NUMBER FOUR Fresher Company Ltd. is a merchandising company selling a 40ml bottle of perfume in four zones within Kenya. The variable cost per bottle is Sh.70 but the selling price is different in each of the four zones. The difference in the selling price is due to the transportation costs involved. The company has four salesmen available for an assignment in the four zones. The zones are not equally good in their sales potential. It is estimated that a typical salesman operating in each zone would bring the following annual sales: Zone Annual sales in 60,000 Nairobi Western 50,000 bottles 100 110 Nyanza 40,000 130 Eastern 30,000 120 Selling price per bottle The four salesmen also differ in their marketing ability. It is estimated that, working under the same conditions, the yearly sales would be proportionately shared as follows: Salesman: Proportion: Kamau 6 Wanjala Oriech 5 5 Wambugu The objective of Fresher Company Ltd. is to maximize contribution from each zone. Required: (a) Determine how the four salesmen can be assigned to the zones in order for the company to maximize the total contribution. (15 marks) (b) Calculate the total contribution of the company after the assignment. (5 marks) NUMBER FIVE (Total: 20 marks) (a) In preparing the cash budget for the next year, Makindi Farm Limited finds that it has limited surplus funds of Sh.70,000,000 which the managing directors wishes to spend on one of two schemes. Scheme- A Scheme B Pay Sh.70,000,000 immediately to reputable sales promotion agency which would provide extensive advertising and planned 'reminder' advertising over the next ten years. This is expected to increase the net operational cash flows by sh.200,000,000 per annum for the first five years and Sh.100,000,000 for the following five years. Thereafter, the effect would be zero. Buy immediately labour saving machinery at a cost of Sh.70,000,000 which would reduce the operating cash Required outflows by sh.150,000,000 per annum for the next ten years, at the end of which the equipment will have a salvage value of zero. (1) The average accounting rate of return (ARR) per annum for each scheme over 10 years. (2 marks) (ii) The net present value (NPV) for each scheme assuming the desired rate of return is 18%. (iii) The internal rate of return (IRR) for each alternative. (b) (4 marks) (4 marks) The paradox is that, "while cost plus pricing is devoid of any theoretical justification, it is widely used in practice". Discuss the possible justification for its use. (6 marks) (c) Explain the factors to be taken into consideration when establishing the length of a budget period. (4 marks) (Total: 20 marks)