QUESTION: 141

A company is considering whether to launch a new product. The selling price and costs for each unit of the product are shown in table below:

The fixed overhead cost is based on expected production of 2,000 units.

The company will only launch the product if it is expected to be profitable.

To which of the following is the decision to launch the product most sensitive?

Sales volume
Selling price
Fixed overhead cost
Material cost

Answer(s): B

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QUESTION: 142

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.

Machine operating costs is a relevant cost.
Development Cost is a relevant cost.
General fixed overhead costs are relevant costs.
Direct labour cist is a relevant cost
The total relevant cost was $84 990
The total relevant cost was $94 740
The total relevant cost was $104 320

Answer(s): A,D,E

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QUESTION: 143

EF manufactures and sells three products, X, Y and Z. The following production overhead costs are budgeted for next year:

Required:

Calculate the total budgeted production overhead cost for each product using activity based budgeting.

The total budgeted production overhead cost was $ 1 285 000
The total budgeted production overhead cost was $ 1 305 000
The total budgeted production overhead cost was $ 2 195 000
The total budgeted production overhead cost was $ 1 188 000
The total budgeted production overhead cost was $ 1 258 000

Answer(s): D

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QUESTION: 144

The performance of a production manager is assessed on efficient use of materials during the production process.

Actual data and data from the fixed budget for Month 4 are as follows:

What figures should be compared in order to assess the production manager's performance for Month 4?

15,500 kg and 11,000 kg
15,500 kg and 14,000 kg
16,500 kg and 16,000 kg
11,000 kg and 14,000 kg

Answer(s): A

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QUESTION: 141

QUESTION: 142

QUESTION: 143

QUESTION: 144