BY ATTEMPTING THIS ASSESSMENT YOU ARE CONFIRMING THAT YOU ARE FIT TO Do so Turn Over Question 8 A manufacturing company is planning the process for meeting a customer's order for a particular product. Associated costs are: a) Annual fixed cost (E) Unit variable cost () Process Job shop Batch production Mass production 150,000 350,000 1,000,000 75 60 25 The order quantity is 20,000. Based on break-even analysis, which type of process should they choose? A. Jobbing B. Either jobbing or batch C. Mass D. Batch 4 marks] Verify your answer by showing your workings. b) State what three basic assumptions are made when applying break-even analysis, that render the method unsuitable for accurate long term financial planning due to ambiguities. 4 marks] c) A company is proposing two alternative processes (process A and B) for producing a particular part which is to be used in a product with a surplus stock for spares. It is anticipating that the lifetime quantity requirement for the part is 30,000 units. Fixed costs are 400k for process A and 1 million for process B. The unit variable cost is 75 for process A and 45 for process B. Select the most appropriate method showing your workings. 5 marks] d) A company invest in a production machine at a cost of 500,000. After 4 years of service it seeks to replace the machine at a value of 50% its original cost. Using the sum-of-the-digits method determine the annual change in value for each of the four years that they are running the machine (as this helps them determine their fixed costs) 8 marks] By applying the reducing balance method, determine whether the depreciation is greater or less than the-sum-of-the-digits for year 1 only, stating the difference. 4 marks Should a candidate have a query about this paper and the Module Leader is not in attendance, please call 01484 472450 or 472150 Page 9 of 12