Select the benefits to a company of using sensitivity analysis in investment appraisal.
(Select all the true statements.)

• A. Sensitivity analysis enables a company to assess the risk associated with a project.
• B. Sensitivity analysis enables a company to determine the effect of changes to variables on the planned outcome.
• C. Sensitivity analysis enables risk management strategies to be put in place to focus on those variables of special significance.
• D. Sensitivity analysis enables identification of fixed costs that are of special significance.

A company has budgeted to produce 5,000 units of Product B per month. The opening and closing inventories
of Product B for next month are budgeted to be 400 units and 900 units respectively. The budgeted selling price and variable production costs per unit for Product B are as follows:

Total budgeted fixed production overheads are $29,500 per month.
The company absorbs fixed production overheads on the basis of the budgeted number of units produced. The budgeted profit for Product B for next month, using absorption costing, is $20,700.
Prepare a marginal costing statement which shows the budgeted profit for Product B for next month.
What was the marginal costing profit for the next month?

• A. $17 890
• B. $18 750
• C. $18 600
• D. $17 750

The term 'budgetary slack' refers to the:

• A. Lead time between the preparation of the functional budgets and the approval of the master budget by senior management
• B. Difference between budgeted capacity utilization and full capacity
• C. Difference between the budgeted output and the actual output
• D. Intentional over estimation of costs and/or under estimation of revenue in a budget

A medium-sized manufacturing company, which operates in the electronics industry, has employed a firm of consultants to carry out a review of the company's planning and control systems. The company presently uses a traditional incremental budgeting system and the inventory management system is based on economic order quantities (EOQ) and reorder levels. The company's normal production patterns have changed significantly over the previous few years as a result of increasing demand for customized products. This has resulted in shorter production runs and difficulties with production and resource planning.
The consultants have recommended the implementation of activity based budgeting and a manufacturing resource planning system to improve planning and resource management.
How will a manufacturing resource planning system improve the planning of purchases and production for the company?
Select ALL the correct answers.

• A. The correct inventory management system relies on the assumption that there is constant demand. An MRP system begins with the setting of a master production schedule specifying both the timing and quantity demanded of each of the finished goods items and then works backwards to determine the resource requirements at each stage of the production process.
• B. It aims to generate an estimation of materials requirements after taking account of the number of employees quality and waste. The TQS model can be used within MRP provided that the major assumption in the TQS model of constant demand applies.
• C. The technique will not enable managers to track orders through the manufacturing process and will not assist the purchasing and production control departments to move the right amount of material or sub- assemblies at the right time to the right place.
• D. It seeks to ensure that resources are available just before they are needed by the next stage of production or dispatch. It also seeks to ensure that resources are delivered only when required so that raw material inventory is kept to a minimum.
• E. A manufacturing resource planning approach to the management of all the company's manufacturing
  resources including inventory, labour and machine capacity.
• F. The traditional approach to determine material requirements is to monitor inventories constantly; whenever they fall to a predetermined level, a preset order is placed to replenish them. This traditional approach (involving re-order levels and economic order quantity calculations originates in the pre-computer era.

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 activity-based costing.

• A. Profit Per Machine using ABC: Small $176, Medium $1341, Large $946
• B. Profit Per Machine using ABC: Small $196, Medium $1191, Large $1046
• C. Profit Per Machine using ABC: Small $166, Medium $1241, Large $746
• D. Profit Per Machine using ABC: Small $1076, Medium $1041, Large $1946
• E. Profit Per Machine using ABC: Small $186, Medium $1441, Large $2046
• F. Profit Per Machine using ABC: Small $376, Medium $2341, Large $986