A company has to choose between three mutually exclusive projects. Market research has shown that customers could react to the projects in three different ways depending on their preferences. There is a 30% chance that customers will exhibit preferences 1, a 20% chance they will exhibit preferences 2 and a 50% chance they will exhibit preferences 3. The company uses expected value to make this type of decision.
The net present value of each of the possible outcomes is as follows:

A market research company believes it can provide perfect information about the preferences of customers in this market.
What is the maximum amount that should be paid for the information from the market research company?

• A. $125 000
• B. $145 000
• C. $135 000
• D. $140 000

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

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. 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.
• B. 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.
• 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. Standards that failed to anticipate known market trends when they were set will reflect faulty standard setting.
• E. 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).

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 contribution per unit for R and T will be...?

• A. R = $47 per unit. T = $61 per unit
• B. R = $47 per unit. T = $65 per unit
• C. R = $51 per unit. T = $61 per unit
• D. R = $45 per unit. T = $66 per unit