QUESTION: 65

You are a management accounting working for a car manufacturer. The company is publicly listed and has been around for many years.

The company produces 2 products. Car 1 and Car 2. Car 1 sells for £20,000 and Car 2 for £27,000.

Car 1 can be upgraded post production to the 1ZC model for £5,000 and Car 2 to the 2ZC model for £3,500.

Post production upgrade the 1ZC sells for £25,500 and the 2ZCfor £30,000.

The company sources all of its supplies for the same supplier and has access to a large workforce. As a result there are no bottlenecks or limiting factors to production.

Based on the information above the company should...

Upgrade both models
Upgrade Car 1 but not Car 2
Upgrade Car 2 but not Car 1
Keep both Cars as base models

Answer(s): B

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QUESTION: 66

JRL manufactures two products from different combinations of the same resources. Unit selling prices and unit cost details for each product are as follows:

* Refer to your answer in the previous question.

The optimal solution to the previous question shows that the shadow prices of skilled labour and direct material A are as follows:

Skilled labour $ Nil Direct Material A $11.70

Explain the relevance of these values to the management of JRL.

Select ALL the true statements.

The shadow price equals the additional contribution that would be earned from one extra unit of a scarce resource.
In a situation such as this, where a number of resources are scarce, the shadow price of any particular scarce resource will depend on whether or not the resource is not binding.
The shadow price for skilled labour is NIL because although there is a shortage of skilled labour it does have a constraining effect on output of JR as other resources are more scarce.
Since material A is one of the binding constraints, if the availability of material A could be increased by one unit, this would change the optimal plan.
The decrease in contribution as a result of this change is the value of the shadow price of material A. The shadow price thus represents the maximum premium that should be paid for an additional unit of material A.

Answer(s): A,D

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QUESTION: 67

CORRECT TEXT
The inventory level of Product Y has reduced by 40 units over a single period. The cost card for Product Y is as follows:

The profit for Product Y using marginal costing is $26,000.

If the company used absorption costing, what would the profit for Product Y be?

Give your answer to the nearest whole $.

$24600
$25600

Answer(s): A

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QUESTION: 68

HOTSPOT (Drag & Drop is not supported)

A time series (TS) is made up of two main components i.e. trend (T) and the seasonal

variation (SV).

The equation that represents the seasonal variation under the additive model is: