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Advanced Management Accounting Questions 28–101 (page: 22)

CORRECT TEXT
IOP's product is manufactured using a production process that is known to have a defect rate of 10%.

IOP's quality control department has developed a test that has a 98% probability of classifying a non-defective item correctly and a 2% probability of classifying a non-defective item as defective.

The same test has a 95% probability of classifying a defective item correctly and a 5% probability of classifying a defective item as non-defective.

Calculate the proportion of IOP's output that will be classified as non-defective by the quality control department's test.
Give your answer to one decimal place.

DRAG DROP (Drag and Drop is not supported)

Which of the following criticisms relate to traditional budgeting methods and which relate to the 'beyond budgeting' approach?

An 80% learning curve will apply to the production of a new product. The first unit will require 120 labor hours. The labor rate is $11 per hour.

To the nearest $1, the expected total labor cost for the first 4 units is:

An organization wishes to make its investment decisions on the basis of more than simply a financial appraisal. Which of the following will assist it to take into account both qualitative and quantitative factors?

One of an investment centre's products is sold on an external market. Output is limited because the specialist machine that manufactures the product is operating at full capacity.

Current data for the product are as follows.



Investigations have identified that more rigorous maintenance of the machine at an annual cost of $5,000 would reduce the number of breakdowns and increase its capacity to 1,300 units per year.

There would be no change in the selling price if more units were sold. Any additional labor hours would be paid a premium of 25%. A discount of 2% of the cost of all materials purchased is available if the company increases its purchases to 3,700 kg or more per year.
What would be the increase in the investment centre's annual controllable profit if more rigorous maintenance is undertaken?