1 [Temporary Shutdown Decisions] As a General Manager of Metro Public Transport Limited, you have been asked to comment on a proposal that East Legon route should be abandoned. The following are estimates of profit/(loss) for the next quarter: Kosoa route Nima route GH000 GH000 East Legon route GH000 Revenue from passengers 440 592 232 Direct costs (300) (400) (160) Specific fixed costs (72) (96) (48) Common fixed costs (48) (64) (40) Profit/(loss) 20 32 (16) The company is concerned about the poor profit performance of East Legon route and is considering abandoning it as transport fares cannot be raised because fares are determined in line with fuel pricing regulation regime. Required [5 Marks] (a) Advice management on whether the East Legon route should be abandoned. (b) Feasibility studies revealed that switching resources from East Legon route to Amansaman route would generate the following revenue and cost estimates: revenue from passengers' GH380,000, direct cost GH200,000, specific fixed costs of GH40,000, and switching cost GH50,000. Advice management showing all the necessary calculations. [5 Marks] (c) Discuss five (5) qualitative factors that are likely to affect your decisions in requirement (a) and (b) above [5 Marks] [Total of 15 Marks] Question 2 [Minimum Pricing Decisions] BABE Limited produces soft wears and has budgeted for the production of 200,000 units during the next year. The cost estimates for the quarter are as follows: Direct labour Direct materials Variable overheads Packaging Fixed overheads GH 1,200,000 400,000 400,000 200,000 800,000 3,000,000 The company has received orders for the supply of 160,000 units during the coming year at GH20 per unit. It is not likely that the remaining 40,000 will be sold at the exiting price, but a customer is prepared to purchase them at a selling price of GH14 per unit. Required Advise management whether the request should be accepted. (Show all workings) [15 Marks] Question 3 [Corporate Failure Prediction Models] Georgia Limited is a manufacturer of roofing tiles. Extract of Financial Statements are as follows: Income Statement for the year ended 31 December 2019 GH Turnover 32,000 Cost of sales (13,500) Gross profit 18,500 Selling and administration expenses (8,300) Interest charges (4.300) Profit before tax 5,900 Tax (2,700) Net profit 3,200 Statement of Financial Position as at 31 December 2019 Non-current assets Buildings Plant & equipment Investment Total non-current assets GH 15,000 11,640 5,160 31,800 Current assets Stocks 7,800 Debtors 3,200 Bank 4,600 Total current assets 15,600 Total assets 47,400 Equity capital Ordinary shares Share premium 10,000 2,500 Capital surplus 7,800 Income surplus 10.200 Total equity capital 30,500 Current liabilities Tax payable 3,000 Creditors 4,400 Total current liabilities 7,400 Non-current liabilities Long term loan Total non-current liabilities Equity plus liabilities 9,500 9,500 47,400 Page 3 of 4 Additional information Georgia Limited has issued share capital of 40,000 shares at a nominal value of GH0.25 per share. These shares are now selling on the stock exchange for GH0.10 per share. Required (a) Using Altman's corporate failure prediction model, determine whether Georgia Limited is in danger of collapse in the near future. [10 Marks] (b) Discuss the validity of Altman's Z-Score model and outline the justifications for use of the model. [5 Marks] (c) Outline the elements of Argenti's corporate failure prediction model [5 Marks] (d) Discuss the relevance Argenti's corporate failure prediction model in managing corporate entities. [5 Marks] [Total of 25 Marks] Question 4 [Production Planning Decisions] Bombay Limited is capable of producing four products in the next production planning period. Estimates of cost, sales and production data are given below, per unit of each product: Products Wam Xam Yap Zap GH GH GH GH Selling price (per units) 380 450 700 470 Cost per unit: Labour at GH20/hr 60 40 140 100 Material at GH10/kg 60 180 100 120 Variable overheads 20 30 40 50 Maximum demand (units) 5,000 6,000 5,500 4,500 Required (a) Determine the most appropriate production mix under the assumption that material is limited to 189,400kgs. [6 Marks] (b) Determine the most appropriate production mix under the assumption that labour hours available is limited to 80% of full requirement. [8 Marks] (c) (d) [4 Marks] Management has limited financial resources to spend either on material or labour. Recommend to management whether it should choose material or labour as the constraint based on your computation in requirement (iii) above. (e) Outline five (5) qualitative factors are likely to influence your decision? Show all computations [2 Marks] [5 Marks] Calculate total contribution from each production mix determined in requirement (i) and (ii) above. Total of 25 Marks