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1.21 S plc produces and sells three products, X, Y and Z. It has contracts to supply products X and Y, which will utilise all of the specific materials that are available to make these two products during the next period. The revenue these contracts will generate and the contribution to sales (c/s) ratios of products X and Y are as follows: Product X Product Y Revenue E10 million E20 million C/S ratio 15% 10% Product Z has a c/'s ratio of 25%. The total fixed costs of S pic are $5-5 million during the next period and management have budgeted to earn a profit of 1 million. Calculate the revenue that needs to be generated by Product Z for S pic to achieve the budgeted profit. (3 marks) (Total for Section A = 50 marks)1.18 ZY is an airline operator. It is implementing a balanced scorecard to measure the success of its strategy to expand its operations. It has identified two perspectives and two associated objectives. They are: Perspective Objective Growth Fly to new destinations Internal capabilities Reduce time between touch down and take off (i) For the "growth perspective" of ZY, recommend a performance measure and briefly justify your choice of the measure by explaining how it will reflect the success of the strategy. (2 marks) (ii) For the "internal capabilities perspective" of ZY, state data that you would gather and explain how this could be used to ensure the objective is met. (2 marks) The following data are given for sub-questions 1. 19 and 1.20 below Q plc uses standard costing. The details for April were as follows: Budgeted output 15,000 units Budgeted labour hours 60,000 hours Budgeted labour cost $540,000 Actual output 14,650 units Actual labour hours paid 61,500 hours Productive labour hours 56,000 hours Actual labour cost (522,750 1.19 Calculate the idle time variance for April. (2 marks) 1.20 Calculate the labour efficiency variance for April. (2 marks)Required: (a) Calculate the individual profits of the Sales Department and the Service Department, and of FP as a whole from the guarantee scheme if: The repairs are carried out by the Service Department and are charged at full cost plus 40%; The repairs are carried out by the Service department and are charged at marginal cost; (iii) The repairs are carried out by RS. (8 marks) (b) Explain, with reasons, why a 'full cost plus' transfer pricing model may not be appropriate for FP. (3 marks) (10) Comment on other issues that the managers of FP should consider if they decide to allow RS to carry out the repairs. (4 marks) (c) Briefly explain the advantages and disadvantages of structuring the departments as profit centres. (5 marks) (Total for Question Four = 20 marks) (Total for Section C = 20 marks)FP sells and repairs photocopiers. The company has operated for many years with two departments, the Sales Department and the Service Department, but the departments had no autonomy. The company is now thinking of restructuring so that the two departments will become profit centres. The Sales Department This department sells new photocopiers. The department sells 2,000 copiers per year. Included in the selling price is $60 for a one year guarantee. All customers pay this fee. This means that during the first year of ownership if the photocopier needs to be repaired then the repair costs are not charged to the customer. On average 500 photocopiers per year need to be repaired under the guarantee. The repair work is carried out by the Service Department who, under the proposed changes, would charge the Sales Department for doing the repairs. It is estimated that on average the repairs will take 3 hours each and that the charge by the Service Department will be $136,500 for the 500 repairs. The Service Department This department has two sources of work: the work needed to satisfy the guarantees for the Sales Department and repair work for external customers. Customers are charged at full cost plus 40%. The details of the budget for the next year for the Service Department revealed standard costs of: Parts at cost Labour $15 per hour Variable overheads | $10 per labour hour Fixed overheads $22 per labour hour The calculation of these standards is based on the estimated maximum market demand and includes the expected 500 repairs for the Sales Department. The average cost of the parts needed for a repair is $54. This means that the charge to the Sales Department for the repair work, including the 40% mark-up, will be f136,500. Proposed Change It has now been suggested that FP should be structured so that the two departments become profit centres and that the managers of the Departments are given autonomy. The individual salaries of the managers would be linked to the profits of their respective departments. Budgets have been produced for each department on the assumption that the Service Department will repair 500 photocopiers for the Sales Department and that the transfer price for this work will be calculated in the same way as the price charged to external customers. However the manager of the Sales Department has now stated that he intends to have the repairs done by another company, RS, because they have offered to carry out the work for a fixed fee of E180 per repair and this is less than the price that the Sales Department would charge