Dust Co has two divisions, A and B. Each division is currently considering the following separate projects:
Division A Division B
Capital required for the project $32.6 million $22.2 million
Sales generated by the project $14.4 million $8.8 million
Operating profit margin 30% 24%
Cost of capital 10% 10%
Current return on investment of division 15% 9%
If residual income is used as the basis for the investment decision, which division(s) would choose to invest in the project?
Oxco has two divisions, A and B. Division A makes a component for air conditioning units which it can only sell to Division B. It has no other outlet for sales.
Current information relating to Division A is as follows:
Marginal cost per unit $100
Transfer price of the component $165
Total production and sales of the component each year 2,200 units
Specific fixed costs of Division A per year $10,000
Cold Co has offered to sell the component to Division B for $140 per unit.
If Division B accepts this offer, Division A will be shut. If Division B accepts Cold Co’s offer, what will be the impact on profits per year for the group as a whole?
A company has used expected values to evaluate a one-off project. The expected value calculation assumed two possible profit outcomes which were assigned probabilities of 0.4 and 0.6.
Which of the following statements about this approach are correct?
(1) The expected value profit is the profit which has the highest probability of being achieved.
(2) The expected value gives no indication of the dispersion of the possible outcomes.
(3) Expected values are relatively insensitive to assumptions about probability.
(4) The expected value may not correspond to any of the actual possible outcomes.
Tree Co is considering employing a sales manager. Market research has shown that a good sales manager can increase profit by 30%, an average one by 20% and a poor one by 10%. Experience has shown that the company has attracted a good sales manager 35% of the time, an average one 45% of the time and a poor one 20% of the time. The company’s normal profits are $180,000 per annum and the sales manager’s salary would be $40,000 per annum.
Based on the expected value criterion, which of the following represents the correct advice which Tree Co should be given?
A government is looking at assessing hospitals by reference to a range of both financial and non-financial factors, one of which is survival rates for heart by-pass operations and another is ‘cost per successfully treated patient’.
Which of the three E’s in the ‘Value For Money’ framework is not measured here?
Which of the following statements, regarding the existence of multiple objectives in not-for-profit organisations, is/are correct?
(1) They ensure goal congruence between stakeholders.
(2) Compromise between objectives can be problematic.
The following statements have been made about Activity-Based Budgeting (ABB):
(1) The costs determined using ABC are used as a basis for preparing budgets.
(2) The aim of ABB is to control the number of units output rather than the costs themselves.
Which of the above statement(s) is/are true?
The following statements have been made about budgetary systems in the performance hierarchy:
(1) Developing new products in response the changes in technology is a budgeting activity that would fall within operational planning and control.
(2) Budgetary systems at strategic planning levels look at the business as a whole and define resource requirements.
Which of the above statement(s) is/are true?
The following table shows the number of clients who attended a particular accountancy practice over the last four weeks and the total costs incurred during each of the weeks:
Week Number of clients Total cost
$
1 400 36,880
2 440 39,840
3 420 36,800
4 460 40,000
Applying the high low method to the above information, which of the following could be used to forecast total cost ($) from the number of clients expected to attend (where x = the expected number of clients)?
The management accountant of a business has identified the following information:
Activity level 800 units 1,200 units
Total cost $16,400 $23,600
The fixed costs of the business step up by 40% at 900 units.
What is the variable cost per unit?