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.


Calculate, for the original budget, the budgeted fixed overhead costs, the budgeted variable overhead cost per tray and the budgeted total overheads costs.

• A. The variable cost per tray = $0.85; The fixed cost = $ 530 000
• B. The variable cost per tray = $0.75; The fixed cost = $ 490 000
• C. The variable cost per tray = $0.45; The fixed cost = $ 320 000
• D. The variable cost per tray = $0.65; The fixed cost = $ 550 000

A company is considering whether to develop an overseas market for its products. The cost of developing the new market is estimated to be $250,000. There is a 70% probability that the development of the new market will succeed and a 30% probability that the development of the new market will fail and no further expenditure will be incurred.
If the market development is successful, the profit from the new market will depend on prevailing exchange rates. There is a 50% chance that exchange rates will be in line with expectations and a profit of $500,000 will be made. There is a 20% chance that exchange rates will be favorable and a profit of $630,000 will be made and a 30% chance that exchange rates will be adverse and a profit of $100,000 will be made.
The profit figures stated are before taking account of the development costs of $250,000.
Use a decision tree to decide whether the company should develop an overseas market for its products.
Select one correct answer.

• A. There is a chance to make $506 000 profit.
• B. The overseas market should be developed.
• C. There is 70% chance that the project will fail.
• D. There is 65% chance that the project will fail.
• E. The overseas market should not be developed.
• F. There may be a loss of $110 000.

A healthcare company specializes in hip, knee and shoulder replacement operations, known as surgical procedures. As well as providing these surgical procedures the company offers pre operation and post operation in-patient care, in a fully equipped hospital, for those patients who will be undergoing the surgical procedures.
Surgeons are paid a fixed fee for each surgical procedure they perform and an additional amount for any follow-up consultations. Post procedure follow-up consultations are only undertaken if there are any complications in relation to the surgical procedure. There is no additional fee charged to patients for any follow up consultations. All other staff are paid annual salaries.
The company's existing costing system uses a single overhead rate, based on revenue, to charge the costs of support activities to the procedures. Concern has been raised about the inaccuracy of procedure costs and the company's accountant has initiated a project to implement an activity-based costing (ABC) system.
The project team has collected the following data on each of the procedures.

Calculate the profit per procedure for each of the three procedures, using the current basis for charging the costs of support activities to procedures.
What was the profit for the knee procedure?

• A. $1485
• B. $1210
• C. $1390
• D. $1510

LM operates a parcel delivery service. Last year its employees delivered 15,120 parcels and travelled 120,960 kilometers. Total costs were $194,400.
LM has estimated that 70% of its total costs are variable with activity and that 60% of these costs vary with the number of parcels and the remainder vary with the distance travelled.
LM is preparing its budget for the forthcoming year using an incremental budgeting approach and has produced the following estimates:
* All costs will be 3% higher than the previous year due to inflation
* Efficiency will remain unchanged
* A total of 18,360 parcels will be delivered and 128,800 kilometers will be travelled.
Calculate the following costs to be included in the forthcoming year's budget:
(i) the total variable costs related to the number of parcels delivered.
(ii) the total variable costs related to the distance travelled.

• A. Parcel related cost for next year = $109,118; Distance related costs for next year = $89,699
• B. Parcel related cost for next year = $112,308; Distance related costs for next year = $79,590
• C. Parcel related cost for next year = $112,118; Distance related costs for next year = $59,699
• D. Parcel related cost for next year = $115,306; Distance related costs for next year = $31,590
• E. Parcel related cost for next year = $105,306; Distance related costs for next year = $30,590