Q1:

a) Profitability Statement

Large Retail Chains

Profitability Statement  
Total units sold 710000
   
Units sold by large retail chains 378000
Customer Large retail chains
Price per unit 405
Direct Manufacturing cost 158
labelling cost 4
order cost 11
shipping cost 17
other overheads 9
Total cost 199
Profit per unit 206

Small City Shops

Units sold by small city shops 205000

Customer Small city shops
Price per unit 460
Direct Manufacturing cost 158
special handling cost 18
packaging cost 21
order cost 14
sales commission 23
other overheads 19
total cost 253
Profit per unit 207
Individuals

Units sold by
individuals 127000
Customer Individuals
Price per unit 475
Direct Manufacturing
cost 158
special packaging cost 30
special handling cost 22
advertising cost 3
order cost 8
other overheads 11
Total cost 232
Profit per unit 243

b)

The profit made by large retail chains, small city shops and individuals are 206, 207 and 243 respectively.
The large retail chains are responsible for more than 53% of total sales but its average price per unit is
less than the price of small city shops and individuals. This could be due to any discount paid on bulk
purchasing. However, there's not much different in the profit per unit by large retail chains and small
city shops. Even though small city shops have higher price per unit, they have high specific cost. Due to
this, they have about the same profit per unit. On the other hand, individuals have highest price per unit
and due to that they have the higher profits among all three customer bases. Such that the company
should try to make more sale to individual customer since they generate higher profits. Similarly, the
cost associated with small city shops should also be reduced to get more benefit from potential selling
price.

c)
The manager has proposed to charge an average selling price to all three customers which may not be
appropriate since every customer has a bit different structure of specific costs. The cost structure of
large retail chains is mostly different than other two customer and even though small city and individual
have some similar costs associated, they also have some differences. Due to this reason, setting an
average selling for all three customers may not be appropriate.
Q2:

a)

Selling Price per unit 1300

Cost by Simon -250
Addition Direct Material cost by Suzanne -700
Addition Direct Labor Cost by Suzanne -300
Profit Per Unit 50
Number of Unit Sold 500
Profit if Unit transfer from Simon to Suzanne 25000

b)

If Simon Division sells the product into the market at selling price of 375

And cost on per unit is 250, the profit will be (375-250) 125 per unit.

The total unit sale will be 5000 and Simon division profit will be 625,000.

If the units are sold to external market, they will make a profit of 125 per unit. However, if the units are
transferred to Suzanne division, there will this opportunity cost of 125 per unit profit that will be
foregone. If this opportunity cost is considered, the profit made by the division if the units are
transferred internally would decrease and turn into a loss of 75 (50-125). As a result, it would be better
for Simon to sell the units externally and make profit.

Q3:

i)

y = logarithm of learning curve / logarithm of 2

y = logarithm of 0.8 / logarithm of 2

y = -0.3219

We need to calculate the time for 299th unit.

y = 18 x 299 ^-0.3219

y = 2.873

Time for 299 units = 299 x 2.873 = 859

We need to calculate the time for 300 unit.

y = 18 x 300 ^-0.3219

y = 2.87 hours

Time for first 300 hours = 300 x 2.87 = 861 hours

Total time for 300th unit = 861 – 859 = 2 hours

Marginal Cost  
Direct Material 28
Direct Labor 30
Manufacturing overhead 78
Total marginal cost 136

ii)

Price units profits

170 1000 33733
180 750 32800
190 500 26867

If would be better to set the price at 170, as by increasing the price by 10, the quantity demanded will
decrease by significant portion, which will decrease the profits. 1000 units should be sold at the price of
170.

iii)

The new project should be launched as it is resulting in profit and even after considering the product
specific fixed cost the product will generate profit of (33733-30000) 3733. So the product should be
launched.

b)

ERP software integrate all the process needed to run a company, such that the information flows in real
time and the records are updated accurately instantly. This will ease the business operations and result
in time efficiency.
The free flow of information between departments will result in synergy between different business
areas. The automation will improve the business process and routine tasks. Further, the cost associated
with outdated and ineffective technology will also be reduced.

Q4:

a)

Capital budgeting is a technique of management accounting which helps management decision making
by providing information on the investment in a proposal and the benefits to be obtained from that
proposed project, and by monitoring the performance of the project subsequent to its implementation.

The large organization always have different and more systematic approach to evaluate the any
investment in new project by the analyzing the project full life cash flows and also evaluating the
company goals for long term and the more important factor is the cost of capital related to the project
which is also required return which need to make sure either project meets the required returns or not.

The small organization normally have no different and special departments and resources to consider
the all aspects of the project and also the are not as much competent resources for it, but this process
also very important for them because they are normally in capital constraint.

b)

Years 0 1 2 3 4
Initial Investment -1500000
Cash inflows 1000000 1300000 1690000
Working Capital -200000
Tax Capital Allowance -450000 525000 525000
Taxable Income 1250000 775000 1165000
Tax Expense 237500 147250 221350
Tax Paid 142500 183350 191710 88540
After Tax Income -1500000 1107500 591650 973290 88540
Add: Capital Allowance 450000 525000 525000
Net Cash flows -1500000 1557500 1116650 1498290 -88540
Present Value -1500000 1403152 906273 1095550 -58321
NPV 1846653

Q5:
a)

COST Amount Category %of Operating Cost

Inspecting Products 210000 Internal Failure 0.84%
Cleaning up contaminated soil 1325000 External Failure 5.30%
Designing processes 220000 Prevention Cost 0.88%
Obtaining ISO 14001 certification 750000 Appraisal Cost 3.00%
Rework 211000 Internal Failure 0.84%
Quality Training 90000 Prevention Cost 0.36%
Recalls 1117000 External Failure 4.47%
Measuring contamination levels 218,000 Appraisal Cost 0.87%
Recycling scrap 431,000 Appraisal Cost 1.72%
Treating and disposing of toxic waste 120,000 Internal Failure 0.48%

Q6:

a)

  Dish A     Dish B
Price 9.9   Price 13.49
         
cod 5.4   Courgette 0.4
chips 0.3   skinless salmon fillet 6.8
batter 0.1   vegetable stock 0.9
peas 0.1   Dijon mustard 0.25
tartare sauce 0.35   mascarpone 1.15
salt 0.02   fresh dill 0.28
black paper 0.01   garlic salt 0.15
oil 0.1   black pepper 0.01
Profit 3.52   profit 3.55
Profit % 35.6%   profit % 26.3%

The company won't be able to maintain its profit margin strategy as the profit from both new dishes is
below 50%.

b)

In order to meet the company’s profit margin target, the only way the company has is to reduce the cost
of the dishes since it cannot increase the price of the product due to competition. The cost should be
reduced in such a way that the quality of the product is not compromised. This way they can reach their
target profit margin.

c)

One of the objective of measuring customer satisfaction is to assess the quality of food Mariella is giving
to its customer and this can be measured through regular feedbacks from the customers. This way they
would be able to assess the level of customer satisfaction in terms of quality of food.

Another objective is to assess the customer service of the restaurant. This can be measured by taking
feedbacks from the customers about the quality of customer service and also by analyzing the time it
take to deliver the dish to the customer after taking their order.