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Kings College 4QQMN502-Management Accounting-Quiz 2 2023
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4QQMN502: Management AccountingQuiz 2
Question 1
Jore plc is tendering for a contract that requires two types of raw materials
–
Alphas and Betas. Alphas are currently held in inventories and all will be required for the
contract. These are in frequent use by the business but could also be sold in the market.
Betas are also held by the company and all will be required for the contract. If they are not
used for the contract they will not be used within the business for any other purpose.
Details of each type of raw material are as follows:
Inventories item Quantity Historic cost Sales value Replacement cost
(units) (£/unit) (£/unit) (£/unit)
Alphas 7,000 10 8 12
Betas 8,000 7 6 14
What is the minimum price that Jore plc should include for the raw materials when
tendering for the contract?
Replacement cost of Alphas: 7,000x 12=84,000
Sales value of Betas: 8,000x6= 48,000
84,000+48,000=132,000
Question 2
Consider the following statements:
(1) A cost that does not result in an outlay of cash is an irrelevant cost.
(2) A relevant cost must relate to the objectives of the business.
Which of these statements is/are correct?
2 only
Question 3
M.Omran Ltd offers four different products to its customers. Details (per unit) are set
out below:
Economy Standard De Luxe Super
Selling price £40 £65 £85 £100
Variable costs £20 £30 £45 £70
Fixed costs £10 £10 £25 £25
Machine time 3 hours 7 hours 10 hours 10 hours
The business can make and sell as many of each product as is possible. However, machine
availability limits its ability to produce the products.
Which product should the business produce in order to maximise profits?
Economy Standard De Luxe Super
Selling price £40 £65 £85 £100
Variable costs £20 £30 £45 £70
This study source was downloaded by 100000869267694 from CourseHero.com on 08-14-2023 01:47:21 GMT -05:00
https://www.coursehero.com/file/83376821/4QQMN502-Management-Accounting-Quiz-2docx/
, Contribution £20 £35 £40 £30
Machine time 3 hours 7 hours 10 10
hours hours
Contribution/machine 6.67 5 4 3
hour
Rank 1 2 3 4
Therefore, economy product gives the highest contribution per unit of scarce resource
Question 4
A. Choudray (Engineering) Ltd makes a product that is sold for £53 a unit and has the
following costs per unit:
The labour cost includes three hours charge for assemblers who are paid £6 an hour. The
business is considering sub-contracting the assembly work as demand for the product
outstrips the ability of the business to assemble the parts that are produced to make the
product.
What is the maximum price that the business should be prepared to pay to have one unit of
the product assembled?
Variable costs excluding the assembly labour charge is £10+£[24-18(6x3)]=£16. Providing the
payment for assembly labour does not exceed £53-£16=£37, the business will make a
contribution to profits by sub-contracting.
Question 5
Badger Ltd owns a machine that it wants to sell. The machine needs a replacement part
costing £850 before it can be sold. The company's engineer, who is paid £26 per hour, would
take 10 hours to fit the replacement part. The company is currently very busy and will have
to take the engineer off other work that is charged out at £40 per hour. The company paid £
8,000 to acquire the machine and it could be sold, with or without the new part, for £9,500.
What is the minimum price that Badger Ltd should sell the machine if the new part is fitted?
Opportunity cost of the machine sold: £9,500
Opportunity cost of the engineer’s time: 40x10=£400
Cost of new part: £850
Total: 9,500+850+400=£10,750
Question 6
Lordie Ltd is tendering for a contract that requires two types of raw materials
–
This study source was downloaded by 100000869267694 from CourseHero.com on 08-14-2023 01:47:21 GMT -05:00
https://www.coursehero.com/file/83376821/4QQMN502-Management-Accounting-Quiz-2docx/
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