GH manufactures a product using skilled labour and high quality materials. The company operates a standard costing system and a just-in-time (JIT) purchasing and production system. The standard selling price and variable costs for one unit of the product are as follows:

Prepare a statement that reconciles the budgeted contribution with the actual contribution for October. Your statement should show the variances in as much detail as possible.
What was the actual contribution for October?

• A. $ 1,594,000
• B. $ 1,494,000
• C. $ 1,414,000
• D. $ 1,324,000
• E. $ 1,198,000

Explain why sensitivity analysis is useful when dealing with uncertainty in project appraisal.
Select all the true statements.

• A. In project appraisal, an analysis can be made if all the key variables to ascertain by how much variable would need to change before the net present value (NPV) reaches zero i.e. the indifference point.
• B. Sensitivity analysis enables a company to determine the effect of changes to fixed costs on the planned outcome
• C. Sensitivity analysis enables a company to determine the effect of changes to variables on the planned outcome
• D. In project appraisal, in analysis can be made of all the key variables to ascertain by how much each variable would need to change before the net present value (NPV) reaches 100% i.e. the maximum point.

A company sells and services photocopying machines. Its sales department sells the machines and consumables, including ink and paper, and its service department provides an after sales service to its customers. The after sales service includes planned maintenance of the machine and repairs in the event of a machine breakdown. Service department customers are charged an amount per copy that differs depending on the size of the machine.
The company's existing costing system uses a single overhead rate, based on total sales revenue from copy charges, to charge the cost of the Service Department's support activities to each size of machine. The Service Manager has suggested that the copy charge should more accurately reflect the costs involved. The company's accountant has decided to implement an activity-based costing system and has obtained the following information about the support activities of the service department:

Calculate the annual profit per machine for each of the three sizes of machine using activity-based costing.

• A. Profit Per Machine using ABC: Small $1076, Medium $1041, Large $1946
• B. Profit Per Machine using ABC: Small $186, Medium $1441, Large $2046
• C. Profit Per Machine using ABC: Small $376, Medium $2341, Large $986
• D. Profit Per Machine using ABC: Small $166, Medium $1241, Large $746
• E. Profit Per Machine using ABC: Small $176, Medium $1341, Large $946
• F. Profit Per Machine using ABC: Small $196, Medium $1191, Large $1046

A major company sells a range of electrical, clothing and homeware products through a chain of department stores. The main administration functions are provided from the company's head office. Each department store has its own warehouse which receives goods that are delivered from a central distribution center.
The company currently measures profitability by product group for each store using an absorption costing system. All overhead costs are charged to product groups based on sales revenue. Overhead costs account for approximately one-third of total costs and the directors are concerned about the arbitrary nature of the current method used to charge these costs to product groups.
A consultant has been appointed to analyses the activities that are undertaken in the department stores and to establish an activity based costing system.
The consultant has identified the following data for the latest period for each of the product groups for the X Town store:

Calculate the total profit for each of the product groups:
.... using the current absorption costing system;

• A. The profit or loss in $ was.... Clothing 85; Electrical 36; Homeware (28)
• B. The profit or loss in $ was.... Clothing 192; Electrical (56); Homeware 148
• C. The profit or loss in $ was.... Clothing 122; Electrical 56; Homeware (178)
• D. The profit or loss in $ was.... Clothing (175); Electrical 86; Homeware 22

A company produces three products D, E and F. The statement below shows the selling price and product costs per unit for each product, based on a traditional absorption costing system.

Each of the products is produced using Process A which has a maximum capacity of 2,500 hours per period.
If a traditional contribution approach is used, the ranking of products, in order of priority, for the profit maximizing product mix will be:

• A. D, E, F
• B. E, D, F
• C. F, D, F
• D. D, E, F