AF201 FINAL EXAM REVISION PACKAGE – s2, 2020

Face-to- Face & Blended Modes Suggested Partial Solutions

SECTION A: MULTIPLE CHOICE

Coverage: Chapters 12, 15, 16, 17, & 19

Attempt all the relevant multiple choice questions in the Past Exam papers (See
the Final Exam Revision Resources folder under the ‘Course Resources.’

MULTIPLE CHOICE SOLUTIONS

Question S1, 2018 S2, 2018 S1, 2019 S2, 2019

1 C C B D
2 B C C D
3 D D B C
4 B C C B
5 D D D A
6 D D B B
7 C A D D
8 D D D C
9 A C D D
10 D D B B
11 C A D D
12 B B B D
13 B D B C
14 D D B C
15 D D C C
16 B D C A
17 A D B D
18 A C D B
19 D C D A
20 A D D C

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SECTION B: PROBLEM SOLVING QUESTIONS REVISION QUESTIONS

Coverage: Chapters 12, 13, 16, & 20

QUESTION 1 – COST MANAGEMENT - CHAPTER 16

SEMESTER 1 2011 DFL MST

(A) The bottleneck department is the Assembly department. This is because if

Moulding department produces 700 units per hour, 100 units per hour will be
piling up at the Assembly department as it can only produce 600 units per hour.

(B) 600 units

(C) 600 units

(D) 200 units

(E) Increase the capacity of the Assembly department so that it can produce say
700 units per hour. This will result in delivering 700 units to customers every hour; a
100 units increase from the current situation.

PROBLEM 16.41 (25 minutes) The theory of constraints; business

process re-engineering: service organisation
1 Only 140 licences per hour can be completed, because this is the capacity of
Area D.
2 Areas C and D need to increase their output to be able to reach the requirement
of 250 returns per hour; C by 100 licenses and D by 110 licences.
3 Area A has the right staffing.
Area B has eight people who are processing 350 licences per hour, or 43.75
licences per hour each. To work at the required rate of 250 licences, the section
needs 250 / 43.75 = 5.7 staff. Two staff can be released.
Area C has ten people, who are processing 150 licences per hour, or 15 licences
per hour each. To produce at the right level they need 250 / 15 = 16.7 people; so
they need seven more.
Area D has 17 people who are processing 140 licences per hour, or 8.2 licences
per hour each. They need
250 / 8.2 = 30.5 people, or 14 more.

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 Area E has five people, who are processing 280 returns per hour, or 56 returns per
hour each. To get to the required level it needs 250 / 56 = 4.5 staff, so there is not
much spare capacity.
The re-engineered process needs 0 – 2 + 7 + 14 = 19 more people. This cannot be
done within the constraint of 45 people so the branch manager needs to think of
a new process. In fact, the re-engineered process requires more people to process
250 returns per hour than the original process did! Management needs to closely
study the activities in the major bottlenecks (C and D) to see how average
throughput can be improved. In C, the solution may lie in increasing the number of
cameras. The activities in D are obviously very time-consuming, since this has the
slowest throughput per person. Staff may be released from areas A and B by
combining these activities in some fashion. It would appear from the description
that the applications are handled twice, whereas the same person could possibly
undertake the two activities.

QUESTION 2 – FINANCIAL PERFORMANCE – CHAPTER 13

S2, 2016 FE

QUESTION 1: FINANCIAL PERFORMANCE

1. Residual income

Residual
Income
MP3 Player $20,000
Voice Recorder $15,000

2. Residual income

Residual
Income
a Division + $560,000
MP3 Player
b Division + $555,000
Voice
Recorder
c Division + $575,000
MP3 +
Voice
Recorder
d Division $540,000

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e. The divisional manager will choose alternative ‘c’, which is to invest in both
projects because it gives the highest RI

3. Return on investment

Return on
Investment
MP3 Player 14.50%
Voice 14.00%
Recorder

4. Return on investment

Return on
Investment
a Division + 14.98%
MP3 Player
b Division + 14.96%
Voice
Recorder
c Division + 14.94%
MP3 +
Voice
Recorder
d Division 15.00%

(e) The divisional manager will choose alternative (d), which is not to invest in
both projects because it has the highest ROI percentage.

S2, 2019 FE

QUESTION 2: FINANCIAL PERFORMANCE.

1. ROI = 10.33%

2. (i) Return on Sales = 8.99%

(ii) Investment turnover = 1.15 times

(iii) ROI = 10.34% (difference due to rounding errors)

3. (i) ROI (with new investment) = 10.5%

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 (ii) The manager will approve the investment because the ROI (10.5%) is greater
than the return required by the company, which is 7%.

4. (i) Return on sales (with new investment) = 9.13%

(ii) Investment turnover (with new investment) = 1.15 times

(iii) Comparing these answers to those calculated in requirement (2) above, the
return on sales has increased from 8.99% to 9.13% but the investment turnover
has remained constant at 1.15 times.

5.
(i) ROI (without new investment) = 14.09%

ROI (with new investment) = 13.61%

(ii) The manager will most likely reject the investment because it lowers the
divisional ROI from 14.09% to 13.61%. However, considering the minimum rate of
return required by the company is 7%, the new investment should be accepted
because it increases total profits, which is evidenced by the ROI of 13.61%.

6. (i) ROS (without new investment) = 8.99%

(ii) Investment turnover (without new investment) = 1.57 times

S1, 2016 FINAL EXAM

QUESTION 3: PERFORMANCE MEASUREMENT

1. Alternatives ($ in Millions)
With Answering With Video Game With Both With
Neither
Machine Only Player Only Projects Project

ROI 17.41% 17.90% 17.35% 18.00%

2. The manager will choose to invest in neither since the ROI is highest for that
alternative.

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 3.
($ in Millions)
Scenarios EVA
With Answering Machine $4.6
With Video game player $4.66
With Both projects $4.76
With Neither projects $4.5

4. The manager will choose to invest in both since the EVA of each is positive and
also the total capital employed is less than the required $15 million for new capital
investment

QUESTION 3 – TRANSFER PRICING

S1, 2017/s1,2019 FE:

QUESTION 3

1. Maximum transfer price = market price = $42

Minimum transfer price = $15

Only variable costs are relevant for the minimum transfer price since the Furniture Division has
excess capacity.

Yes, the transfer should take place.

2. Benefit to Furniture Division (Carrie Burnside):

Benefit (Contribution margin) $ 150,000

Benefit to Motel Division (George Sanchez):

Benefit (savings) $ 120,000

Benefit to company = 270,000

3. Maximum transfer price = market price = $42

Minimum transfer price = $42

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 It does not matter whether or not the transfer takes place because the cost to the
company is the same whether the Motel Division buys from the outside supplier or
from the internal supplier (the Furniture Division).

S2, 2017 FE
QUESTION 2
1. Supplying division – TP is a revenue that will increase the division’s profit
Buying division – TP is a variable cost that will be matched against the sales that
the department will earn when selling the product to the market, which will
affect its profitability.
Firm as a whole – Any profit or cost savings made by the division when dealing
with the external market will increase the profit of the firm.

2. a. Minimum TP(SD) = $92

b. Max TP (AD) = $107
3. Excess capacity issue
a. Minimum TP = $65
b. From the point of view of Slate’s management, all of the SD’s output
should be transferred to the AD. This would avoid the $7 per screen
variable purchasing cost that is incurred by the AD when it purchases
screens from the outside market and it would also save the $8 marketing
and distribution cost the SD would incur to sell each screen to the outside
market.
c.
(i) TP = $86.00

(ii) Yes because AD will save $21 ($107 - $86) and SD will also earn an
incremental revenue of $21 ($86 - $65).

(iii) In negotiation method, transfer price negotiation starts with the

maximum – market price and through negotiation decreases this price
until a price is agreed upon where both managers can make profit.

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Question 4 PRODUCT MIX DECISIONS

S2, 2019 FE
QUESTION 4: PRODUCT MIX DECISIONS

1. Product B should be the product produced first because it has the highest
contribution margin per machine hour.

Product A: = $140 per MH

Product B: $220 per MH

2. $900,000

3. $940,000

Semester 2, 2017 FINAL EXAM PAPER

Question 4

1. Contribution margin per kg

A110 B382 C657

CM per kg. $4.00 $2.80 $7.00

2. Excess pounds after producing the minimum requirement

A110 B382 C657 Total

Excess kg 1,800

The excess pound of 1,800 will be devoted to producing product C657 because it has the
highest CM per pound.

3. Since each unit of C657 requires 3 kg of Bistide, the remaining 1,800 kg can be used
to produce another 600 units of C657 (1,800 pounds ÷ 3 kg per unit).

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 The following combination yields the highest contribution margin given the 5,000
pounds constraint on availability of Bistide

A110: 200 units

B382: 200 units
C657: 800 units (200 minimum + 600 extra)

S2, 2016 Final Exam

QUESTION 5: PRODUCT MIX DECISIONS

1. Model 14-D Model 33-P

Contribution margin/hours on lathe $ 3 $ 5

Produce 6,000 units of Model 33-P and Zero units of Model 14-D

2. Produce 5,000 units of Model 33-P and 500 units of Model 14-D.

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