MI 2022 MYE Paper 2 QP

MYE 2022 /P2 Section A Answer all questions in this section 1 Elf Limited manufactures two types of products, ‘ Legolas’ and ` Arwen’. All the company’s production is sold to a large wholesale business. Information on the projected revenue and costs for this year is given below: Legolas ( $ ) Arwen ( $ ) Sales 60 000 25 000 Rent & rates 10 000 5 000 Raw materials 8 000 2 000 Direct labour 20 000 10 000 Insurances 400 200 Machine running costs 12 000 3 000 Net profit 9 600 4 800 Rent and rates and insurance are fixed costs which have been allocated based on the direct labour cost of the products. All other costs and revenue are directly related to the individual product. Additional information: 1 The wholesaler bought all the 20 000 `Legolas’ and 10 000 `Arwen’ produced this year, selling them to customers at $4 and $3 each respectively. The wholesaler is experiencing an increasing demand for ‘Legolas’ and intends to raise his price next year to $4.50. 2 ‘Legolas’ took 8 000 hours to process on the one machine owned by the company, whereas ‘Arwen’ took 2 000 hours. The machine has a maximum capacity of 10 000 hours per year. 3 All production is immediately sold to the wholesaler and no inventory is kept. REQUIRED a. Prepare a statement to show the contribution made by each product and the overall profit of the business for the current year. [6] b. In the next year, the maximum market demand for the two products will be 40 000 ‘Legolas’ and 36 000 ‘Arwen’. Calculate the most profitable product mix (optimal production plan). [6] c. If the wholesal er wishes to sell a minimum of 8 000 units of each product, calculate the optimal production plan and the resulting profit for Elf Limited. [4] d. What points does Elf Limited need to bear in mind when negotiating next year’s contract with the wholesaler? [4] [Total: 20]

2 2 Beezy Buses operates four bus routes. You are given details of last year’s operations: Route City $000 Village $000 Park $000 Zoo $000 Turnover (Revenue) Specific fixed overheads General fixed overheads (apportioned) Variable operating expenses 960 320 110 670 1800 460 190 800 1100 330 140 510 720 90 140 740 Profit (Loss) (140) 350 120 (250) Additional information The variable operating expenses vary directly with turnover. The specific fixed overheads are related directly to the bus route concerned, and would be saved if that particular route were closed down. The general fixed overheads are apportioned between the four routes on the basis of the ages of the buses used. For every bus route closed down, there would be a 20% saving in the total of the general fixed overheads. The directors are concerned about the above figures and are considering three options: 1 Both the City and Zoo routes to be closed at once. 2 Bo