A university is trying to decide whether or not to advertise a new post-graduate degree programme. The number of students starting the programme is dependent on economic conditions. If conditions are poor, it is expected that the programme will attract 40 students without advertising. There is a 60% chance that economic conditions will be poor. If economic conditions are good it is expected that the programme will attract only 20 students without advertising. There is a 40% chance that economic conditions will be good.
If the programme is advertised and economic conditions are poor, there is a 65% chance that the advertising will stimulate further demand and student numbers will increase to 50. If economic conditions are good, there is a 25% chance the advertising will stimulate further demand and numbers will increase to 25 students.
The profit expected, before deducting the cost of advertising, at different levels of student numbers are as follows:

The cost of advertising the programme will be $15,000.
Required:
Demonstrate, using a decision tree, whether the programme should be advertised.

• A. No, the programme should not be advertised as there will be a loss $82 000
• B. No, the programme should not be advertised as there will be a loss $92 000
• C. Yes, the programme should be advertised as the profit will be $92 000
• D. Yes, the programme should be advertised as the profit will be $82 000

TP makes wedding cakes that are sold to specialist retail outlets which decorate the cakes according to the customers' specific requirements. The standard cost per unit of its most popular cake is as follows:

The general market prices at the time of purchase for Ingredient A and Ingredient B were $23 per kg and $20 per kg respectively. TP operates a JIT purchasing system for ingredients and a JIT production system; therefore, there was no inventory during the period.
Discuss the usefulness of the planning and operational variances calculated for TP's management.
Select ALL the TRUE statements.

• A. The purchasing manager's performance can't be compared with the adjusted standards that reflect the conditions the manager actually operated under during the reporting period.
• B. Standards that failed to anticipate known market trends when they were set will reflect faulty standard setting.
• C. If planning and operational variances are not distinguished, there is potential for dysfunctional behavior especially where the manager has been operating efficiently and performance is being judged by factors outside the manager's control. In the case of TP it became evident during the period that the prevailing market prices for materials were significantly less than those set during the budget process.
• D. The use of planning and operational variances will enable TP's management to draw a distinction between variances caused by factors extraneous to the business and planning errors (planning variances) and variances caused by factors that are within the control of management (operational variances).
• E. Where a revision of standards is required due to environmental changes that were not foreseeable at the time the budget was prepared, the planning variances are controllable.

A master budget comprises the...

• A. budgeted income statement and budgeted cash flow statement only.
• B. budgeted income statement and budgeted balance sheet only.
• C. budgeted income statement and budgeted capital expenditure only
• D. budgeted income statement, budgeted balance sheet and budgeted cash flow statement only.

RT produces two products from different quantities of the same resources using a just-in-time (JIT) production system. The selling price and resource requirements of each of the products are shown below:

Market research shows that the maximum demand for products R and T during June 2010 is 500 units and 800 units respectively. This does not include an order that RT has agreed with a commercial customer for the supply of 250 units of R and 350 units of T at selling prices of $100 and $135 per unit respectively. Although the customer will accept part of the order, failure by RT to deliver the order in full by the end of June will cause RT to incur a $10,000 financial penalty. At a recent meeting of the purchasing and production managers to discuss the production plans of RT for June, the following resource restrictions for June were identified:
Direct labour hours 7,500 hours
Material A 8,500 kgs
Material B 3,000 litres
Machine hours 7,500 hours
Assuming that RT completes the order with the commercial customer, prepare calculations to show, from a financial perspective, the optimum production plan for June 2010 and the contribution that would result from adopting this plan.
The optimum production plan will be:

• A. Contract: R = 250, T = 360 and Market: R = 500 T = 710
• B. Contract: R = 250, T = 360 and Market: R = 650 T = 710
• C. Contract: R = 250, T = 360 and Market: R = 660 T = 720
• D. Contract: R = 250, T = 360 and Market: R = 600 T = 710
• E. Contract: R = 250, T = 360 and Market: R = 500 T = 700

A company sells and services photocopying machines. Its sales department sells the machines and consumables, including ink and paper, and its service department provides an after sales service to its customers. The after sales service includes planned maintenance of the machine and repairs in the event of a machine breakdown. Service department customers are charged an amount per copy that differs depending on the size of the machine.
The company's existing costing system uses a single overhead rate, based on total sales revenue from copy charges, to charge the cost of the Service Department's support activities to each size of machine. The Service Manager has suggested that the copy charge should more accurately reflect the costs involved. The company's accountant has decided to implement an activity-based costing system and has obtained the following information about the support activities of the service department:

Calculate the annual profit per machine for each of the three sizes of machine, using the current basis for charging the costs of support activities to machines.

• A. The profit per machine for the medium machine was: $1376
• B. The profit per machine for the medium machine was: $1276
• C. The profit per machine for the medium machine was: $1350
• D. The profit per machine for the medium machine was: $1250