Dec 2016 answer

Sec a

If budgeted sales increase to 40,000 units, then budgeted profit will increase by $100,000. This is
because 10,000 more units will be sold at a contribution per unit of $10. This fixed costs would not
be expected to change.

ZBB is useful for support expenses as they are discretionary and it can be used to link strategic goals
to specific functional areas so Statements 1 and 2 are correct.

As all three products are mutually exclusive the company would choose to make X as it has the
highest throughput return per hour of $2.

Of the four possible options only increasing the selling price of product Z by 10% would give a higher
throughput return per hour of $2.40.

Any controlled testing is a closed system as the aim is to limit external influences.

The other three options all require interaction with the external environment.

The minimum transfer price is $750 and product X should be sourced externally to maximise the
profit of the company.

The minimum transfer price is the variable cost of product X ($270) plus the lost contribution from
not making product Y ($480).

The lost contribution is from 1.5 units of product Y (as it takes 4 hours to make product Y and 6
hours to make product X) which is (($600 - ($200 - $80) x 1.5 = $480.

Before further processing the sales value of X (10,000 units x $1.20) = $12,000

After further processing:

Sales value of Z (8,000 units x $2.25) = $18,000

Further processing costs ((10,000 units of X x $0.50) + $1,600) = $6,600

This gives a net return of $11,400 which is $600 less than the sales value of X.

Variable production costs ($2.30 x 2,000) + ($1.80 x 5,000) + ($1.20 x 7,000) = $22,000

Variable selling costs ($0.50 x 2,000) + ($0.40 x 5,000) + ($0.40 x 7,000) = $5,800

Fixed production costs = $10,500

Fixed selling costs = $4,700

Administrative costs = $2,100

Total costs = $45,100

Cost per unit = $45,100/14,000 units = $3.22

It is simultaneous as there is no delay between the service being provided by the optician and
consumed by the patient.

10

A universal password would apply to everyone and therefore there would be no way to trace the
person responsible for printing/transferring or amending the information.

The other three options are common methods for securing the confidentiality of information.

11

Alpha batches (2,500/500) = 5; therefore inspections required for Alpha (5 x 4) = 20.

Zeta batches (8,000/1,000) = 8; therefore inspections required for Zeta (8 x 1) = 8.

OAR = $250,000/28 = $8,928.57

Alpha cost/unit = (20 x $8,928.57)/2,500 units = $71.43

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Multiple objectives often conflict and therefore do not ensure goal congruence between
stakeholders. Therefore Statement 1 is incorrect. This then can lead to the need for compromise
between objectives which can be problematic therefore Statement 2 is correct.

13

Waste flows are not a category used within flow cost accounting, however the other three
categories are.

14

The expected value does not give an indication of the dispersion of the possible outcomes; a
standard deviation would need to be calculated so Statement 2 is correct.

The expected value is an amalgamation of several possible outcomes and their associated
probabilities so it may not correspond to any of the actual possible outcomes so Statement 4 is
correct.

15

The manager will be accountable for the generation of revenues, transfer prices and management of
working capital as they have control over these areas. The manager will not be accountable for the
apportioned head office costs as they have no control over those.

Sec b

16

Total fixed costs = $385,000

Contribution per marathon entry ($55 - $18.20) = $36.80

BEP = 10,462

Margin of safety (20,000 - 10,462)/20,000 = 47.7%

17

Weighted average C/S ratio (2 x $36.80) + (1.4 x $18.00)/(2 x $55) + (1.4 x $30) = $98.80/$152 = 65%

BER = $385,000/65% = $592,308

18

Weighted average C/S ratio = 65%

Revenue to achieve target profit = $885,000/65% = $1,361,538

Marathon ($110/$152) x $1,361,538 = $985,324/$55 = 17,915 entries

Half marathon ($42/$152) x $1,361,538 = $376,214/$30 = 12,540 entries

19

Current contribution = $12

Current BEP = $48,000/$12 = 4,000 units

Current BER = $48,000/($12/$20) = $80,000

Revised contribution = (($20 x1.1) + ($8 x 1.1)) = $13.20

Revised fixed costs = $48,000 x 1.1 = $52,800

Revised BEP = $52,800/$13.20 = 4,000 units

Revised BER = $52,800/($13.20/$22) = $88,000

The BEP hasn't changed but the BER has increased by 10%

20

CVP analysis assumes no movement in inventory and the C/S ratio can be used to indicate the
relative profitability of different products so Statements 1 and 2 are correct.

21

Dough 18.9 kg x ($7.60 - $6.50) = $20.79 favourable

Tomato sauce 6.6 kg x ($2.50 - $2.45) = $0.33 favourable

Cheese 14.5 kg x ($20.00 - $21.00) = $14.50 adverse

Herbs 2 kg x ($8.40 - $8.10) = $0.60 favourable

Total material price variance = $7.22 favourable

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A favourable mix variance indicates that a higher proportion of cheaper ingredients were used in
production compared to the standard mix.

25

The actual cost per pizza will be lower than the standard cost per pizza because expensive cheese
has been replaced with cheaper tomato sauce.

The usage variance equals the mix and yield variances combined. The yield variance is zero as 100
pizzas used 42 kg so the mix and usage variances will be the same.

Sales staff should not automatically lose their bonus as the reduced sales could be a result of the
change in mix affected the quality of the pizza and the new chef will only be responsible for the mix
and yield variances as they have no control over the purchase costs of ingredients.

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27

Brownies Muffins Cupcakes

Throughput contribution ($) 50 37.5 35

Mixing minutes 20 16 12
 Brownies Muffins Cupcakes

Throughput per mixing minute ($) 2.50 2.34 2.91

Ranking 2 3 1

Optimal production plan:

Fulfil customer order Number of cakes Mixing minutes

1 batch of cupcakes 20 12

1 batch of brownies 40 20

1 batch of muffins 30 16

General production (based on ranking)

4 batches of cupcakes 80 48

1 batch of brownies 40 20

Therefore the bakery should produce 80 brownies, 30 muffins and 100 cupcakes.

28

Reduction in rent and discounts on materials will reduce costs and will improve the TPAR.

Giving a customer a loyalty discount will reduce sales revenue and as a result the TPAR. Demand for
cupcakes can increase but it will not impact the TPAR as demand is not the restriction.

29

Each oven has a capacity of eight hours and each cupcake batch takes two hours so four extra
batches can be made.

Extra throughput = four batches x $35 = $140

Less the hire costs will result in an additional profit of $95

30

As the TPAR exceeds 1 then the throughput contribution exceeds operating costs so Statement 1 is
false.
Less idle time on a non-bottleneck process would not improve the TPAR so Statement 2 is false.

Improving efficiency during the weighing process would improve the TPAR as any actions to improve
throughput on a bottleneck will improve the TPAR so Statement 3 is true.

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