NUMBER ONE Fine Books Ltd (FBL). are planning to introduce a new management accounting text book. The company's management accountant estimates that the initial distribution for likely sales is normal with a mean of 20,000 books. In addition, it has been determined that there is a probability of 0.5 that the likely sales will lie between 16,000 and 24,000 books. The textbooks will sell for Sh.1,000 per copy but the publishing company pays the author 10% of revenue in royalties while the fixed costs of printing and marketing the book are calculated at Sh.2.5 million. Using current printing facilities, the variable production costs are Sh.400 per book, however the FBI. Ltd. Has the option of hiring a special machine for Sh.1.4 million which will reduce the variable production costs to Sh.250 per book. Required: a) Show the standard deviation (8) of likely sales is approximately 6,000. (4 marks) b) Using = 6000, determine the probability that the company will at least break even if: i Existing printing facilities are used. ii The special machine is hired. (3 marks) (3 marks) c) By comparing expected profits, decide whether or not the publishing company should hire the special machine. (3 marks) d) By using the normal distribution, it can be shown that he following probability distribution may be applied to the book sales. Sales Sh 0-10 10 16-20 20-24 24 '000' - 30-40 16 30 Probability 0.05 0.20 0.25 0.25 0.20 0.05 By assuming that the actual can only take the mid-points of theses classes, determine the expected value of perfect information and interpret it. marks) (7 NUMBER TWO a) Describe the advantages and disadvantages of using simulation to investigate queuing situations compared with the use of queuing formulae. (4 marks) b) Kisimayu Municipal council operates a mini-bus service to take shoppers and tourist from the bus and the railway stations to various locations in the Municipality. The following data have been collected for the arrival of passengers at the bus stop outside the railway station: Time between successive arrivals 0 1 2 3 4 5 6 (minutes) Probability 0.04 0.16 0.24 0.28 0.16 0.10 0.02 The mini-buses are scheduled to run every 10 minutes but variation in traffic conditions results in the following distribution. Time between successive buses 8 10 12 14 16 (minutes) Probability 0.10 0.38 0.28 0.15 0.09 The number of empty seats on the bus is found to follow the distribution below: Number of empty seats Probability 0 1 2 3 4 5 6 0.06 0.18 0.27 0.34 0.11 0.03 0.01 Required: i. Simulate the arrival of to passengers at the bus stop assuming that the simulation clock begins at time zero. Use the following random numbers: 18262318624207384092976446757444417165809 (12 marks) ii. Estimate the average time a passenger must wait for a bus and the average length of queue marks) (Total: 20 marks) (4 NUMBER THREE a) b) Discuss the three main elements of strategic costs management. (6 marks) Explain the major characteristics of modern businesses that necessitate the introduction of a strategic cost management system. (6 marks) "If a manager searches for a system that will provide the 'true costs' of each service produced by his firm he is attempting the impossible". Discuss. (8 marks) (Total: 20