These are ACCA F5 (PM) Performance Management MCQs for Part-C of the Syllabus “Decision-making techniques “ .
These multiple-choice questions (MCQs) are designed to help ACCA F5 students to better understand the exam format. We aim to instill in students the habit of practicing online for their CBE exams . By doing so, students can reduce exam stress and prepare more effectively.
Please note:
Students should not attempt these MCQs until they have finished the entire chapter.
All questions are compulsory, so please do not skip any.
We hope that these MCQs will be a valuable resource for students preparing for the ACCA F5 (PM) exam .
Course: ACCA – Association of Chartered Certified Accountants Fundamental Level: Applied Skills Subject: Performance Management Paper: F5 – PM Chapters and Topics Covered: Relevant cost analysis, Cost volume profit analysis (CVP), Limiting factors, Pricing decisions, Make-or-buy and other short-term decisions, Dealing with risk and uncertainty in decision-making Questions: 01 – Ennerdale 02 – Pixie Pharmaceuticals 03 – BDU Co 04 – Metallica Co 05 – T Co 06 – Rotanola Co Syllabus Area: C – “Decision-making techniques” Questions Type: CBE MCQs Exam Section: Section B
Syllabus Area
These Multiple Choice Questions (MCQs) cover the Syllabus Area Part C of the Syllabus; “Decision-making techniques “ of ACCA F5 (PM) Performance Management Module.
Time
These MCQs are not time-bound. Take your time and solve them without stress. Pay proper attention and focus. Do not rush or hesitate
Result
Students will get their F5 CBE MCQs Test results after they finish the entire test. They will also be able to see the correct and incorrect answers, as well as explanations for the incorrect questions.
Types of Questions
MCQs: Choose one from the given options. Multiple choice: Choose all those answers which seem correct/ or incorrect to you, as per the requirement of the question. Keep your eye on the wording “(select all those which are correct/ or incorrect) “. Drop-down: Select from the list provided. Type numbers: Type your answer in numbers as per the requirement of the question.
Question – Ennerdale – (01/06)
Question – Pixie Pharmaceuticals – (02/06)
F5 (PM) - Part C - MCQs - Pixie Pharmaceuticals
Course: ACCA - Association of Chartered Certified Accountants
Subject: F5 (PM) - Performance Management
Syllabus Area: C - Decision-making techniques
Question Name: Pixie Pharmaceuticals
Exam Section: Section B
Questions type: MCQs
Time: No Time Limit
INSTRUCTIONS
If you are using mobile, turn on the mobile rotation and solve the MCQs on wide screen for better experience.
REQUEST
Please rate the quiz and give us feedback once you completed the quiz.
Share with ACCA students on social media such as, Facebook Groups, Whatsapp, Telegram, etc.
1 / 5
The following scenario relates to questions 1 – 5.
Scenario
Pixie Pharmaceuticals is a research-based company which manufactures a wide variety of drugs for use in hospitals. The purchasing manager has recently been approached by a new manufacturer based in a newly industrialised country who has offered to produce three of the drugs at their factory. The following cost and price information has been provided.
Drug
Fairyoxide
Spriteolite
Goblinex
Production (units)
20,000
40,000
80,000
$
$
$
Direct material cost, per unit
0.80
1.00
0.40
Direct labour cost, per unit
1.60
1.80
0.80
Direct expense cost, per unit
0.40
0.60
0.20
Fixed cost per unit
0.80
1.00
0.40
Selling price each
4.00
5.00
2.00
Imported price
2.75
4.20
2.00
REQUIREMENT
What saving/(increased cost) would be made/(incurred) per unit if Spriteolite was purchased from the overseas producer?
Spriteolite
$
Unit variable costs:
direct material
1.00
direct labour
1.80
direct expense
0.60
Total variable cost
3.40
Imported price
4.20
Saving/(increased cost) of purchasing
(0.80)
2 / 5
The following scenario relates to questions 1 – 5.
Scenario
Pixie Pharmaceuticals is a research-based company which manufactures a wide variety of drugs for use in hospitals. The purchasing manager has recently been approached by a new manufacturer based in a newly industrialised country who has offered to produce three of the drugs at their factory. The following cost and price information has been provided.
Drug
Fairyoxide
Spriteolite
Goblinex
Production (units)
20,000
40,000
80,000
$
$
$
Direct material cost, per unit
0.80
1.00
0.40
Direct labour cost, per unit
1.60
1.80
0.80
Direct expense cost, per unit
0.40
0.60
0.20
Fixed cost per unit
0.80
1.00
0.40
Selling price each
4.00
5.00
2.00
Imported price
2.75
4.20
2.00
REQUIREMENT
What saving/(increased cost) per unit would be made/(incurred) if Fairyoxide was purchased from the overseas producer? (to two decimal places)
Fairyoxide
$
Unit variable costs:
direct material
0.80
direct labour
1.60
direct expense
0.40
Total variable cost
2.80
Imported price
2.75
Saving/(increased cost) of purchasing
0.05
3 / 5
The following scenario relates to questions 1 – 5.
Scenario
Pixie Pharmaceuticals is a research-based company which manufactures a wide variety of drugs for use in hospitals. The purchasing manager has recently been approached by a new manufacturer based in a newly industrialised country who has offered to produce three of the drugs at their factory. The following cost and price information has been provided.
Drug
Fairyoxide
Spriteolite
Goblinex
Production (units)
20,000
40,000
80,000
$
$
$
Direct material cost, per unit
0.80
1.00
0.40
Direct labour cost, per unit
1.60
1.80
0.80
Direct expense cost, per unit
0.40
0.60
0.20
Fixed cost per unit
0.80
1.00
0.40
Selling price each
4.00
5.00
2.00
Imported price
2.75
4.20
2.00
REQUIREMENT
The following two statements have been made about the decision Pixie Pharmaceuticals has to make about producing the products in house or purchasing from the overseas producer.
Are they true or false?
In a make-or-buy decision with no limiting factors, the relevant costs are the differential costs between the make and buy options.
Cost is the only relevant factor in Pixie Pharmaceutical's make-or-buy decision.
4 / 5
The following scenario relates to questions 1 – 5.
Scenario
Pixie Pharmaceuticals is a research-based company which manufactures a wide variety of drugs for use in hospitals. The purchasing manager has recently been approached by a new manufacturer based in a newly industrialised country who has offered to produce three of the drugs at their factory. The following cost and price information has been provided.
Drug
Fairyoxide
Spriteolite
Goblinex
Production (units)
20,000
40,000
80,000
$
$
$
Direct material cost, per unit
0.80
1.00
0.40
Direct labour cost, per unit
1.60
1.80
0.80
Direct expense cost, per unit
0.40
0.60
0.20
Fixed cost per unit
0.80
1.00
0.40
Selling price each
4.00
5.00
2.00
Imported price
2.75
4.20
2.00
REQUIREMENT
What profit will the company make by producing all the drugs itself?
Fairyoxide
Spriteolite
Goblinex
Total
$'000
$'000
$'000
$'000
Sales value
80
200
160
440
Variable costs
56
136
112
304
Contribution
24
64
48
136
Fixed costs
16
40
32
88
Profit
8
24
16
48
If we produce our three drugs in-house our total profits are $48,000.
5 / 5
The following scenario relates to questions 1 – 5.
Scenario
Pixie Pharmaceuticals is a research-based company which manufactures a wide variety of drugs for use in hospitals. The purchasing manager has recently been approached by a new manufacturer based in a newly industrialised country who has offered to produce three of the drugs at their factory. The following cost and price information has been provided.
Drug
Fairyoxide
Spriteolite
Goblinex
Production (units)
20,000
40,000
80,000
$
$
$
Direct material cost, per unit
0.80
1.00
0.40
Direct labour cost, per unit
1.60
1.80
0.80
Direct expense cost, per unit
0.40
0.60
0.20
Fixed cost per unit
0.80
1.00
0.40
Selling price each
4.00
5.00
2.00
Imported price
2.75
4.20
2.00
REQUIREMENT
What saving/(increased cost) would be made/(incurred) if Goblinex was purchased from the overseas producer?
Goblinex
$
Unit variable costs:
direct material
0.40
direct labour
0.80
direct expense
0.20
Total variable cost
1.40
Imported price
2.00
Saving/(increased cost) of purchasing
(0.60)
Question – BDU Co – (03/06)
F5 (PM) - Part C - MCQs - BDU Co
Course: ACCA - Association of Chartered Certified Accountants
Subject: F5 (PM) - Performance Management
Syllabus Area: C - Decision-making techniques
Question Name: BDU Co
Exam Section: Section B
Questions type: MCQs
Time: No Time Limit
INSTRUCTIONS
If you are using mobile, turn on the mobile rotation and solve the MCQs on wide screen for better experience.
REQUEST
Please rate the quiz and give us feedback once you completed the quiz.
Share with ACCA students on social media such as, Facebook Groups, Whatsapp, Telegram, etc.
1 / 5
The following scenario relates to questions 1 – 5.
Scenario
BDU Co is a manufacturer of baby equipment and is planning to launch a revolutionary new style of sporty pushchair. The company has commissioned market research to establish possible demand for the pushchair and the following information has been obtained.
If the price is set at $425, demand is expected to be 1,000 pushchairs; at $500 it will be 730 pushchairs and at $600 it will be 420 pushchairs. Variable costs are estimated at $170, $210 or $260.
A decision needs to be made on what price to charge.
The following contribution table has been produced showing the possible outcomes.
Price
$425
$500
$600
Variable cost
$170
255,000
240,900
180,600
$210
215,000
211,700
163,800
$260
165,000
175,200
142,800
REQUIREMENT
Which TWO of the following, used by BDU Co, reduce uncertainty in decision-making?
2 / 5
The following scenario relates to questions 1 – 5.
Scenario
BDU Co is a manufacturer of baby equipment and is planning to launch a revolutionary new style of sporty pushchair. The company has commissioned market research to establish possible demand for the pushchair and the following information has been obtained.
If the price is set at $425, demand is expected to be 1,000 pushchairs; at $500 it will be 730 pushchairs and at $600 it will be 420 pushchairs. Variable costs are estimated at $170, $210 or $260.
A decision needs to be made on what price to charge.
The following contribution table has been produced showing the possible outcomes.
Price
$425
$500
$600
Variable cost
$170
255,000
240,900
180,600
$210
215,000
211,700
163,800
$260
165,000
175,200
142,800
REQUIREMENT
What price would be set if BDU were to use a minimax regret decision criterion?
$ _______
Note . Don't put $ sign. Write only numbers.
The minimax regret decision rule involves choosing the outcome that minimises the maximum regret from making the wrong decision, in this instance choosing the outcome which minimises the opportunity loss from making the wrong decision.
We can draw up an opportunity loss table .
Variable cost
Price
$425
$500
$600
$170
–
$14,100
$74,400 (W1)
$210
–
$3,300
$51,200 (W2)
$260
$10,200
–
$32,400 (W3)
Minimax regret
$10,200
$14,100
$74,400
Minimax regret strategy (price of $425) is that which minimises the maximum regret ($10,200).
Workings
At a variable cost of $170 per day, the best strategy would be a price of $425. The opportunity loss from setting a price of $600 would be $(255,000 – 180,600) = $74,400.
At a variable cost of $210 per day, the best strategy would be a price of $425. The opportunity loss from setting a price of $600 would be $(215,000 – 163,800) = $51,200.
At a variable cost of $260 per day, the best strategy would be a price of $500. The opportunity loss from setting a price of $600 would be $(175,200 – 142,800) = $32,400.
3 / 5
The following scenario relates to questions 1 – 5.
Scenario
BDU Co is a manufacturer of baby equipment and is planning to launch a revolutionary new style of sporty pushchair. The company has commissioned market research to establish possible demand for the pushchair and the following information has been obtained.
If the price is set at $425, demand is expected to be 1,000 pushchairs; at $500 it will be 730 pushchairs and at $600 it will be 420 pushchairs. Variable costs are estimated at $170, $210 or $260.
A decision needs to be made on what price to charge.
The following contribution table has been produced showing the possible outcomes.
Price
$425
$500
$600
Variable cost
$170
255,000
240,900
180,600
$210
215,000
211,700
163,800
$260
165,000
175,200
142,800
REQUIREMENT
If the probabilities of the variable costs are $170: 0.4; $210: 0.25; and $260: 0.35, which price would the risk-neutral decision maker choose?
$ _______
Note . Don't put $ sign. Write only numbers.
Expected values calculations:
$425: (255,000 × 0.4) + (215,000 × 0.25) + (165,000 × 0.35) = $213,500
$500: (240,900 × 0.4) + (211,700 × 0.25) + (175,200 × 0.35) = $210,605
$600: (180,600 × 0.4) + (163,800 × 0.25) + (142,800 × 0.35) = $163,170
4 / 5
The following scenario relates to questions 1 – 5.
Scenario
BDU Co is a manufacturer of baby equipment and is planning to launch a revolutionary new style of sporty pushchair. The company has commissioned market research to establish possible demand for the pushchair and the following information has been obtained.
If the price is set at $425, demand is expected to be 1,000 pushchairs; at $500 it will be 730 pushchairs and at $600 it will be 420 pushchairs. Variable costs are estimated at $170, $210 or $260.
A decision needs to be made on what price to charge.
The following contribution table has been produced showing the possible outcomes.
Price
$425
$500
$600
Variable cost
$170
255,000
240,900
180,600
$210
215,000
211,700
163,800
$260
165,000
175,200
142,800
REQUIREMENT
Are the following statements regarding BDU Co's use of expected values is correct or incorrect?
Expected-value analysis is suitable for risk-averse decision makers, as all likely outcomes are presented.
The average profit calculated will correspond to one of the possible outcomes.
5 / 5
The following scenario relates to questions 1 – 5.
Scenario
BDU Co is a manufacturer of baby equipment and is planning to launch a revolutionary new style of sporty pushchair. The company has commissioned market research to establish possible demand for the pushchair and the following information has been obtained.
If the price is set at $425, demand is expected to be 1,000 pushchairs; at $500 it will be 730 pushchairs and at $600 it will be 420 pushchairs. Variable costs are estimated at $170, $210 or $260.
A decision needs to be made on what price to charge.
The following contribution table has been produced showing the possible outcomes.
Price
$425
$500
$600
Variable cost
$170
255,000
240,900
180,600
$210
215,000
211,700
163,800
$260
165,000
175,200
142,800
REQUIREMENT
What price would be set if BDU were to use a maximin decision criterion?
$ _______
Note . Don't put $ sign. Write only numbers.
The maximin decision rule involves choosing the outcome that offers the least unattractive worst outcome, in this instance choosing the outcome which maximises the minimum contribution.
Demand/price
Minimum contribution
1,000/$425
$165,000
730/$500
$175,200
420/$600
$142,800
BDU would therefore set a price of $500 .
Question – Metallica Co – (04/06)
F5 (PM) - Part C - MCQs - Metallica Co
Course: ACCA - Association of Chartered Certified Accountants
Subject: F5 (PM) - Performance Management
Syllabus Area: C - Decision-making techniques
Question Name: Metallica Co
Exam Section: Section B
Questions type: MCQs
Time: No Time Limit
INSTRUCTIONS
If you are using mobile, turn on the mobile rotation and solve the MCQs on wide screen for better experience.
REQUEST
Please rate the quiz and give us feedback once you completed the quiz.
Share with ACCA students on social media such as, Facebook Groups, Whatsapp, Telegram, etc.
1 / 5
The following scenario relates to questions 1 – 5.
Scenario
Metallica Co is an engineering company that manufactures a number of products, using a team of highly skilled workers and a variety of different metals. A supplier has informed Metallica Co that the amount of M1, one of the materials used in production, will be limited for the next three-month period.
The only items manufactured using M1 and their production costs and selling prices (where applicable) are shown below.
Product P4
Product P6
$/unit
$/unit
Selling price
125
175
Direct materials:
M1*
15
10
M2
10
20
Direct labour
20
30
Variable overhead
10
15
Fixed overhead
20
30
Total cost
75
105
* Material M1 is expected to be limited in supply during the next three months. These costs are based on M1 continuing to be available at a price of $20 per square metre. The price of M2 is $10 per square metre.
REQUIREMENT
Metallica Co carried out some market research which suggested that a change should be made to the selling price of both Product P4 and P6. As a result, the new contribution per unit for P4 is $85 and for P6 it is $95.
Which of the following answers is correct?
The most profitable course of action can be determined by ranking the products and components according to contribution per unit of the limiting factor. Direct material M1 is the limiting factor in this case, therefore the highest rank will be given to the product/component with the greatest contribution per m2 of this material.
Contribution/unit
85
95
m2 of M1/unit
0.75
0.5
Contribution/m2
$113.33
$190
Ranking
2
1
2 / 5
The following scenario relates to questions 1 – 5.
Scenario
Metallica Co is an engineering company that manufactures a number of products, using a team of highly skilled workers and a variety of different metals. A supplier has informed Metallica Co that the amount of M1, one of the materials used in production, will be limited for the next three-month period.
The only items manufactured using M1 and their production costs and selling prices (where applicable) are shown below.
Product P4
Product P6
$/unit
$/unit
Selling price
125
175
Direct materials:
M1*
15
10
M2
10
20
Direct labour
20
30
Variable overhead
10
15
Fixed overhead
20
30
Total cost
75
105
* Material M1 is expected to be limited in supply during the next three months. These costs are based on M1 continuing to be available at a price of $20 per square metre. The price of M2 is $10 per square metre.
REQUIREMENT
Which of the following constraints would necessitate the performance of limiting factor analysis by Metallica Co?
Limited demand for P4 or P6
Limited M1 or M2
Limited labour
3 / 5
The following scenario relates to questions 1 – 5.
Scenario
Metallica Co is an engineering company that manufactures a number of products, using a team of highly skilled workers and a variety of different metals. A supplier has informed Metallica Co that the amount of M1, one of the materials used in production, will be limited for the next three-month period.
The only items manufactured using M1 and their production costs and selling prices (where applicable) are shown below.
Product P4
Product P6
$/unit
$/unit
Selling price
125
175
Direct materials:
M1*
15
10
M2
10
20
Direct labour
20
30
Variable overhead
10
15
Fixed overhead
20
30
Total cost
75
105
* Material M1 is expected to be limited in supply during the next three months. These costs are based on M1 continuing to be available at a price of $20 per square metre. The price of M2 is $10 per square metre.
REQUIREMENT
Are the following costs would be included in the calculation of throughput contribution if Metallica Co operated in a throughput accounting environment?
Selling price
Direct materials
4 / 5
The following scenario relates to questions 1 – 5.
Scenario
Metallica Co is an engineering company that manufactures a number of products, using a team of highly skilled workers and a variety of different metals. A supplier has informed Metallica Co that the amount of M1, one of the materials used in production, will be limited for the next three-month period.
The only items manufactured using M1 and their production costs and selling prices (where applicable) are shown below.
Product P4
Product P6
$/unit
$/unit
Selling price
125
175
Direct materials:
M1*
15
10
M2
10
20
Direct labour
20
30
Variable overhead
10
15
Fixed overhead
20
30
Total cost
75
105
* Material M1 is expected to be limited in supply during the next three months. These costs are based on M1 continuing to be available at a price of $20 per square metre. The price of M2 is $10 per square metre.
REQUIREMENT
Once a scarce resource is identified, Metallica Co carries out a limiting factor analysis using four steps.
What is the correct order In which following steps should be carried out?
Rank the products in order of the contribution per unit of the scarce resource.
Allocate resources using the ranking.
Calculate the contribution per unit of the scarce resource for each product.
Calculate the contribution per unit for each product.
2, 4, 3, 1
3, 4, 2, 1
4, 3, 1, 2
1, 2, 3, 4
5 / 5
The following scenario relates to questions 1 – 5.
Scenario
Metallica Co is an engineering company that manufactures a number of products, using a team of highly skilled workers and a variety of different metals. A supplier has informed Metallica Co that the amount of M1, one of the materials used in production, will be limited for the next three-month period.
The only items manufactured using M1 and their production costs and selling prices (where applicable) are shown below.
Product P4
Product P6
$/unit
$/unit
Selling price
125
175
Direct materials:
M1*
15
10
M2
10
20
Direct labour
20
30
Variable overhead
10
15
Fixed overhead
20
30
Total cost
75
105
* Material M1 is expected to be limited in supply during the next three months. These costs are based on M1 continuing to be available at a price of $20 per square metre. The price of M2 is $10 per square metre.
REQUIREMENT
What is the contribution per unit for each product?
Product P4
Product P6
$
$
Selling price
125
175
Opportunity cost
Direct materials:
M1
15
10
M2
10
20
Direct labour
20
30
Variable overhead
10
15
Total variable costs
55
75
Contribution/unit
70
100
Question – T Co – (05/06)
F5 (PM) - Part C - MCQs - T Co
Course: ACCA - Association of Chartered Certified Accountants
Subject: F5 (PM) - Performance Management
Syllabus Area: C - Decision-making techniques
Question Name: T Co
Exam Section: Section B
Questions type: MCQs
Time: No Time Limit
INSTRUCTIONS
If you are using mobile, turn on the mobile rotation and solve the MCQs on wide screen for better experience.
REQUEST
Please rate the quiz and give us feedback once you completed the quiz.
Share with ACCA students on social media such as, Facebook Groups, Whatsapp, Telegram, etc.
1 / 5
The following scenario relates to questions 1 – 5.
Scenario
The Telephone Co (T Co) is a company specialising in the provision of telephone systems for commercial clients.
T Co has been approached by a potential customer, Push Co, which wants to install a telephone system in new offices it is opening. While the job is not a particularly large one, T Co is hopeful of future business in the form of replacement systems and support contracts for Push Co. T Co is therefore keen to quote a competitive price for the job. The following information should be considered:
One of the company's salesmen has already been to visit Push Co, to give them a demonstration of the new system, together with a complimentary lunch, the costs of which totalled $400.
The installation is expected to take one week to complete and would require three engineers, each of whom is paid a monthly salary of $4,000. The engineers have just had their annually renewable contract renewed with T Co. One of the three engineers has spare capacity to complete the work, but the other two would have to be moved from Contract X in order to complete this one. Contract X generates a contribution of $200 per engineer per week. There are no other engineers available to continue with Contract X if these two engineers are taken off the job. It would mean that T Co would miss its contractual completion deadline on Contract X by one week. As a result, T Co would have to pay a one-off penalty of $500. Since there is no other work scheduled for their engineers in one week's time, it will not be a problem for them to complete Contract X at this point.
120 telephone handsets would need to be supplied to Push Co. The current cost of these is $18.20 each, although T Co already has 80 handsets in inventory. These were bought at a price of $16.80 each. The handsets are the most popular model on the market and are frequently requested by T Co's customers.
Push Co would also need a computerised control system called 'Swipe 2'. The current market price of Swipe 2 is $10,800, although T Co has an older version of the system, 'Swipe 1', in inventory, which could be modified at a cost of $4,600. T Co paid $5,400 for Swipe 1 when it ordered it in error two months ago and has no other use for it. The current market price of Swipe 1 is $5,450, although if T Co tried to sell the one it has, it would be deemed to be 'used' and therefore only worth $3,000.
REQUIREMENT
Use the drop down list to select the type of cost that is detailed in point (i).
Select an answer Committed cost Opportunity cost Relevant cost Sunk cost
2 / 5
The following scenario relates to questions 1 – 5.
Scenario
The Telephone Co (T Co) is a company specialising in the provision of telephone systems for commercial clients.
T Co has been approached by a potential customer, Push Co, which wants to install a telephone system in new offices it is opening. While the job is not a particularly large one, T Co is hopeful of future business in the form of replacement systems and support contracts for Push Co. T Co is therefore keen to quote a competitive price for the job. The following information should be considered:
One of the company's salesmen has already been to visit Push Co, to give them a demonstration of the new system, together with a complimentary lunch, the costs of which totalled $400.
The installation is expected to take one week to complete and would require three engineers, each of whom is paid a monthly salary of $4,000. The engineers have just had their annually renewable contract renewed with T Co. One of the three engineers has spare capacity to complete the work, but the other two would have to be moved from Contract X in order to complete this one. Contract X generates a contribution of $200 per engineer per week. There are no other engineers available to continue with Contract X if these two engineers are taken off the job. It would mean that T Co would miss its contractual completion deadline on Contract X by one week. As a result, T Co would have to pay a one-off penalty of $500. Since there is no other work scheduled for their engineers in one week's time, it will not be a problem for them to complete Contract X at this point.
120 telephone handsets would need to be supplied to Push Co. The current cost of these is $18.20 each, although T Co already has 80 handsets in inventory. These were bought at a price of $16.80 each. The handsets are the most popular model on the market and are frequently requested by T Co's customers.
Push Co would also need a computerised control system called 'Swipe 2'. The current market price of Swipe 2 is $10,800, although T Co has an older version of the system, 'Swipe 1', in inventory, which could be modified at a cost of $4,600. T Co paid $5,400 for Swipe 1 when it ordered it in error two months ago and has no other use for it. The current market price of Swipe 1 is $5,450, although if T Co tried to sell the one it has, it would be deemed to be 'used' and therefore only worth $3,000.
REQUIREMENT
What figure should be included in the relevant cost statement for engineers' costs?
$ _______
Note . Don't put $ sign. Write only numbers.
One of the three engineers has spare capacity to complete the installation and their salary will be paid regardless of whether they work on the contract for Push Co. The relevant cost is therefore $Nil.
The other two engineers are currently fully utilised and earn a contribution of $200 per week each on Contract X. The engineers could be temporarily taken off of Contract X to work on the contract for Push Co. Work on Contract X would recommence in one week's time when
there is no other scheduled work for the engineers.
Delaying the work on Contract X would result in T Co missing the contractual completion deadline and having to pay a one-off penalty of $500.
Relevant cost = $500
3 / 5
The following scenario relates to questions 1 – 5.
Scenario
The Telephone Co (T Co) is a company specialising in the provision of telephone systems for commercial clients.
T Co has been approached by a potential customer, Push Co, which wants to install a telephone system in new offices it is opening. While the job is not a particularly large one, T Co is hopeful of future business in the form of replacement systems and support contracts for Push Co. T Co is therefore keen to quote a competitive price for the job. The following information should be considered:
One of the company's salesmen has already been to visit Push Co, to give them a demonstration of the new system, together with a complimentary lunch, the costs of which totalled $400.
The installation is expected to take one week to complete and would require three engineers, each of whom is paid a monthly salary of $4,000. The engineers have just had their annually renewable contract renewed with T Co. One of the three engineers has spare capacity to complete the work, but the other two would have to be moved from Contract X in order to complete this one. Contract X generates a contribution of $200 per engineer per week. There are no other engineers available to continue with Contract X if these two engineers are taken off the job. It would mean that T Co would miss its contractual completion deadline on Contract X by one week. As a result, T Co would have to pay a one-off penalty of $500. Since there is no other work scheduled for their engineers in one week's time, it will not be a problem for them to complete Contract X at this point.
120 telephone handsets would need to be supplied to Push Co. The current cost of these is $18.20 each, although T Co already has 80 handsets in inventory. These were bought at a price of $16.80 each. The handsets are the most popular model on the market and are frequently requested by T Co's customers.
Push Co would also need a computerised control system called 'Swipe 2'. The current market price of Swipe 2 is $10,800, although T Co has an older version of the system, 'Swipe 1', in inventory, which could be modified at a cost of $4,600. T Co paid $5,400 for Swipe 1 when it ordered it in error two months ago and has no other use for it. The current market price of Swipe 1 is $5,450, although if T Co tried to sell the one it has, it would be deemed to be 'used' and therefore only worth $3,000.
REQUIREMENT
What figure should be included in the relevant cost statement for telephone handsets?
120 handsets would need to be supplied to Push Co. Though 80 handsets are already in inventory, the handsets are frequently requested by T Co's customers and so would need to be replaced if supplied to Push Co. The current cost of a handset is $18.20.
Relevant cost = $18.20 × 120 handsets = $2,184
4 / 5
The following scenario relates to questions 1 – 5.
Scenario
The Telephone Co (T Co) is a company specialising in the provision of telephone systems for commercial clients.
T Co has been approached by a potential customer, Push Co, which wants to install a telephone system in new offices it is opening. While the job is not a particularly large one, T Co is hopeful of future business in the form of replacement systems and support contracts for Push Co. T Co is therefore keen to quote a competitive price for the job. The following information should be considered:
One of the company's salesmen has already been to visit Push Co, to give them a demonstration of the new system, together with a complimentary lunch, the costs of which totalled $400.
The installation is expected to take one week to complete and would require three engineers, each of whom is paid a monthly salary of $4,000. The engineers have just had their annually renewable contract renewed with T Co. One of the three engineers has spare capacity to complete the work, but the other two would have to be moved from Contract X in order to complete this one. Contract X generates a contribution of $200 per engineer per week. There are no other engineers available to continue with Contract X if these two engineers are taken off the job. It would mean that T Co would miss its contractual completion deadline on Contract X by one week. As a result, T Co would have to pay a one-off penalty of $500. Since there is no other work scheduled for their engineers in one week's time, it will not be a problem for them to complete Contract X at this point.
120 telephone handsets would need to be supplied to Push Co. The current cost of these is $18.20 each, although T Co already has 80 handsets in inventory. These were bought at a price of $16.80 each. The handsets are the most popular model on the market and are frequently requested by T Co's customers.
Push Co would also need a computerised control system called 'Swipe 2'. The current market price of Swipe 2 is $10,800, although T Co has an older version of the system, 'Swipe 1', in inventory, which could be modified at a cost of $4,600. T Co paid $5,400 for Swipe 1 when it ordered it in error two months ago and has no other use for it. The current market price of Swipe 1 is $5,450, although if T Co tried to sell the one it has, it would be deemed to be 'used' and therefore only worth $3,000.
REQUIREMENT
What figure should be included in the relevant cost statement for the computerised control system?
The current market price of Swipe 2 is $10,800.
The original cost of Swipe 1 ($5,400) is a sunk cost and not relevant to the decision.
The current market price of Swipe 1 ($5,450) is also not relevant to the decision as T Co has no intention of replacing Swipe 1.
The company could sell Swipe 1 for $3,000 if it does not use it for this contract. This represents an opportunity cost.
In addition to the $3,000, Swipe 1 could be modified at a cost of $4,600, bringing the total cost of converting Swipe 1 to $7,600 .
5 / 5
The following scenario relates to questions 1 – 5.
Scenario
The Telephone Co (T Co) is a company specialising in the provision of telephone systems for commercial clients.
T Co has been approached by a potential customer, Push Co, which wants to install a telephone system in new offices it is opening. While the job is not a particularly large one, T Co is hopeful of future business in the form of replacement systems and support contracts for Push Co. T Co is therefore keen to quote a competitive price for the job. The following information should be considered:
One of the company's salesmen has already been to visit Push Co, to give them a demonstration of the new system, together with a complimentary lunch, the costs of which totalled $400.
The installation is expected to take one week to complete and would require three engineers, each of whom is paid a monthly salary of $4,000. The engineers have just had their annually renewable contract renewed with T Co. One of the three engineers has spare capacity to complete the work, but the other two would have to be moved from Contract X in order to complete this one. Contract X generates a contribution of $200 per engineer per week. There are no other engineers available to continue with Contract X if these two engineers are taken off the job. It would mean that T Co would miss its contractual completion deadline on Contract X by one week. As a result, T Co would have to pay a one-off penalty of $500. Since there is no other work scheduled for their engineers in one week's time, it will not be a problem for them to complete Contract X at this point.
120 telephone handsets would need to be supplied to Push Co. The current cost of these is $18.20 each, although T Co already has 80 handsets in inventory. These were bought at a price of $16.80 each. The handsets are the most popular model on the market and are frequently requested by T Co's customers.
Push Co would also need a computerised control system called 'Swipe 2'. The current market price of Swipe 2 is $10,800, although T Co has an older version of the system, 'Swipe 1', in inventory, which could be modified at a cost of $4,600. T Co paid $5,400 for Swipe 1 when it ordered it in error two months ago and has no other use for it. The current market price of Swipe 1 is $5,450, although if T Co tried to sell the one it has, it would be deemed to be 'used' and therefore only worth $3,000.
REQUIREMENT
Are the following statements about T Co's decision to quote for the contract are true or false?
Question – Rotanola Co – (06/06)
F5 (PM) - Part C - MCQs - Rotanola Co
Course: ACCA - Association of Chartered Certified Accountants
Subject: F5 (PM) - Performance Management
Syllabus Area: C - Decision-making techniques
Question Name: Rotanola Co
Exam Section: Section B
Questions type: MCQs
Time: No Time Limit
INSTRUCTIONS
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REQUEST
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1 / 5
The following scenario relates to questions 1 – 5.
Scenario
Rotanola Co manufactures mobile phones. It has been extremely successful in the past but the market has become extremely competitive. The company is considering a number of different strategies to improve its profitability.
The most successful product is the RTN99 which is sold for $110. Weekly demand is currently 20,000 phones. Market research has revealed that if Rotanola Co reduced the price of the RTN99 by $10, demand would increase by 2,000 phones.
Each time the phone is produced, Rotanola Co incurs extra costs of $30 for materials, $18 for labour, $14 for variable overheads and $23 for fixed costs, based on expected weekly output of 20,000 phones. The most expensive component in the phone is the battery which costs $15.
Rotanola has been offered a discounted price of $12 by the supplier if it buys 22,000 batteries per week.
REQUIREMENT
What is the straight line demand equation for the RTN99?
P = _____ - _____Q
Find the price at which demand would be nil: Each price increase of $10 results in a fall in demand of 2,000 phones. For demand to be nil, the price needs to rise by as many times as there are 2,000 units in 20,000 units (20,000/2,000 = 10) ie to $110 + (10 × $10) = $210.
So a = 210 and b = change in price/change in quantity = 10/2,000 = 0.005
The demand equation is therefore P = 210 – 0.005Q
Alternatively
P = a – bQ
110 = a – (0.005 × 20,000)
a = 110 + 100 = 210
P = 210 – 0.005Q
2 / 5
The following scenario relates to questions 1 – 5.
Scenario
Rotanola Co manufactures mobile phones. It has been extremely successful in the past but the market has become extremely competitive. The company is considering a number of different strategies to improve its profitability.
The most successful product is the RTN99 which is sold for $110. Weekly demand is currently 20,000 phones. Market research has revealed that if Rotanola Co reduced the price of the RTN99 by $10, demand would increase by 2,000 phones.
Each time the phone is produced, Rotanola Co incurs extra costs of $30 for materials, $18 for labour, $14 for variable overheads and $23 for fixed costs, based on expected weekly output of 20,000 phones. The most expensive component in the phone is the battery which costs $15.
Rotanola has been offered a discounted price of $12 by the supplier if it buys 22,000 batteries per week.
REQUIREMENT
What is the total cost function for the RTN99 before the volume discount?
TC = _____ + _____Q
Cost behaviour can be modelled using equations. These equations can be highly complex but in this case are quite simple.
b = variable cost = 30 + 18 + 14 = $62
a = fixed cost = $23 × 20,000 = 460,000
TC = 460,000 + 62Q where Q = number of units
3 / 5
The following scenario relates to questions 1 – 5.
Scenario
Rotanola Co manufactures mobile phones. It has been extremely successful in the past but the market has become extremely competitive. The company is considering a number of different strategies to improve its profitability.
The most successful product is the RTN99 which is sold for $110. Weekly demand is currently 20,000 phones. Market research has revealed that if Rotanola Co reduced the price of the RTN99 by $10, demand would increase by 2,000 phones.
Each time the phone is produced, Rotanola Co incurs extra costs of $30 for materials, $18 for labour, $14 for variable overheads and $23 for fixed costs, based on expected weekly output of 20,000 phones. The most expensive component in the phone is the battery which costs $15.
Rotanola has been offered a discounted price of $12 by the supplier if it buys 22,000 batteries per week.
REQUIREMENT
When is a market penetration pricing policy appropriate for Rotanola Co?
4 / 5
The following scenario relates to questions 1 – 5.
Scenario
Rotanola Co manufactures mobile phones. It has been extremely successful in the past but the market has become extremely competitive. The company is considering a number of different strategies to improve its profitability.
The most successful product is the RTN99 which is sold for $110. Weekly demand is currently 20,000 phones. Market research has revealed that if Rotanola Co reduced the price of the RTN99 by $10, demand would increase by 2,000 phones.
Each time the phone is produced, Rotanola Co incurs extra costs of $30 for materials, $18 for labour, $14 for variable overheads and $23 for fixed costs, based on expected weekly output of 20,000 phones. The most expensive component in the phone is the battery which costs $15.
Rotanola has been offered a discounted price of $12 by the supplier if it buys 22,000 batteries per week.
REQUIREMENT
What is the total cost function for the RTN99 after the volume discount?
TC = _____ + _____Q
5 / 5
The following scenario relates to questions 1 – 5.
Scenario
Rotanola Co manufactures mobile phones. It has been extremely successful in the past but the market has become extremely competitive. The company is considering a number of different strategies to improve its profitability.
The most successful product is the RTN99 which is sold for $110. Weekly demand is currently 20,000 phones. Market research has revealed that if Rotanola Co reduced the price of the RTN99 by $10, demand would increase by 2,000 phones.
Each time the phone is produced, Rotanola Co incurs extra costs of $30 for materials, $18 for labour, $14 for variable overheads and $23 for fixed costs, based on expected weekly output of 20,000 phones. The most expensive component in the phone is the battery which costs $15.
Rotanola has been offered a discounted price of $12 by the supplier if it buys 22,000 batteries per week.
REQUIREMENT
Rotanola Co produces another phone with a price elasticity of demand equal to one.
Are the following statements are true or false?
Demand will remain constant despite price changes.
If price increases by 5%, demand will fall by 10%.
Total expenditure will remain constant despite price changes.