question 2

Question 2 Paperbacks R Us is an innovative paperback book printer. It provides a range of disposable' paperbacks which are ideal for reading in the bath, bed or other relaxed location without the worries about damaging a more expensive book or electronic book. This is a competitive market where just a slight amount of over pricing results in titles not achieving a breakeven level of production, hence the interest of the CEO in applying target costing to help in dealing with the latest book "Back to the Past'. The Marketing Director estimates that the book should sell for $5.00 per copy. The Financial Controller requires a margin of 10% on the Selling Price. The company has estimated the following costs related to producing the latest book: Pages in each book: 250 pages Size of the print run: 10,000 books Direct Labour: 5 minutes per book - this is for binding/handling Direct Labour: E30 per hour - this is for binding/handling Paper costs: $5 per 1000 pages Binding materials: $20 per 1000 books Printing inks: $35 per 100 books All overheads: $12 per Direct Labour hour The Production Engineer is aware that the first print run of 10,000 books is often the slowest and most difficult. She has discovered that when they reach the fourth run of 10,000 books, costs typically stabilise due to a learning curve effect. She estimates that that there is a learning curve effect of 80% between each print run of 10,000 books each. The log of learning 'b' is -0.3219, in the equation for the cumulative average time per print run y' and y = ax. Please note : a is the time taken for the first print run of 10,000 books which is 50,000 minutes x is the number of print runs. Note that each print run is for 10,000 books.Paperbacks R Us is looking at the market research coming in regarding another new book. The new Marketing Director has asked you. the Management Accountant. to assess the effects of different demand scenarios on the outcome of the book's launch. The Marketing Director has provided you with the following market data for year 1: High Demand: ?0.000 books Medium Demand: 60.000 books Low Demand: 30,000 books You must decide on the production level i.e. the number of books to make. Print runs are extremely fast so time is not a constraint on the number of runs. Capacity is available for up to 80,000 books. Create a payoff table of the contribution outcomes assuming a sales price of 5 per book and a variable cost at 3.72 per book. The Marketing Director is uncertain as to which level of demand is most likely and is unwilling or unable to estimate any percentage likelihoods {or these outcomes. Required: 0 Applying risk management methods such as Maximax. Maximin and Minimax regretto deal with uncertainty, demonstrate three dierent approaches to choosing the 'best' production level and indicate what attitude to risk would go with each approach