QUESTION 3 a) The Queen Elizabeth Heart Centre (CEHC) carnes out two kinds of heart operations on patients: Open Heart operabion and Nomal operation. Each operation has the following Girect costs: QEHC calculates ovehead cost per operation by taking the overat overhead cost and dividing it by the number of operabions. This approach shows that total cost for Operabion Noemal is C3.561.47 : simiarly toeal cost for Operabon Open Heart is found to be 26.581 .47 . The new finance diecter is keen to find cu if the costs could be allocated in a more accurse way. Based on peevious years' data, the following information is avaiable about the operations: Addifional informaton is shown in the below table: Requirement: 1) The Enance directer of QEHC is keen to evaluate the proftabilty of both of the operafions bul is not sure it the cverhead costs have been correctly assigned to these two operasons. In this contert, crificaly appraise the relevance of activity based costing (ABC) in maragement control. 5 Marks 19 Using activity based costing ( ABC), calculate the tull cost per operation and make a recommendation to the finance drector if ABC should be adopted at CEMC. 5 Marks b) Frankfurt Memory Comparyy hbve produced two new mensory storage devices: US8 device and SDC carts. Due to Imiled marketing and distrbution resources, they are in a. poskion to leunch only one product. As the market for digtal memory devices is very competave, the succoss or falure of the newly launched product wil depend on how competinors react. There is a 50% chance that competiors wal take no action, a 30% chance that they wil launch a similar product and a 20% chance that they wil launch a better product The peofeloss that will be eamed by each product depending on how the compettors react. is shown in the folowing table: Frankfut Memory Company also have the option of not launching any new storage devices. If this is the case, Enere is a 60% chance that the competiors well take no action and there wit not be ary impact on company's proft. There is a 40% chance. however, that compettors will Launch a new kind of digtal merrory storage device anywiry, and this has the potential to reduce Franktur's profits by E180,000. Requirement: 1) The CFO of the firm has approached you to provide a recommendation on how to proceed. Using a decision tree and based on expected value, ibentify the best course of action for the company, and write a merno to the CFO of Frankfurt Mernory Company recommending a course of action. 5 Marks 6) If Frankfurt Memory Company decides to launch any of the storage devices, the CFO is plarring to launch the product in three variants: Value, Basic, and Premium. The expected seling price and variable cost for the three types of storage device is shown below The following peoduction requiremerts (in hours) for each product are shown alang with departmenal capacity: Due bo the multiple constraints mentoned above, the CFO is not sure on how many units of each of the products to produce. He has heard that linear programming can be used to deal with issues when there are mulliple constraints. Requirement: State the optimization function, constrants, and also state ary retated astumptions to assist the production manager. Total 20 Marks
