The following scenario relates to questions 1 – 5.

Scenario

Ennerdale has been asked to quote a price for a one-off contract. The company's management accountant has asked for your advice on the relevant costs for the contract.

The following information is available:

Materials

The contract requires 3,000 kg of material K, which is a material used regularly by the company in other production. The company has 2,000 kg of material K currently in inventory which had been purchased last month for a total cost of $19,600. Since then the price per kilogram for material K has increased by 5%.

The contract also requires 200 kg of material L. There are 250 kg of material L in inventory which are not required for normal production. This material originally cost a total of $3,125. If not used on this contract, the inventory of material L would be sold for $11 per kg.

Labour

The contract requires 800 hours of skilled labour. Skilled labour is paid $9.50 per hour. There is a shortage of skilled labour and all the available skilled labour is fully employed in the company in the manufacture of product P. The following information relates to product P:

Finance costs

In order to complete the contract, a member of the finance team will be required to work eight hours overtime. The individual's annual salary is $25,000, and they work a 37.5 hour week.

Overtime is paid at a rate of $15 per hour. Alternatively, an experienced contract accountant can be hired to administer the project in 75% of the time it would take the internal finance department member to complete. The contractor's rate is $25 per hour. It took the member of the finance team three hours to put together the information for this quote and no overtime was required.

REQUIREMENT

What is the relevant cost of skilled labour which should be included in the contract?

The following scenario relates to questions 1 – 5.

Scenario

Ennerdale has been asked to quote a price for a one-off contract. The company's management accountant has asked for your advice on the relevant costs for the contract.

The following information is available:

Materials

The contract requires 3,000 kg of material K, which is a material used regularly by the company in other production. The company has 2,000 kg of material K currently in inventory which had been purchased last month for a total cost of $19,600. Since then the price per kilogram for material K has increased by 5%.

The contract also requires 200 kg of material L. There are 250 kg of material L in inventory which are not required for normal production. This material originally cost a total of $3,125. If not used on this contract, the inventory of material L would be sold for $11 per kg.

Labour

The contract requires 800 hours of skilled labour. Skilled labour is paid $9.50 per hour. There is a shortage of skilled labour and all the available skilled labour is fully employed in the company in the manufacture of product P. The following information relates to product P:

Finance costs

In order to complete the contract, a member of the finance team will be required to work eight hours overtime. The individual's annual salary is $25,000, and they work a 37.5 hour week.

Overtime is paid at a rate of $15 per hour. Alternatively, an experienced contract accountant can be hired to administer the project in 75% of the time it would take the internal finance department member to complete. The contractor's rate is $25 per hour. It took the member of the finance team three hours to put together the information for this quote and no overtime was required.

REQUIREMENT

Are the following statements about Ennerdale's relevant costing system true or false?

1. Sunk costs can never be a relevant cost for the purpose of decision-making.
2. Fixed overhead costs can never be a relevant cost for the purpose of decision-making.

The following scenario relates to questions 1 – 5.

Scenario

Ennerdale has been asked to quote a price for a one-off contract. The company's management accountant has asked for your advice on the relevant costs for the contract.

The following information is available:

Materials

The contract requires 3,000 kg of material K, which is a material used regularly by the company in other production. The company has 2,000 kg of material K currently in inventory which had been purchased last month for a total cost of $19,600. Since then the price per kilogram for material K has increased by 5%.

The contract also requires 200 kg of material L. There are 250 kg of material L in inventory which are not required for normal production. This material originally cost a total of $3,125. If not used on this contract, the inventory of material L would be sold for $11 per kg.

Labour

The contract requires 800 hours of skilled labour. Skilled labour is paid $9.50 per hour. There is a shortage of skilled labour and all the available skilled labour is fully employed in the company in the manufacture of product P. The following information relates to product P:

Finance costs

In order to complete the contract, a member of the finance team will be required to work eight hours overtime. The individual's annual salary is $25,000, and they work a 37.5 hour week.

Overtime is paid at a rate of $15 per hour. Alternatively, an experienced contract accountant can be hired to administer the project in 75% of the time it would take the internal finance department member to complete. The contractor's rate is $25 per hour. It took the member of the finance team three hours to put together the information for this quote and no overtime was required.

REQUIREMENT

What is the relevant cost of material K which should be included in the contract?

The following scenario relates to questions 1 – 5.

Scenario

Ennerdale has been asked to quote a price for a one-off contract. The company's management accountant has asked for your advice on the relevant costs for the contract.

The following information is available:

Materials

The contract requires 3,000 kg of material K, which is a material used regularly by the company in other production. The company has 2,000 kg of material K currently in inventory which had been purchased last month for a total cost of $19,600. Since then the price per kilogram for material K has increased by 5%.

The contract also requires 200 kg of material L. There are 250 kg of material L in inventory which are not required for normal production. This material originally cost a total of $3,125. If not used on this contract, the inventory of material L would be sold for $11 per kg.

Labour

The contract requires 800 hours of skilled labour. Skilled labour is paid $9.50 per hour. There is a shortage of skilled labour and all the available skilled labour is fully employed in the company in the manufacture of product P. The following information relates to product P:

Finance costs

In order to complete the contract, a member of the finance team will be required to work eight hours overtime. The individual's annual salary is $25,000, and they work a 37.5 hour week.

Overtime is paid at a rate of $15 per hour. Alternatively, an experienced contract accountant can be hired to administer the project in 75% of the time it would take the internal finance department member to complete. The contractor's rate is $25 per hour. It took the member of the finance team three hours to put together the information for this quote and no overtime was required.

REQUIREMENT

What is the relevant cost of finance which should be included in the contract?

The following scenario relates to questions 1 – 5.

Scenario

Ennerdale has been asked to quote a price for a one-off contract. The company's management accountant has asked for your advice on the relevant costs for the contract.

The following information is available:

Materials

The contract requires 3,000 kg of material K, which is a material used regularly by the company in other production. The company has 2,000 kg of material K currently in inventory which had been purchased last month for a total cost of $19,600. Since then the price per kilogram for material K has increased by 5%.

The contract also requires 200 kg of material L. There are 250 kg of material L in inventory which are not required for normal production. This material originally cost a total of $3,125. If not used on this contract, the inventory of material L would be sold for $11 per kg.

Labour

The contract requires 800 hours of skilled labour. Skilled labour is paid $9.50 per hour. There is a shortage of skilled labour and all the available skilled labour is fully employed in the company in the manufacture of product P. The following information relates to product P:

Finance costs

In order to complete the contract, a member of the finance team will be required to work eight hours overtime. The individual's annual salary is $25,000, and they work a 37.5 hour week.

Overtime is paid at a rate of $15 per hour. Alternatively, an experienced contract accountant can be hired to administer the project in 75% of the time it would take the internal finance department member to complete. The contractor's rate is $25 per hour. It took the member of the finance team three hours to put together the information for this quote and no overtime was required.

REQUIREMENT

What is the relevant cost of material L which should be included in the contract?

$ _______ (to the nearest 1000)

Note. Don't put $ sign. Write only numbers.

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.

REQUIREMENT

What profit will the company make by producing all the drugs itself?

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.

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?

1. In a make-or-buy decision with no limiting factors, the relevant costs are the differential costs between the make and buy options.
2. Cost is the only relevant factor in Pixie Pharmaceutical's make-or-buy decision.

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.

REQUIREMENT

What saving/(increased cost) would be made/(incurred) if Goblinex was purchased from the overseas producer?

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.

REQUIREMENT

What saving/(increased cost) per unit would be made/(incurred) if Fairyoxide was purchased from the overseas producer? (to two decimal places)

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.

REQUIREMENT

What saving/(increased cost) would be made/(incurred) per unit if Spriteolite was purchased from the overseas producer?

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.

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 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.

REQUIREMENT

Which TWO of the following, used by BDU Co, reduce uncertainty in decision-making?

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.

REQUIREMENT

Are the following statements regarding BDU Co's use of expected values is correct or incorrect?

1. Expected-value analysis is suitable for risk-averse decision makers, as all likely outcomes are presented.
2. The average profit calculated will correspond to one of the possible outcomes.

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.

REQUIREMENT

What price would be set if BDU were to use a maximin decision criterion?

$ _______

Note. Don't put $ sign. Write only numbers.

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.

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.

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.

* 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

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.

* 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?

1. Limited demand for P4 or P6
2. Limited M1 or M2
3. Limited labour

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.

* 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?

1. Rank the products in order of the contribution per unit of the scarce resource.
2. Allocate resources using the ranking.
3. Calculate the contribution per unit of the scarce resource for each product.
4. Calculate the contribution per unit for each product.

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.

* 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 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.

* 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?

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:

1. 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.
2. 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.
3. 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.
4. 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).

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:

1. 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.
2. 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.
3. 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.
4. 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.

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:

1. 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.
2. 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.
3. 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.
4. 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?

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:

1. 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.
2. 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.
3. 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.
4. 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?

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:

1. 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.
2. 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.
3. 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.
4. 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 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

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?

1. Demand will remain constant despite price changes.
2. If price increases by 5%, demand will fall by 10%.
3. Total expenditure will remain constant despite price changes.

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

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?

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