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Management and Cost Accounting 10th edition Colin Drury - Solutions
Mackerel Contracting (Mackerel) is a listed defence contractor working mainly for its domestic government in Zedland. At present, Mackerel is considering tendering for a contract to design and develop a new armoured personnel vehicle (APV) for the army to protect its soldiers during transport
Gam Co sells electronic equipment and is about to launch a new product onto the market. It needs to prepare its budget for the coming year and is trying to decide whether to launch the product at a price of $30 or $35 per unit. The following information has been obtained from market research: 1.
XY has developed two new products, Product X and Product Y, but has insufficient resources to launch both products. The success of the products will depend on the extent of competitor reaction. There is a 20 percent chance that competitors will take no action, a 50 percent chance that they will
A company uses a third party delivery service to deliver goods to customers. The current average cost per delivery is $12.50. The company is trying to decide whether to establish an in-house delivery service. A number of factors could affect the average total cost per delivery for the in-house
A company has to decide which of three machines to purchase to manufacture a product. Each machine has the same purchase price but the operating costs of the machines differ. Machine A has low fixed costs and high variable costs; Machine B has average fixed costs and average variable costs whilst
A company has to decide which of three mutually exclusive projects to invest in next year. The directors believe that the success of the projects will vary depending on economic conditions. There is a 30 percent chance that conditions will be good, a 20 percent chance that conditions will be fair
A marketing manager is deciding which of four potential selling prices to charge for a new product. The market for the product is uncertain and reaction from competitors may be strong, medium or weak. The manager has prepared a payoff table showing the forecast profit for each of the possible
A company is planning to launch a new product. The price at which it will sell the product will be determined by the level of competition in the market which is currently uncertain. The possible selling prices and variable costs and their respective associated probabilities are as
A company uses decision tree analysis to evaluate potential options. The management accountant for the company has established the following: What would be the cost of the upgrade that would make the company financially indifferent between building new premises and upgrading the old one?(a) ?100
Darwin uses decision tree analysis in order to evaluate potential projects. The company has been looking at the launch of a new product which it believes has a 70 percent probability of success. The company is, however, considering undertaking an advertising campaign costing £50 000, which would
How does diversification impact on measuring risk?
Distinguish between maximin, maximax and regret criteria. When might it be appropriate to apply these criteria?
What is the expected value of perfect information and how can it be determined?
What is a decision tree and what purpose does it serve?
What are the disadvantages of the standard deviation as a measure of risk?
Distinguish between the standard deviation and the coefficient of variation.
Distinguish between expected value and the single most likely estimate.
How do subjective probabilities differ from objective probabilities?
Distinguish between risk and uncertainty.
GMB Co. designs, produces and sells a number of products. Functions are recognized from design through to the distribution of products. Within each function, a number of activities may be distinguished and a principal driver identified for each activity.Each sales order will normally comprise a
WTL manufactures and sells four products: W, X, Y, and Z from a single factory. Each of the products is manufactured in batches of 100 units using a just-in-time manufacturing process and consequently there is no inventory of any product. This batch size of 100 units cannot be altered without
Abkaber plc assembles three types of motorcycle at the same factory: the 50cc Sunshine; the 250cc Roadster and the 1000cc Fireball. It sells the motorcycles throughout the world. In response to market pressures, Abkaber plc has invested heavily in new manufacturing technology in recent years and,
Robust Laptops Co. (RL) make laptop computers for use in dangerous environments.The company?s main customers are organizations like oil companies and the military that require a laptop that can survive rough handling in transport to a site and can be made to their unique requirements.The company
Explain how time-driven ABC differs from traditional ABC.
Explain the circumstances in which ABC is likely to be preferred to traditional costing systems.
Distinguish between the cost of resources supplied, the cost of resources used and the cost of unused capacity.
What is an ABC resource consumption model?
Describe the ABC profitability analysis hierarchy.
Describe the ABC manufacturing cost hierarchy.
Distinguish between transaction and duration cost drivers.
Distinguish between resource cost drivers and activity cost drivers.
Describe each of the four stages involved in designing ABC systems.
What is meant by ‘product diversity’ and why is it important for product costing?
Explain how low volume products can be under-costed and high volume products over-costed when traditional costing systems are used.
Describe the circumstances when traditional costing systems are likely to report distorted costs.
Distinguish between volume-based and non-volume-based cost drivers.
What factors led to the emergence of ABC systems?
Define activities and cost drivers.
What are the fundamental differences between a traditional and an ABC system?
Describe the three different types of cost system that can be used to assign costs to cost objects.
Explain why a cost accumulation system is required for generating relevant cost information for decision-making.
ML is an engineering company that specializes in providing engineering facilities to businesses that cannot justify operating their own facilities in-house. ML employs a number of engineers who are skilled in different engineering techniques that enable ML to provide a full range of engineering
A company has carried out extensive product research and as a result has just launched a new innovative product unlike anything else that is currently available on the market. The company has launched this product using a market-skimming pricing policy.The market in which it operates is highly
ALG Co is launching a new, innovative product on to the market and is trying to decide on the right launch price for the product. The product?s expected life is three years. Given the high level of costs which have been incurred in developing the product, ALG Co wants to ensure that it sets its
PPP is a theme park. The following information is available for the forthcoming month:Forecast daily ticket sales and prices The theme park will be open for 30 days in the month.CostsVariable costs per person per day are forecast to be $12.50.Fixed costs for the month are forecast to be $6 500
DLW is a company that builds innovative, environmentally friendly housing. DLW’s houses use high quality materials and the unique patented energy saving technology used in the houses has been the result of the company’s own extensive research in the area. DLW is planning to expand into another
ST is a distribution company that buys a product in bulk from manufacturers, repackages the product into smaller packs and then sells the packs to retail customers. ST?s customers vary in size and consequently the size and frequency of their orders also varies. Some customers order large quantities
Albany has recently spent some time on researching and developing a new product for which they are trying to establish a suitable price. Previously they have used cost-plus 20 percent to set the selling price. The standard cost per unit has been estimated as follows: Required:(a) Using the
A company manufactures a single product, product Y. It has documented levels of demand at certain selling prices for this product as follows: Required:Using a tabular approach, calculate the marginal revenues and marginal costs for product Y at the different levels of demand, and so determine the
Why is customer profitability analysis important?
Describe the different kinds of pricing policy that an organization can apply.
Why is cost-plus pricing frequently used in practice?
What are the limitations of cost-plus pricing?
Describe the alternative cost bases that can be used with cost-plus pricing.
What role does cost information play in price-taking firms?
Describe the four stages involved with target costing.
Distinguish between cost-plus pricing and target costing.
What is meant by cost-plus pricing?
What is meant by the term ‘full cost’?
What costs are likely to be relevant for (a) A short-run pricing decision,(b) A long-run pricing decision?
Distinguish between a price taker and a price setter.
Solar Systems Co (S Co) makes two types of solar panels at its manufacturing plant: large panels for commercial customers and small panels for domestic customers. All panels are produced using the same materials, machinery and a skilled labour force. Production takes place for five days per week,
Robber Co. manufactures control panels for burglar alarms, a very profitable product. Every product comes with a one year warranty offering free repairs if any faults arise in this period. It currently produces and sells 80 000 units per annum, with production of them being restricted by the short
The Telephone Co. (T Co.) is a company specializing in the provision of telephone systems for commercial clients. There are two parts to the business:– Installing telephone systems in businesses, either first time installations or replacement installations;– Supporting the telephone systems
A company has three shops (R, S and T) to which the following budgeted information relates: Sixty percent of the total fixed costs are general company overheads. These are apportioned to the shops on the basis of sales value. The other fixed costs are specific to each shop and are avoidable if the
All of a company?s skilled labour, which is paid ?8 per hour, is fully employed manufacturing a product to which the following data refer: The company is evaluating a contract which requires 90 skilled labour hours to complete. No other supplies of skilled labour are available.What is the total
A company has the following production planned for the next four weeks. The figures reflect the full capacity level of operations. Planned output is equal to the maximum demand per product. The direct labour force is threatening to go on strike for two weeks out of the coming four. This means that
Describe throughput accounting and explain how it can be used to determine the optimum use of a bottleneck activity.
Describe the five steps involved in applying the theory of constraints.
Why does the relevant cost of labour differ depending on the circumstances?
Explain the circumstances when the original purchase price of materials are irrelevant for decision-making.
Explain the importance of opportunity costs for decision-making.
Why is the written-down value and depreciation of an asset being considered for replacement irrelevant when making replacement decisions?
How should a company determine its optimal product mix when a limiting factor exists?
Define limiting factors.
Describe the dangers involved in focusing excessively on a short-run decision-making time horizon.
Describe the important factors that must be taken into account when making special pricing decisions.
Explain what is meant by special pricing decisions.
What underlying principle should be followed in determining relevant costs for decision-making?
Why is it important to recognize qualitative factors when presenting information for decision-making? Provide examples of qualitative factors.
Tweed Ltd is a company engaged solely in the manufacture of sweaters, which are bought mainly for sporting activities. Present sales are direct to retailers, but in recent years there has been a steady decline in output because of increased foreign competition. In the last trading year the
Z plc operates a single retail outlet selling direct to the public. Profit statements for August and September are as follows: Required:(a) Use the high?low method to identify the behaviour of:(i) Cost of sales;(ii) Selling and distribution costs;(iii) Administration costs.(b) Draw a
ZED plc manufactures one standard product, which sells at ?10. You are required to:(a) Prepare from the data given below, a break-even and profit?volume graph showing the results for the six months ending 30 April and to determine:(i) The fixed costs;(ii) The variable cost per unit;(iii) The
A break-even chart is shown below for Windhurst Ltd. You are required:(i) To identify the components of the break-even chart labelled p, q, r, s, t, u, v, w, x and y;(ii) To suggest what events are represented at the values of x that are labelled m and non the chart;(iii) To assess the usefulness
Z plc currently sells products Aye, Bee and Cee in equal quantities and at the same selling price per unit. The contribution to sales ratio for product Aye is 40 percent; for product Bee it is 50 percent and the total is 48 percent. If fixed costs are unaffected by mix and are currently 20 percent
A company manufactures a single product.Budget and standard cost details for next year include:Selling price per unit ................................$24.00Variable production cost per unit ...............$8.60Fixed production costs ........................$650 000Fixed selling and distribution
A company’s budget for the next period shows that it would break even at sales revenue of $800 000 and fixed costs of $320 000.The sales revenue needed to achieve a profit of $200 000 in the next period would be:(a) $1 000 000(b) $1 300 000(c) $1 320 000(d) $866 667
Bittern Ltd manufactures and sells a single product at a unit selling price of ?25 in constant price level terms. Its cost structure is as follows: Variable costs:Production materials ..............?10 per unit producedDistribution ..............................?1 per unit soldSemi-variable
A newly formed company has drawn up the following budgets for its first two accounting periods: The following budgeted information applies to both periods:.............................................................................$Selling price per unit
The following details have been extracted from KL?s budget:Selling price per unit ..................................$140Variable production costs per unit ...............$45Fixed production costs per unit ...................$32The budgeted fixed production cost per unit was based on a normal
A company manufactures and sells a single product.In two consecutive months the following levels of production and sales (in units) occurred: The opening inventory for Month 1 was 400 units. Profits or losses have been calculated for each month using both absorption and marginal costing
A company uses standard absorption costing to value inventory. Its fixed overhead absorption rate is $12 per labour hour and each unit of production should take four labour hours. In a recent period when there was no opening inventory of finished goods, 20 000 units were produced using 100 000
A company has the following budgeted costs and revenues:............................................................$ per unitSales price .............................................50Variable production cost ........................18Fixed production cost ............................10In the most
Rayman Company produces three chemical products, J1X, J2Y and B1Z. Raw materials are processed in a single plant to produce two intermediate products, J1 and J2, in fixed proportions. There is no market for these two intermediate products. J1 is processed further through process X to yield the
Luiz Ltd operates several manufacturing processes in which stocks of work in progress are never held. In process K, joint products (P1 and P2) are created in the ratio 2:1 by volume from the raw materials input. In this process, a normal loss of 4 per cent of the raw materials input is expected.
Explain why the break-even point changes when there is a change in sales mix.
How can a company with multiple products use cost–volume–profit analysis?
Describe and distinguish between the three different approaches to presenting cost–volume–profit relationships in graphical format.
Define the term ‘profit–volume ratio’ and explain how it can be used for cost–volume–profit analysis.
Provide examples of how cost–volume–profit analysis can be used for decision-making.
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