Part A: (4 marks)

A company wishes to go ahead with one of three mutually exclusive projects, but the profit outcome from each project will depend on the strength of sales demand, as follows.

	Strong demand profit $	Moderate demand profit $	Weak demand profit (loss) $
Project 1	70,000	10,000	(7,000)
Project 2	25,000	12,000	5,000
Project 3	50,000	20,000	(6,000)
Probability of demand	0.1	0.4	0.5

Instructions:

What is the value to the company of obtaining this perfect market research information, ignoring the cost of obtaining the information?

Part B: (4 marks)

Ahlia Company, a manufacturer of computer games, is in the process of introducing a new game to the market and has undertaken market research to find out about customers views on the value of the product, as well as to obtain a comparison with competitors products. The results of this research have been used to establish a target selling price of $80. This is the price that the company thinks it will have to sell the product at to achieve the required sales volume. Cost estimates have been prepared based on the proposed product specification.

Manufacturing cost $

Direct material 4.25

Direct labour 23.08

Direct machinery costs 1.05

Ordering and receiving 0.28

Quality assurance 4.8

Non-manufacturing costs $

Marketing 8.19

Distribution 3.27

The target profit margin for the game is 45% of the target selling price.

Instructions:

Calculate the target cost of the new game and the target cost gap.

Part C: (4 marks)

Bahrain Company manufacturers TVs. Some of the company's data was misplaced. Use the following information to replace the lost data: (show your calculations)

Analysis	Actual Results	Variances	Flexible Budget	Variances	Master Budget
Units Sold	112,500		112,500		103,125
Revenues	$42,080	$1,000 F	(A)	$1,400 U	(B)
Variable Costs	(C)	$200 U	$15,860	$2,340 F	$18,200
Fixed Costs	$8,280	$860 F	$9,140		$9,140
Operating Income	$17,740	(D)	$16,080	(E)	$15,140