Answer all 30 questions by filling in the space provided for the answer. Use the information provided below to answer questions 1 to 8 The Telephone Co (T Co) is a company specializing in the provision of telephone systems for commercial clients. T Co has been approached by a potential customer, Push Co, who wants to install a telephone system in new offices it is opening. Whilst the job is not a particularly large one, T Co is hopeful of future business in the form of replacement systems and support contracts for Push Co. T Co is therefore keen to quote a competitive price for the job. The following information should be considered: (i) One of the company's salesmen has already been to visit Push Co, to give them a demonstration of the new system, together with a complimentary lunch, the costs of which totaled GH400. (ii) The installation is expected to take one week to complete and would require three engineers, each of whom is paid a monthly salary of GH4,000. The engineers have just had their annually renewable contract renewed with T Co. One of the three engineers has spare capacity to complete the work, but the other two would have to be moved from contract X in order to complete this one. Contract X generates a contribution of GH200 per engineer per week. There are no other engineers available to continue with Contract X if these two engineers are taken off the job. It would mean that T Co would miss its contractual completion deadline on Contract X by one week. As a result, T Co would have to pay a one-off penalty of GH500. Since there is no other work scheduled for their engineers in one week's time, it will not be a problem for them to complete Contract X at this point. (iii) 120 telephone handsets would need to be supplied to Push Co. The current cost of these is GH18.20 each, although T Co already has 80 handsets in inventory. These were bought at a price of GH16.80 each. The handsets are the most popular model on the market and frequently requested by T Co's customers. (iv) Push Co would also need a computerized control system called 'Swipe 2'. The current market price of Swipe 2 is GH10,800, although T Co has an older version of the system, 'Swipe 1', in inventory, which could be modified at a cost of GH4,600. T Co paid GH5,400 for Swipe 1 when it ordered it in error two months ago and has no other use for it. The current market price of Swipe 1 is GH5,450, although if Push Co tried to sell the one they have, it would be deemed to be 'used' and therefore only worth GH3,000. QUESTION ANSWER 1. What figure should be included in the relevant cost statement for engineers costs? 2. What figure should be included in the relevant cost statement for telephone handsets? 3. What figure should be included in the relevant cost statement for the computerized control system? 4. Which of the following statements about T Co's decision to quote for the contract is/are correct? i. The opportunity cost is defined as the relevant cost of taking a business opportunity to install the telephone system for Push Co. ii. The decision to install the telephone system should be taken on the basis of whether it improves profit or reduces costs for T Co. 5. What type of cost is the GH400, detailed in point (i)? 6. What type of cost is the GH200, detailed in point (ii)? 7. What type of cost is the GH5,450, detailed in point (iii)? 8. When full capacity exists, the relevant cost of labour is calculated as Use the information provided below to answer questions 9 to 12 Pixie Pharmaceuticals is a research-based company which manufactures a wide variety of drugs for use in hospitals. The purchasing manager has recently been approached by a new manufacturer based in a newly industrialized country who have offered to produce three of the drugs at their factory. The following cost and price information has been provided. Drug Fairyoxide Spriteolite Goblinex Production (units) 20,000 40,000 80,000 GH GH GH Direct material cost, per unit 0.80 1.00 0.40 Direct labour cost, per unit 1.60 1.80 0.80 Direct expense cost, per unit 0.40 0.60 0.20 Fixed cost per unit 0.80 1.00 0.40 Selling price each 4.00 5.00 2.00 Price from New producer 2.75 4.20 2.00 QUESTION ANSWER 9. Calculate the profit figure the company will make by producing all the drugs itself. 10. What saving/increased cost per unit would be made/incurred if Fairyoxide was purchased from the overseas producer? 11. What saving/increased cost would be made/incurred per unit if Spriteolite was purchased from the overseas producer? 12. What saving/increased cost would be made/incurred if Goblinex was purchased from the overseas producer? 13. The following two statements have been made about the decision Pixie Pharmaceuticals has to make about producing the products in house or purchasing from the overseas producer: A. In a make or buy decision with no limiting factors, the relevant costs are the differential costs between the make and buy options. B. Cost is the only relevant factor in Pixie Pharmaceutical's make or buy decision. Which of the above statements is/are true? Use the information provided below to answer questions 14 to 19 QUESTIONS ANSWERS 14. At point 1, all the following are true except i. Revenue equals Expenses ii. Losses equals zero iii. Contribution equals Total Fixed Cost iv. Variable cost equals fixed cost. 15. Region 4 represents 16. Region 6 represents 17. Region 7 represents 18. What type of cost behavior is depicted in the figure? 19. According to the figure, Fixed Cost is GH Use the information provided below to answer questions 20 to 24 Metallica Co is an engineering company that manufactures a number of products, using a team of highly skilled workers and a variety of different metals. A supplier has informed Metallica Co that the amount of M1, one of the materials used in production, will be limited for the next three-month period. The only items manufactured using M1 and their production costs and selling prices (where applicable) are shown below. Product P4 Product P6 GH/unit GH/unit Selling price 125 175 Direct materials: M1* 15 10 M2 10 20 Direct labour 20 30 Variable overhead 10 15 Fixed overhead 20 30 Total cost 75 105 * Material M1 is expected to be limited in supply during the next three months. These costs are based on M1 continuing to be available at a price of GH20 per square meter. The price of M2 is GH10 per square meter. QUESTION ANSWER 20. Calculate the contribution per unit for product P4. 21. Calculate the contribution per unit for product P6. 22. Metallica Co carried out some market research which suggested that a change should be made to the selling price of both Product P4 and P6. As a result, the new contribution per unit for P4 is GH85 and for P6 it is GH95. What is the contribution per limiting factor of P4 and P6 respectively 23. How much of each product should be produced? 24. Once a scarce resource is identified, Metallica Co carries out a limiting factor analysis using 4 steps. What is the correct order for carrying out these steps? i. Rank the products in order of the contribution per unit of the scarce resource ii. Allocate resources using the ranking iii. Calculate the contribution per unit of the scarce resource for each product iv. Calculate the contribution per unit for each product Write the numbers of the steps in the order in which they should happen For questions 25 to 30, identify whether the following cost items are relevant or irrelevant for managerial decision making. QUESTION ANSWER 25. The replacement cost for materials taken from existing stock. 26. The original cost of material diverted from its original use to produce another product. 27. The scrap value, where a material has no further use but can be sold for scrap. 28. The cost of casual labour. 29. Labour cost of a new project, where there is temporary excess capacity. 30. Factory wide cost, apportioned for a product.