NUMBER TWO GY Limited manufactures security systems for homes. To enable the company offer a better quality product at a lower cost than its competitors, the company has decided to expand its present facility to accommodate a new line. A project team has been formed within the company to direct and coordinate the plant expansion. This team met weekly to monitor the status of the project. Prior to the start of the plant expansion, the management developed the following list of required activities: Activity Normal Predeces Time Costs Crash Time Cost sor in (Sh) in (Sh) week '000' week '000' S S A Prepare 10 10,000 7 12,000 architectural plan B Construct building A 35 50,000 33 52,000 C Develop equipment Specifications A 4 7,000 3 6,000 D Design and construct C 25 20,000 25 26,000 Equipment E Install/Test B,D 5 5,000 4 4,500 equipment F Develop staffing C 2 4,000 2 4,000 plan G Hire staff F 4 30,000 2 30,000 H Train staff G 2 15,000 1 25,000 I Pilot production E,H, L 1 4,000 1 4,000 run J Market research 8 12,000 4 24,000 K Complete product development 12 24,000 10 20,000 design L Complete package M Complete marketing J,K 4 6,000 2 2,000 J 10,000 6 8,000 plan Required: a) b) c) Determine the critical path and list the critical activities. Determine the minimum time and minimum cost network. (8 marks) (7 marks) GY Ltd knows that other companies are working on a competing product. The company estimates that the delay of every week beyond the 40th week in bringing out the new line will cost the firm sh. 1,000,000 in lost profit.. What will be the cost to the firm if the project is completed in 50 weeks? (3 marks) d) Is it advisable to crash the profits from 51 to 45 weeks? Why? marks) (2 224 (Total: 20 marks) NUMBER THREE Explain why a high correlation between the independent and dependent variables may or may not necessarily prove that a change in the independent variables may or may not necessarily prove that a change the independent variable causes a change in the dependent variable. (3 marks) Chester Company Ltd. manufacturers crockery. The company is considering the use of simple and multiple linear regression analysis to forecast annual sales for they are 2001 because previous forecasts have been inaccurate. The sales forecast will be used to initiate the budgeting process and to identify more accurately the underlying process that generates sales. The financial controller of the company has considered many possible independent variables and equations to predict sales and has narrowed his choices to four equations. He used annual observations from twenty prior years to estimate each of the four equations. The following is a statistical summary of the four equations and definitions of the variables used in the exercise. Equation Equation Equation Equation Dependent variable Independent variable Intercept Coefficient of independent variable T-statistic I Y II III IV Y Y Y Z 1 NZZ Y, 1 Z (sh) 2,500,000 5,000,000 4,500,000 3,000,000 5.5 11.00 0.00005 0.00006 50.00 25.00 Standard error of (sh) 2,500,000 2,550,000 2,600,000 2,450,000 estimate Coefficient determination of 0.94 0.90 0.81 0.96 The other statistics for Equation IV were estimated as follows: Variable Coefficient N-1 50 Z Z-1 0.00001 T-statistic 20.00 7.50 0.000015 15 Where: period t Y Y-1 Z Required: forecast sales (in shillings) for the company in time actual sales (in shillings) for period t-1 forecast Kenya gross national product in time period t Z-1 actual Kenya gross national product in time period t-1 N-1 company's net income in time period t-1 (3 marks) a) Using the relationship T = a + bx, write Equations II and IV b) If the actual sales for the year 2000 were sh.7,500,00, what would be the forecast sales for the year 2001? (2 marks) c) Explain the meaning and significance of the coefficient of determination. (4 marks) d) Explain why the Financial Controller might prefer Equation III to Equation II.(2 marks) e) Explain the advantages and disadvantages of using Equation IV to forecast annual sales. (6 marks) (Total: 20 marks)