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Fundamentals of Management Accounting Questions 116–120 (page: 25)

Fast Manufacturers PLC have reconsidered their new project and the initial investment required of £1,000,000 is now 25% less than the original conception. The project will remain will have a three year life span and

have no scrap value.

However, this new conception has operating costs of £150,000 in year 1, and increasing by 5% due to inflation the following years. The gross revenue will also be higher across the board. The new project conception is

forecasting a gross revenue of £525,000 in year 1 and again increasing with inflation 5% for years 2 and 3.

If the cost of capital has remained at 14%, should Fast Manufacturers PLC go ahead with the revised project?

CORRECT TEXT

Refer to the exhibit.



ZAP publishes a monthly magazine aimed at the teenage market. It has drawn up a budget for next year as follows:

The magazine is currently sold at $2.00 per copy.

The margin of safety is

CORRECT TEXT

Refer to the exhibit.



A company currently manufactures a component which has the following costs per unit:

If the fixed overhead costs are unavoidable costs, what is the maximum price the company should be willing to pay to buy-in the component?
Give your answer to 2 decimal places.

Refer to the exhibit.



Vertical axis = £; horizontal axis = level of activity

This graph is known as a:

Overhead absorption is best described as: