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.
The budgeted electricity cost for a business is $30,000 based upon production of 1,000 units. However if 1,400 units were to be produced the budgeted cost rises to $31,600.
Using the high/low approach what would be the budgeted electricity cost if 2,100 units were to be produced?
A high low method analysis will first of all split out the budgeted VC and FC:
Units $ Cost
High 1,400 31,600
Low 1,000 30,000
Increment 400 1,600
VC per unit is $1,600/400 = $4/u
Substitution in high:
TC = FC + VC
TC = FC + (1,400 × 4)
31,600 = FC + 5,600
FC = $26,000
For 2,100 units, Fixed costs = $26,000
VC (2,100 × 4) = $8,400
Total = $34,400
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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.
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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