A company produces trays of pre-prepared meals that are sold to restaurants and food retailers. Three varieties of meals are sold: economy, premium and deluxe.


Discuss the benefits of flexible budgeting for planning and control purposes.
Select all the true statements.

• A. A fixed budget will provide meaningful control information when actual activity differs from budget and variable costs are significant.
• B. The fixed budget however provides more insight into actual performance.
• C. If sales volumes were well above budget, adverse variable cost variances will probably be reported, against the fixed budget, since more variable costs have to be incurred to support the higher level of activity.
• D. Reporting against a fixed budget tells management nothing about the efficiency of operations.
• E. If a flexible budget is prepared then the budget variances calculated will provide a better indication of performance since actual results will be compared against an appropriate benchmark.
• F. If actual sales revenue is compared to a fixed budget it is possible to tell whether a favourable sales variance is due to an increase in units sold or an increase in sales price.

PL currently earns an annual contribution of $2,880,000 from the sale of 90,000 units of product B. Fixed costs are $800,000 per annum.
The management of PL is considering reducing the selling price per unit to $48. The estimated levels of demand at the revised selling price and the probabilities of them occurring are as follows:

Calculate the probability that the profit will increase from its current level if the selling price is reduced to $48.

• A. The probability therefore that the contribution will exceed $2,880,000 is 70%.
• B. The probability therefore that the contribution will exceed $2,880,000 is 40%.
• C. The probability therefore that the contribution will exceed $2,880,000 is 50%.
• D. The probability therefore that the contribution will exceed $2,880,000 is 90%.

JRL manufactures two products from different combinations of the same resources. Unit selling prices and unit cost details for each product are as follows:

Identify, using graphical linear programming, the weekly production schedule for products J and L that will maximize the profits of JRL during the next four weeks.

• A. The solution from the graph is to produce 330 units of J and 290 units of L. (A simplex solution shows the true optimum to be 332.333 units of J and 293.333 units of L.)
• B. The solution from the graph is to produce 315 units of J and 290 units of L. (A simplex solution shows the true optimum to be 316.333 units of J and 293.333 units of L.)
• C. The solution from the graph is to produce 310 units of J and 280 units of L. (A simplex solution shows the true optimum to be 308.333 units of J and 283.333 units of L.)
• D. The solution from the graph is to produce 330 units of J and 280 units of L. (A simplex solution shows the true optimum to be 332.333 units of J and 283.333 units of L.)
• E. The solution from the graph is to produce 317 units of J and 270 units of L. (A simplex solution shows the true optimum to be 316.666 units of J and 269.666 units of L.)
• F. The solution from the graph is to produce 312 units of J and 295 units of L. (A simplex solution shows the true optimum to be 312.333 units of J and 294.999 units of L.)

EF manufactures and sells three products, X, Y and Z. The following production overhead costs are budgeted for next year:

Required:
Calculate the total budgeted production overhead cost for each product using activity based budgeting.

• A. The total budgeted production overhead cost was $ 1 258 000
• B. The total budgeted production overhead cost was $ 2 195 000
• C. The total budgeted production overhead cost was $ 1 188 000
• D. The total budgeted production overhead cost was $ 1 285 000
• E. The total budgeted production overhead cost was $ 1 305 000

Calculate the sensitivity of the investment decision to a change in the annual fixed costs.
By how much should the present value of the fixed cost increase, before this project is not viable?

• A. $8675
• B. $9050
• C. $7698
• D. $6390