QUESTION: 29

A university is trying to decide whether or not to advertise a new post-graduate degree programme. The number of students starting the programme is dependent on economic conditions. If conditions are poor, it is expected that the programme will attract 40 students without advertising. There is a 60% chance that economic conditions will be poor. If economic conditions are good it is expected that the programme will attract only 20 students without advertising. There is a 40% chance that economic conditions will be good.

If the programme is advertised and economic conditions are poor, there is a 65% chance that the advertising will stimulate further demand and student numbers will increase to 50. If economic conditions are good, there is a 25% chance the advertising will stimulate further demand and numbers will increase to 25 students.

The profit expected, before deducting the cost of advertising, at different levels of student numbers are as follows:

The cost of advertising the programme will be $15,000.

Required:

Demonstrate, using a decision tree, whether the programme should be advertised.

Yes, the programme should be advertised as the profit will be $82 000
Yes, the programme should be advertised as the profit will be $92 000
No, the programme should not be advertised as there will be a loss $82 000
No, the programme should not be advertised as there will be a loss $92 000

Answer(s): A

Reveal Solution Next Question

QUESTION: 30

RT produces two products from different quantities of the same resources using a just-in- time (JIT) production system. The selling price and resource requirements of each of the products are shown below:

Market research shows that the maximum demand for products R and T during June 2010 is 500 units and 800 units respectively. This does not include an order that RT has agreed with a commercial customer for the supply of 250 units of R and 350 units of T at selling prices of $100 and $135 per unit respectively. Although the customer will accept part of the order, failure by RT to deliver the order in full by the end of June will cause RT to incur a $10,000 financial penalty. At a recent meeting of the purchasing and production managers to discuss the production plans of RT for June, the following resource restrictions for June were identified:

Direct labour hours 7,500 hours

Material A 8,500 kgs

Material B 3,000 litres

Machine hours 7,500 hours

Assuming that RT completes the order with the commercial customer, prepare calculations to show, from a financial perspective, the optimum production plan for June 2010 and the contribution that would result from adopting this plan.

The optimum production plan will be:

Contract: R = 250, T = 360 and Market: R = 500 T = 710
Contract: R = 250, T = 360 and Market: R = 600 T = 710
Contract: R = 250, T = 360 and Market: R = 650 T = 710
Contract: R = 250, T = 360 and Market: R = 500 T = 700
Contract: R = 250, T = 360 and Market: R = 660 T = 720

Answer(s): D

Reveal Solution Next Question

QUESTION: 31

A medium-sized manufacturing company, which operates in the electronics industry, has employed a firm of consultants to carry out a review of the company's planning and control systems. The company presently uses a traditional incremental budgeting system and the inventory management system is based on economic order quantities (EOQ) and reorder levels. The company's normal production patterns have changed significantly over the previous few years as a result of increasing demand for customized products. This has resulted in shorter production runs and difficulties with production and resource planning.

The consultants have recommended the implementation of activity based budgeting and a manufacturing resource planning system to improve planning and resource management.

Select ALL the benefits for the company that could occur following the introduction of an activity based budgeting system.

Under an activity based budgeting system, resource allocation is linked to the strategic plan is prepared after considering alternative strategies. This approach ensures that new activities that are required to meet the company's strategic objectives are included in the

budget.
Under an activity based budgeting system the focus is on existing resources and operations. Adjustments are then made for changes in activity and price which results in past inefficiencies being perpetuated. Under a traditional budgeting system, only resources that are needed to perform activities required to meet the budgeted production and sales volumes are included.
Activity based techniques including activity based budgeting focus on the outputs of a process rather than the input to the process. This approach provides a clear framework for understanding the link between costs and the level of activity. It allows the ranking of activities and the determination of how limited resources should be allocated across competing activities.
ABB systems present costs under functional headings i.e. the emphasis is on the nature of the cost. The weakness of this approach is that it gives little indication of the link between the level of activity and the cost incurred.
The approach under an activity based system is to make arbitrary cuts in order to meet overall financial targets.
Activity based budgeting allows the identification of value added and non-value added activities and ensures that cuts are made to non-value added activities. ABB is also useful for review of capacity utilization.

Answer(s): A,C,D,F

Reveal Solution Next Question

QUESTION: 32

DRAG DROP (Drag & Drop is not supported)

For a company that does not have any production resource limitations, what would be the correct sequence for budget preparation?