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This objective test question contains a question type which will only appear in a computer-based exam, but this question provides valuable practice for all students whichever version?of the exam they are taking.?

Appler is considering the relevant cash flows involved in a short-term decision. An?important client has asked for the minimum price for the processing of a compound.? The?compound involves the following:?

Material A: Appler needs 500 kg of material for the compound but has 200 kg in stock?present. The stock items were bought 3 months ago for $5/kg but have suffered 10%?shrinkage since that date.? Material A is not regularly used in the business and would have?to be disposed of at a cost to Appler of $400 in total. The current purchase price of?material A is $6.25/kg.?

Material B: Appler needs 800 kg of material B and has this in stock as it is regularly needed.??The stock was bought 2 months ago for $4/kg although it can be bought now at $3.75/kg?due to its seasonal nature.?

Processing energy costs would be $200 and the supervisor says he would allocate $150 of?his weekly salary to the job in the company’s job costing system.?

Based upon the scenario information, what is the total cost for processing and?supervision to be included in the minimum price calculation??

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Chapter6Short-termdecisions

The supervisor is a sunk cost.?

多做幾道

?This objective test question contains a question type which will only appear in a computer-based exam, but this question provides valuable practice for all students whichever version?of the exam they are taking.?

Summary financial statements are given below for JE, the division of a large divisionalised?company:?


The cost of capital for the division is estimated at 11% each year. The annual rate of interest?on the long-term loans is 9%. All decisions concerning the division’s capital structure are?taken by central management.?

What is the divisional return on capital employed (ROCE) for the year ended?31 December??

This objective test question contains a question type which will only appear in a computer-based exam, but this question provides valuable practice for all students whichever version?of the exam they are taking.?

Pro is a division of Mo and is an investment centre.? The head office controls finance, HR?and IT expenditure but all other decisions are devolved to the local centres.?

The statement of financial position for Pro shows net value of all assets and liabilities to be?$4,500m.? It carries no debt itself although the group has debt liabilities.?

The management accounts for income read as follows:??

? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? $m??

Revenue? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? 3,500??

Cost of sales? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? 1,800?

Local administration? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? 250

IT costs? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ?50?

Distribution? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ??80?

Central administration? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? 30?

Interest charges? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ?90?

Net profit? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ?1,200?

Ignore taxation.?

If the cost of capital is 12%, what is the division’s residual income???

?This objective test question contains a question type which will only appear in a computer-based exam, but this question provides valuable practice for all students whichever version?of the exam they are taking.?

Pro is a division of Mo and is an investment centre.? The head office controls finance, HR?and IT expenditure but all other decisions are devolved to the local centres.?

The statement of financial position for Pro shows net value of all assets and liabilities to be?$4,500m at the start of the year and $4,890m at the end.? It carries no debt itself although?the group has debt liabilities.?

The management accounts for income read as follows:??

? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? $m??

Revenue? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ?3,500??

Cost of sales? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? 1,800?

Local administration? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? 250?

IT costs? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ?50?

Distribution? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? 80?

Central administration? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? 30?

Interest charges? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ?90?

Net profit? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ?1,200?

Ignore taxation.?

?What is the divisional ROI to the nearest % point??

?This objective test question contains a question type which will only appear in a computer-based exam, but this question provides valuable practice for all students whichever version?of the exam they are taking.?

At the end of 20X1, an investment centre has net assets of $1m and annual operating?profits of $190,000. However, the bookkeeper forgot to account for the following:?

A machine with a net book value of $40,000 was sold at the start of the year for $50,000,?and replaced with a machine costing $250,000. Both the purchase and sale are cash?transactions. No depreciation is charged in the year of purchase or disposal. The investment?centre calculates return on investment (ROI) based on closing net assets.?

Assuming no other changes to profit or net assets, what is the return on investment (ROI)?for the year?

?This objective test question contains a question type which will only appear in a computer-based exam, but this question provides valuable practice for all students whichever version?of the exam they are taking.?

TM plc makes components which it sells internally to its subsidiary RM Ltd, as well as to its?own external market.?

The external market price is $24.00 per unit, which yields a contribution of 40% of sales. For?external sales, variable costs include $1.50 per unit for distribution costs, which are not?incurred on internal sales.?

TM plc has sufficient capacity to meet all of the internal and external sales. The objective is?to maximise group profit.

?At what unit price should the component be transferred to RM Ltd??

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