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Advanced Management Accounting Questions 177–200 (page: 16)

An organization is comprised of two divisions. One of the divisions manufactures a product that it sells both to an imperfect external market and to the other division.

The organization wishes to establish the most suitable basis for the transfer price for this product and is considering either a negotiated transfer price or a market-based transfer price.

Which of the following statements is correct?

PorkyCo is a leading bread manufacturer in Toyland operating two functional divisions:
pulled and roasted. PorkyCo uses IT systems in all of its functions, for example, accounting has one system, manufacturing has its

system, warehousing has another and human resources is the latest to develop a dedicated system to manage training and development

The issue now is that when the CEO, Mr Button, needs information about two or more functions, he has to convene the department heads to get their reports and then study each in turn. As senior management

accountant at PorkyCo, help free up Mr Button's time by suggesting the most efficient way of getting all the information he needs.

The Chief Executive of a large manufacturing company has made the following comment.

"All of our competitors are using both just-in-time(JIT) and Total Quality Management (TQM) whereas we have never used either. Consequently we are lagging behind our competitors because their levels of inventory and quality costs are significantly below ours. I want to see JIT fully implemented, both for purchasing and for production, in 4 weeks' time and TQM fully implemented 4 weeks after that."

Which of the following provide appropriate advice to the Chief Executive?

Select ALL that apply.

CORRECT TEXT
K Supermarket spends $80,000 per year on checking and processing receipts of inventory. Annual warehouse costs are a further $70,000 per year. These costs are currently treated as fixed overheads in the company's costing system.

As an experiment, the company is preparing a direct profitability analysis of a small range of products, including fresh grapes.

K Supermarket receives a total of 3,600 deliveries every year. 20% of these deliveries are of perishable goods such as grapes. It takes twice as long to process a delivery of perishable goods compared to a normal delivery because perishable goods have to be checked more carefully.

Half of the warehouse costs are for the chilled store that is used to store perishable goods. At any time, the chilled store has 800 kilos of perishable goods in stock.

K Supermarket receives 150 deliveries of grapes every year. Each delivery is for 100 kilos of grapes. The grapes spend an average of two days in the chilled store before they are sold.

Calculate the total cost per kilo of checking, processing and storing grapes that should be taken into account in determining the profitability of grapes.

Give your answer to the nearest whole cent.

A company is deciding whether to invest in project A or project B. A decision tree has been prepared to illustrate the investment decision and its associated possible net present values (NPVs).


Which of the following statements is correct?