Conrad Co manufactures two products, X and Y.

It has selected the optimal production plan to maximize profit for the month based on 4,650 labor hours. An extra 90 hours have become available at the standard rate of $10 per hour.

How much additional profit can be earned in the month?

The following statements have been made about linear programming:

1. The shadow price of a scarce resource is the increase in contribution available if one more unit of the resource is obtained

2. Non-scarce resources always have zero slack

Which of the above statements is/are true?

C Co uses material B, which has a current market price of $0·80 per kg. In a linear program, where the objective is to maximize profit, the shadow price of material B is $2 per kg.

Which of the following statements are correct?

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.

* 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 meter.

The price of M2 is $10 per square meter.

What is the contribution per unit for each product?

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.

* 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 meter.

The price of M2 is $10 per square meter.

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?

Indicate, by selecting the relevant boxes in the table below, whether each of the following costs would be included in the calculation of throughput contribution if Metallica Co operated in a throughput accounting environment.

Indicate, by selecting the relevant boxes in the table below, which of the following constraints would necessitate the performance of limiting factor analysis by Metallica Co.

Once a scarce resource is identified, Metallica Co carries out a limiting factor analysis using four steps. Match each of the steps to the correct order in which they should be carried out.

Arrange in correct order -

A company makes two products using the same type of materials and skilled workers.

Fixed costs relating to material handling amount to $100,000. The cost driver for these costs is the volume of material purchased. General fixed costs, absorbed on the basis of labour hours, amount to $180,000.

Using activity-based costing, what is the total fixed overhead amount to be absorbed into each unit of product B (to the nearest whole $)?

Budgeted production and sales for the year ended 30 November 20X5 are:

Product P1 10,000 units

Product P2 12,500 units

The fixed overhead costs included in P1 relate to apportionment of general overhead costs only. However, P2 also included specific fixed overheads totalling $2,500. If only product P1 were to be made, how many units would need to be sold in order to achieve a profit of $60,000 each year (to the nearest whole unit)?

Jorioz Co makes joint products X and Y. $120,000 joint processing costs are incurred.

At the split-off point, 10,000 units of X and 9,000 units of Y are produced, with selling prices of $1.20 for X and $1.50 for Y.

The units of X could be processed further to make 8,000 units of product Z.

The extra costs incurred in this process would be fixed costs of $1,600 and variable costs of $0.50 per unit of input.

The selling price of Z would be $2.25.

What would be the outcome if product X is further processed?

C Co uses material B, which has a current market price of $0·80 per kg. In a linear program, where the objective is to maximize profit, the shadow price of material B is $2 per kg.

The following statements have been made:

(i) Contribution will be increased by $2 for each additional kg of material B purchased at the current market price

(ii) The maximum price which should be paid for an additional kg of material B is $2

(iii) Contribution will be increased by $1·20 for each additional kg of material B purchased at the current market price

(iv) The maximum price which should be paid for an additional kg of material B is $2·80

Which of the above statements is/are correct?

A company manufactures three products using different amounts of the same grade of labour, which is in short supply.

What order should the products be manufactured in to ensure that profit is maximized?

Budgeted production and sales for the year ended 30 November 2015 are:

Product P1 - 10,000 units

Product P2 - 12,500 units

The fixed overhead costs included in P1 relate to apportionment of general overhead costs only. However, P2 also includes specific fixed overheads totalling $2,500.

If only product P1 were to be made, how many units (to the nearest unit) would need to be sold in order to achieve a profit of $60,000 each year?

A company has the following production planned for the next four weeks. The figures reflect the full capacity level of operations.

The direct labour force is threatening to go on strike for two weeks out of the coming four. This means that only 2,160 hours will be available for production rather than the usual 4,320 hours.

If the strike goes ahead, which product or products should be produced if profits are to be maximized?

A linear programming model has been formulated for two products, X and Y. The objective function is depicted by the formula C = 5X + 6Y, where C = contribution, X = the number of product X to be produced and Y = the number of product Y to be produced.

Each unit of X uses 2 kg of material Z and each unit of Y uses 3 kg of material Z. The standard cost of material Z is $2 per kg.

The shadow price for material Z has been worked out and found to be $2·80 per kg.

If an extra 20 kg of material Z becomes available at $2 per kg, what will the maximum increase in contribution be?

A jewelry company makes rings (R) and necklaces (N).

The resources available to the company have been analyzed and two constraints have been identified:

Labor time 3R + 2N ≤ 2,400 hours

Machine time 0·5R + 0·4N ≤ 410 hours

The management accountant has used linear programming to determine that R = 500 and N = 400.

Which of the following is/are slack resources?

(1) Labour time available

(2) Machine time available

DRP Ltd has recently introduced an activity-based costing (ABC) system.

Three cost pools have been identified.

Their budgeted costs for the year ending 30 June 2003 are as follows:

Machine set-up costs - $150,000

Purchasing of materials - $70,000

Processing - $80,000

What is the budgeted machine set-up cost per unit of product R?

A company uses activity-based costing to calculate the unit cost of its products. The figures for Period 3 are as follows: production set-up costs are $84,000.

Total production is 40,000 units of each of products A and B, and each run is 2,000 units of A or 5,000 units of B.

What is the set-up cost per unit of B (to 2 decimal places)?

Hare Events is a company which specialises in organising sporting events in major cities across Teeland. It has approached the local council of Edglas, a large city in the north of Teeland, to request permission to host a running festival which will include both a full marathon and a half marathon race.

Based on the prices it charges for entry to similar events in other locations, Hare Events has decided on an entry fee of $55 for the full marathon and $30 for the half marathon. It expects that the maximum entries will be 20,000 for the full marathon and 14,000 for the half marathon.

Hare Events has done a full assessment of the likely costs involved. Each runner will receive a race pack on completion of the race, which will include a medal, t-shirt, water and chocolate. Water stations will need to be available at every five-kilometre (km) point along the race route, stocked with sufficient supplies of water, sports drinks and gels. These costs are considered to be variable as they depend on the number of race entries.

Hare Events will also incur the following fixed costs. It will need to pay a fixed fee to the Edglas council for permits, road closures and support from the local police and medical services. A full risk assessment needs to be undertaken for insurance purposes. A marketing campaign is planned via advertising on running websites, in fitness magazines and at other events Hare Events is organising in Teeland, and the company which Hare Events usually employs to do the race photography has been approached.

If Hare Events decides to host only the full marathon race, what is the margin of safety? 

Hare Events is a company which specialises in organising sporting events in major cities across Teeland. It has approached the local council of Edglas, a large city in the north of Teeland, to request permission to host a running festival which will include both a full marathon and a half marathon race.

Based on the prices it charges for entry to similar events in other locations, Hare Events has decided on an entry fee of $55 for the full marathon and $30 for the half marathon. It expects that the maximum entries will be 20,000 for the full marathon and 14,000 for the half marathon.

Hare Events has done a full assessment of the likely costs involved. Each runner will receive a race pack on completion of the race, which will include a medal, t-shirt, water and chocolate. Water stations will need to be available at every five-kilometre (km) point along the race route, stocked with sufficient supplies of water, sports drinks and gels. These costs are considered to be variable as they depend on the number of race entries.

Hare Events will also incur the following fixed costs. It will need to pay a fixed fee to the Edglas council for permits, road closures and support from the local police and medical services. A full risk assessment needs to be undertaken for insurance purposes. A marketing campaign is planned via advertising on running websites, in fitness magazines and at other events Hare Events is organising in Teeland, and the company which Hare Events usually employs to do the race photography has been approached.

Hare Events wishes to achieve a minimum total profit of $500,000 from the running festival.

What are the number of entries Hare Events will have to sell for each race in order to achieve this level of profit, assuming a constant sales mix based on the expected race entry numbers applies?

Work to the nearest whole number. 

Hare Events is a company which specialises in organising sporting events in major cities across Teeland. It has approached the local council of Edglas, a large city in the north of Teeland, to request permission to host a running festival which will include both a full marathon and a half marathon race.

Based on the prices it charges for entry to similar events in other locations, Hare Events has decided on an entry fee of $55 for the full marathon and $30 for the half marathon. It expects that the maximum entries will be 20,000 for the full marathon and 14,000 for the half marathon.

Hare Events has done a full assessment of the likely costs involved. Each runner will receive a race pack on completion of the race, which will include a medal, t-shirt, water and chocolate. Water stations will need to be available at every five-kilometre (km) point along the race route, stocked with sufficient supplies of water, sports drinks and gels. These costs are considered to be variable as they depend on the number of race entries.

Hare Events will also incur the following fixed costs. It will need to pay a fixed fee to the Edglas council for permits, road closures and support from the local police and medical services. A full risk assessment needs to be undertaken for insurance purposes. A marketing campaign is planned via advertising on running websites, in fitness magazines and at other events Hare Events is organising in Teeland, and the company which Hare Events usually employs to do the race photography has been approached.

Hare Events is also considering including a 10 km race during the running festival. It expects the race will have an entry fee of $20 per competitor and variable costs of $8 per competitor. Fixed costs associated with this race will be $48,000.

If the selling price per competitor, the variable cost per competitor and the total fixed costs for this 10 km race all increase by 10%, which of the following statements will be true?

Hare Events is a company which specialises in organising sporting events in major cities across Teeland. It has approached the local council of Edglas, a large city in the north of Teeland, to request permission to host a running festival which will include both a full marathon and a half marathon race.

Based on the prices it charges for entry to similar events in other locations, Hare Events has decided on an entry fee of $55 for the full marathon and $30 for the half marathon. It expects that the maximum entries will be 20,000 for the full marathon and 14,000 for the half marathon.

Hare Events has done a full assessment of the likely costs involved. Each runner will receive a race pack on completion of the race, which will include a medal, t-shirt, water and chocolate. Water stations will need to be available at every five-kilometre (km) point along the race route, stocked with sufficient supplies of water, sports drinks and gels. These costs are considered to be variable as they depend on the number of race entries.

Hare Events will also incur the following fixed costs. It will need to pay a fixed fee to the Edglas council for permits, road closures and support from the local police and medical services. A full risk assessment needs to be undertaken for insurance purposes. A marketing campaign is planned via advertising on running websites, in fitness magazines and at other events Hare Events is organising in Teeland, and the company which Hare Events usually employs to do the race photography has been approached.

Which of the following statements relating to cost volume profit analysis are true?

(1) Production levels and sales levels are assumed to be the same so there is no inventory movement

(2) The contribution to sales ratio (C/S ratio) can be used to indicate the relative profitability of different products

(3) CVP analysis assumes that fixed costs will change if output either falls or increases significantly

(4) Sales prices are recognised to vary at different levels of activity especially if higher volume of sales is needed 

H Co uses a marginal cost plus pricing system to determine the selling price for one of its products, Product X.

Fixed overheads are $20,000 for the year. Budgeted output and sales for the year are 500 units and this should be sufficient for Product X to break even.

What profit mark-up would H Co need to add to the marginal cost to allow H Co to break even?

A profit-volume chart can illustrate the relationship between -