SECTION A Compulsory Question QUESTION 1 Cocoa Group (CG) manufactures chocolate-based products, including various chocolate bars for well-known private brands. The company has recently been approached by Allmazing, a large national supermarket chain, to submit a quotation for the supply of a special-flavoured milk chocolate bar. Each chocolate bar should weigh 100 grams. However, due to uncertainty of demand, Allmazing has requested CG to submit a quotation for three different monthly volumes: 30,000, 40,000 and 50,000 bars. CG has, at present, excess capacity on some of its machines to produce a maximum of 55,000 chocolate bars a month. The management accountant of CG has been asked to prepare a costing for the chocolate bars required by Allmazing. The accountant has determined that the full cost will consist of four elements: raw materials of 0.40 per bar, wages for direct labour hired when required of 0.30 per bar, fixed manufacturing and administration overheads absorbed at 200% of direct labour wages per bar, and packaging cost of 0.10 per bar. The manufacturing and administration overheads are forecasted as fixed at 30,000 per month, unless output drops to 40,000 bars or below per month, where a saving of 6,000 per month can be made. An additional 4,000 per month can be saved if monthly output drops to 30,000 bars or below. If nothing is produced, all manufacturing and administration overheads will be saved except for 2,000 per month. If CG sells to Allmazing, the volume produced and sold will be determined by the demand of Allmazing. The company intends to prepare the quotation based on relevant cost plus 50% of relevant cost as mark-up. The sales manager has suggested that as an incentive to encourage higher volumes of purchase from Allmazing, the mark-up be reduced by 10% and 15% respectively if 40,000 and 50,000 bars are purchased per month. b) CG produces chocolate cakes for another customer, Sweety Limited. Market research indicates that there will be no demand for cakes if a selling price of 30 is charged. It has also been ascertained that 500 cakes can be sold at a price of 20. The variable cost for the manufacture of a cake is 10. Required: Compute the selling price that maximises revenue. (6 marks)