per unit there will be zero demand but for every $1 reduction in the price, demand will increase by 100 units per period. Production must be in batches of 100 units. The variable cost per unit will be $8 if 400 units are produced in a period. For each additional batch produced in a period the variable cost per unit will increase by $1 per unit for the additional batch only. No inventories will be held. Which of the following sales and production volumes will generate the highest contribution per period?
Risk management can be represented as a four step process. The four steps, shown randomly, are:1. Establish appropriate risk management policies. 2. Risks are identified by key stakeholders. 3. Risks are monitored on an ongoing basis. 4. Risks are evaluated according to the likelihood of occurrence and impact on the organization. Which of the following is the correct order for the four steps?
Which of the following statements is NOT correct?Transfer prices between responsibility centers should be set at a level that:
It is often claimed that a two-part transfer pricing system offers a number of advantages to organizations which use it.Which of the following statements is NOT an advantage of using a two-part transfer pricing system?
Company S has two divisions, X and Y. Division X transfers 50,000 component units to Division Y each quarter. The market price of the component is $20. Division X's variable cost is $10 per unit and its fixed cost is $150,000 each quarter. What price would be credited to Division X for each component that it transfers to Division Y under: two-part tariff pricing (where the two divisions have agreed that the fixed fee will be $100,000); and dual pricing (based on market price and marginal cost).
The Chief Executive of a large manufacturing company has made the following comment."All of our competitors are using both just-in-time(JIT) and Total Quality Management (TQM) whereas we have never used either. Consequently we are lagging behind our competitors because their levels of inventory and quality costs are significantly below ours. I want to see JIT fully implemented, both for purchasing and for production, in 4 weeks' time and TQM fully implemented 4 weeks after that." Which of the following provide appropriate advice to the Chief Executive? Select ALL that apply.
The performance report for the production manager of a company for the last month included the following.1,000 direct labor hours were worked at a basic rate of pay of $10 per hour. 200 of these hours were worked during overtime for which a 30% overtime premium was paid. 80 of these overtime hours were to fulfill a customer order that had originally been planned for manufacture next month. The sales manager had agreed to bring forward the delivery of this order at the request of the customer. The remaining overtime hours were due to unexpected inefficiency of the workforce; this has been traced to poor supervision by a junior managerMaterial costs included the following: ? $5,300 of material A. Material A is a commodity and, due to changes on the global market, the actual unit cost of this material for last month was 6% higher than had been expected ? $5,250 of material B. The usage of material B last month was 5% higher than it should have been due to faulty workmanship on the production line. What is the total value of the above costs that was controllable by the production manager?
GHY has two subsidiaries. GHY-Motor manufactures car engines and GHY-Build designs and assembles cars. In the car industry it is common for manufacturers to buy parts, including engines, from other manufacturers.GHY has granted GHY-Motor and GHY-Build full autonomy. GHY-Build is considering using an engine from another company for a new model that it is designing. GYY-Motor has a suitable engine, but it charges more than GHY-Build's preferred supplier. Which of the following statements is correct? Select ALL that apply.
Beyond Budgeting is essentially an approach that places modern management practices within a cultural framework. Analyze the following statements: 1. The organization structure should have clear principles and boundaries. 2. Managers should be given a high degree of freedom to make decisions. 3. Frontline managers should be made responsible for relationships with customers. 4. Information system should be transparent and ethical. Which of the above statements relate to Beyond Budgeting?
Which of the following statements is true?
LL produces an item, the Z, for which the demand curve is estimated to be:P = 10 - 0.0001Q where, P is the unit price in $ and Q is the annual sales volume in units;Marginal revenue (MR) = 10 - 0.0002QThe variable cost of producing the Z is $2 per unit. The annual fixed costs of production are $110,000. What is the profit maximizing output level?
Product WB currently sells for $13 per unit. Annual demand at that price is 20,000 units. If the price increases to $15, the annual demand falls by 500 units.What is the formula for the demand curve?
SDF is a newly-established production company that is experiencing high staff turnover in its factory. The production department is studying the manufacturing process and its associated learning curve.Which of the following statements is correct?
Which of the following activities are included within activity based management (ABM)?1. Cost reduction 2. Product design decisions 3. Variance analysis 4. Operational control 5. Performance evaluation
ZZZ is a divisionalised company that uses the balanced scorecard approach to monitor divisional performance. Each measure on the scorecard is classified as green (if they are better than expected), amber (if expectations have been met) or red (if they are poorer than expected).The Southern Division's scorecard shows that 90% of the measures are amber, 3% are green and 7% are red. All of the red classifications are listed under the Learning and Growth perspective and have arisen largely because the division has lost a lot of staff to a major competitor who offered a better rate of pay. Which THREE of the following statements are correct?
Firefighters risk serious and potentially fatal accidents whenever they attend an incident.Which of the following statements is correct?
SDF makes cars. Demand for one of SDF's most popular models has declined because of a longrunning television program. SDF's car is driven by a villainous character in the program and that has created such a negative association that sales have declined so significantly that SDF is planning to discontinue production.Which of the following statements is correct? Select ALL that apply.
An airline prides itself on using highly reliable aircraft that are maintained to the highest possible standard and that its flight crews are arguably the best in the industry. Despite that, the directors accept that there remains a slight possibility that there will be a fatal accident. Which THREE of the following statements are correct?
Which of the following statements is correct?
A manufacturing company has just developed a new product and must now determine the most appropriate pricing strategy for its initial launch.The product will initially be unique because it will include highly desirable features that no competitive product offers. Its development has involved substantial expenditure and the company wishes to recover this as soon as possible. The product's uniqueness is expected to last for only six months before a competitor launches a similar product. It is expected that the competitor will avoid any significant development costs by reverse engineering the company's own product. At that point, to remain competitive, the company must ensure that its selling price matches that of the competitor. Which of the following pricing strategies would be most suitable for the initial launch of the company's product?
A small company currently uses an information system that was implemented several years ago and is based entirely on internal data. The company is considering replacing it with a more up to date system. It has been suggested that the new system should include the use of big data.Which TWO of the following statements are correct?
Which TWO of the following statements are correct?
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