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Advanced Management Accounting Questions 184–188 (page: 13)

CORRECT TEXT
A large supermarket is applying direct product profitability analysis to establish the profit earned by each of the products it sells.

Data for product P are as follows.



The shelf is stacked each time that all units are sold and there are no units of product P left unsold at the end of each day.

What is the direct product profit per unit of product P?

Give your answer to the nearest $0.01.

Which TWO of the following expressions are correct?

A company is determining the selling price for its new product.

At a selling price of $16 per unit there will be zero demand but for every $1 reduction in the price, demand will increase by 100 units per period.

Production must be in batches of 100 units. The variable cost per unit will be $8 if 400 units are produced in a period. For each additional batch produced in a period the variable cost per unit will increase by $1 per unit for the additional batch only.

No inventories will be held.

Which of the following sales and production volumes will generate the highest contribution per period?

A very large organization is financed by both debt and equity. It evaluates all projects on the basis of their net present value (NPV) using an organization wide weighted average cost of capital as the discount rate.

For a small project, which TWO of the following would affect the project's cash flows AND the discount rate?

Company S has two divisions, X and Y. Division X transfers 50,000 component units to Division Y each quarter. The market price of the component is $20. Division X's variable cost is $10 per unit and its fixed cost is $150,000 each quarter.

What price would be credited to Division X for each component that it transfers to Division Y under:

two-part tariff pricing (where the two divisions have agreed that the fixed fee will be $100,000); and dual pricing (based on market price and marginal cost).