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 Both the City and Zoo routes to be closed, but the Village route to take over part of the City route. $300 000 of the City route’s turnover could be retained, with associated variable operating expenses of $180 000, and specific fixed overhead costs of $60 000. There would still be the expected savings in general fixed overheads even if part of the City route was continued. 3 With new ticketing procedures it would be possible to reduce the variable operating costs by 10% on each of the City, Village and Park routes, and by 20% on the Zoo route. Then, if the total of the general fixed overheads were re-apportioned equally between the Village and Park routes only, all four routes would be profitable. REQUIRED a) Redraft last year’s financial statements for the four bus routes into a format for management to see more clearly the position of each route and the overall profit or loss. [6] b) Advise the directors on the effectiveness of each of the three options on improving the overall profits of the business. [9] c) Assuming that any combination of the above three options is possible, draft an alternative proposal, illustrated with figures, which offers the best solution to the problem. [5] [Total: 20] [Turn over

3 3 Mario Ltd plans to sell vision protection gaming goggles at a standard selling price of $16 per unit but to encourage sales, the selling price will be reduced to 20% off the standard selling price for the month of September when the product will be launched. The budgeted unit sales for the first 6 months are as follows: Year 2022 Months Sales Forecast (in units) September 50 000 October 30 000 November 25 000 December 28 000 Year 2023 January 32 000 February 30 000 Estimated production costs per unit of product are as follows: Direct materials (2 units @ $1.50) $3.00 Direct labour (3 hours @ $2 per hour) $6.00 Selling expenses $1.00 Additional information 1 90% of sales are on credit and credit customers is expected to pay in full, 1 month after sale. Cash customers are allowed a discount of 10%. 2 Production began in August. Monthly production will be scheduled so that the finished goods inventory at the end of any month is sufficient to meet the forecast sales target for the following one and a half months. 3 The raw materials needed for production will be purchased so that the closing inventory of raw materials at the end of any month are sufficient to meet the production requirements of the next month. 4 If more than 60 000 units of r aw materials are purchased in a month, the raw materials supplier has agreed to give a special discount of 20% off the usual price of $1.50 for each additional unit purchased. 5 The supplier of the raw materials has agreed to give half -month credit terms, t hat is, purchases made in September will be paid in the middle of October. 6 All other expenses are paid as incurred. Fixed production expenses for the year including annual depreciation of $48 000, amounted to $480 000. The fixed expenses are incurred uniformly throughout the year. 7 The firm bought non- current assets costing $50 000 in August 202 2, to be paid in November 2022.

4 8 At the end of August 2022, there is a bank balance of $200 000. REQUIRED a. A production budget in units, on a monthly basis for the three months ending 30 November 2022. [3] b. A raw materials purchase cost budget, on a monthly basis, for the three months ending 30 November 2022. [4] c. A month- by- month cash budget for the three months ending 30 November 2022. [9] d. Explain the usefulness of a budget to a growing business. [4] [Total: 20] [Turn over

5 Section B Answer all questions 4 A new airline, Jetaway Air Limited, is making plans to operate a direct route between Singapore and Okinawa, Japan. Operating Plan The sales and operations department heads have supplied the following information: 1 The company plans to lease a used aircraft at an annual cost of $3 million. The aircraft will fly to Okinawa and back to Singapore on 360 days which translates to 720 flights each year. 2 Operating licenses and aircraft maintenance will cost $696 000 per year. Landing fees will be $1 500 for each landing at Singapore and $1 200 for each landing at Okinawa. Aircrew and staff salaries will cost $2 100 000 per annum. Fuel will cost $10 600 per single flight. 3 The aircraft can carry a maximum of 100 passengers. All passengers will fly ’economy’ class and the proposed fare is $340 per single journey, from Singapore to Okinawa or from Okinawa to Singapore. The net income from duty free sale