Deck 18: Accounting for Decision-Making: Resource Constraints and Decisions Which Are Mutually Exclusive

Question 1

Additup Ltd manufactures and markets pocket calculators which sell at £22 each. Current output is 40000 units per month, which represent 90% of the plants capacity. A new chain-store offers to buy up to 5000 calculators as a special order at £18 per unit and requires these immediately. These would sell under their own brand name. Total costs per month are £800000 of which £192000 are fixed costs. Assuming that the company maximises profits what is the profit made:

A) £272 532
B) £312000
C) £242 458
D) £204 432

Answer 1

D

Question 2

Products X Y Contribution per unit £20 £8 Units demanded 1600 3500 Kilogram of material per unit 4 kg 1 kg Total material for demand 6400 kg 3500 kg Contribution per kg £5 £8 Total material available 4000 kgs What is the optimal production programme in kgs?

A) X = 1000, Y = Nil
B) X = 300, Y = 3700
C) X = 500, Y = 3500
D) X = 400, Y = 3600

Answer 2

C

Question 3

Product X - Contribution £40 and uses 20 scarce machine hours. Component Y - used in manufacture of X, has a variable cost of £5 and uses 3 machine hours. Component y can be bought for £10. In determining whether to make or buy what is the relevant cost of making:

A) £10
B) £6
C) £11
D) £40

Answer 3

C

Question 4

The analysis of constraints and decision making is only appropriate to manufacturing not service industries.

Question 5

It is necessary to establish the contribution per unit of constraint in determining the optimal output level when there is a constraint.

Question 6

A firm at present manufacturers all the components that go to make up its finished products. A salesman from a component supplier has just offered to provide the firm's requirements for two components, the JC 100 at £7.75 each and the JC 200 at £2 each. If the firm buys in the components the capacity utilised at present would be unused. The firm currently manufactures 50000 units of each component and the current costs of production are as follows: JC 100 (£) JC 200 (£) Materials 2.50 1.00 Labour 1.25 0.75 Variable Overheads 1.75 0.50 Fixed Overheads 3.50 1.75 Total cost per unit 9.00 4.00 What is the extra cost (EC) or saving (S) per unit if the company decides to buy in the component: JC 100 (£) JC 200 (£)

A) 2.25 (EC) 0.25 (S)
B) 1.25 (S) 2.00 (EC)
C) 1.75 (EC) 1.25 (S)
D) 2.00 (S) 1.00 (S)

Question 7

For decisions where there are constraints the objective is to establish a optimum output within the constraint which will maximise contribution.

Question 8

A firm manufacturers two products both of which require the same material. For the coming month the supply of material is limited to 2,600kgs. Details of each product are as follows: Product S T Selling price per unit £40 £60 Variable cost per unit £32 £50 Material used per unit 4kgs 6kgs Maximum demand 500 units 400 units The production plan that will maximum profit is

A) 50 units of S and 400 of T
B) 292 units of S and 237 of T
C) 326 units of S and 216 of T
D) 500 units of S and 100 of T

Question 9

Differential costs are the differences between fixed and variable costs.

Question 10

A make or buy decision involves the problem of a business choosing between making a product or carrying out a service using its own resources, and paying another external organisation to make or carry out a service for them.

Question 11

All fixed costs are unavoidable.

Question 12

Ben Plc makes a range of clutches for which the cost cards show the following: Product W (£) X (£) Y (£) Z (£) Materials 7.00 9.00 12.00 15.00 Other variable costs 8.00 9.00 11.00 13.00 Fixed costs 10.00 12.00 15.00 18.00 Profit 4.00 9.00 11.00 13.00 Maximum monthly demand in units 5000 3000 1000 1000 For the coming month material suppliers will be limited to £50000. The optimum production plan is:

A) W X Y Z 5000 1666
B) W X Y Z 3285 3000
C) W X Y Z 3000 1000 733
D) W X Y Z 2555 1000 1000

Question 13

Were there are resource constraints this will not affect accept or reject decisions

Question 14

To determine the optimum output with one resource constraint the criteria should be

A) The highest contribution per product
B) The contribution per unit of constraint for each product
C) The highest profit per product
D) The lowest cost per product

Question 15

The make or buy decision is probably the most common type of mutually exclusive decision that confronts organisations.

Question 16

Hobson Limited produces two products, the X and Y, which both use the same grade of specialist labour. Only 3800 specialist labour hours are estimated to be available for the 20X1 financial year because of skills shortages in the economy as a whole. Ideally the directors would like to sell 500 units of X and 500 units of Y but they recognize the actual amount that can be produced and sold is likely to be limited by the labour shortage. The following information is available about the products: X Y £ £ Revenue per unit 600 666 Variable costs per unit 250 270 Contribution 450 396 Number of hours of specialist labour required per unit 7 6 What is the optimal production plan for 20X1 (to the nearest whole unit)?

A) 400 units of X and 200 Y
B) 171 units of X and 400 units of Y
C) 300 units of X and 400 units of Y
D) 400 units of X and 144 units of Y

Question 17

When there are no resource constraints all opportunities should be accepted if they make a profit.

Question 18

The cash cost of employing labour, for example, is the internal opportunity cost.

Question 19

Constraints are often restrict the amount of productive capacity available to a business, or the potential market for a product, or the availability of particular types of material or labour. In management accounting, such constraints are commonly referred to as:

A) Limiting factors
B) Limiting supply
C) restricting factors
D) Shortages

Question 20

Invariably, the opportunity cost of a resource that is scarce will be greater than its purchase price.