RT produces two products from different quantities of the same resources using a just-in-time (JIT) production system. The selling price and resource requirements of each of the products are shown below:

Market research shows that the maximum demand for products R and T during June 2010 is 500 units and 800 units respectively. This does not include an order that RT has agreed with a commercial customer for the supply of 250 units of R and 350 units of T at selling prices of $100 and $135 per unit respectively. Although the customer will accept part of the order, failure by RT to deliver the order in full by the end of June will cause RT to incur a $10,000 financial penalty. At a recent meeting of the purchasing and production managers to discuss the production plans of RT for June, the following resource restrictions for June were identified:
Direct labour hours 7,500 hours
Material A 8,500 kgs
Material B 3,000 litres
Machine hours 7,500 hours
Assuming that RT completes the order with the commercial customer, prepare calculations to show, from a financial perspective, the optimum production plan for June 2010 and the contribution that would result from adopting this plan.
The optimum production plan will be:

• A. Contract: R = 250, T = 360 and Market: R = 500 T = 710
• B. Contract: R = 250, T = 360 and Market: R = 650 T = 710
• C. Contract: R = 250, T = 360 and Market: R = 600 T = 710
• D. Contract: R = 250, T = 360 and Market: R = 660 T = 720
• E. Contract: R = 250, T = 360 and Market: R = 500 T = 700

'A zero-based budgeting system involves establishing decision packages that are then ranked in order of their relative importance in meeting the organization's objectives'.
Which of the following is true regarding he difficulties that a not-for-profit organization may experience when trying to rank decision packages.
Select ALL true statements.

• A. Some of these packages will be mutually inclusive and will require management to select the best solution to the issue involved.
• B. The activities that are being proposed in a budget are described in variable packages. There will often be more less than one decision package proposed for an activity.
• C. In a public sector body, for example, decision packages will relate to very disparate activities.
• D. Each decision package is evaluated. Its costs are compared to its benefits and net present values or other measures calculated.
• E. Some of these packages will be inclusive and will require operations to select the best solution to the issue involved.
• F. Management may decide to accept packages even though the activity was done last year. In this way the organization is said to be starting from a 100% cost base with each package given due consideration.
• G. The activities that are being proposed in a budget are described in decision packages. There will often be more than one decision package proposed for an activity.
• H. In a public sector body, for example, decision packages will relate profit making activities.
• I. Management may decide to reject packages even though the activity was done last year. In this way the organization is said to be starting from a zero base with each package given due consideration.

Company X is deciding which of Projects A, B or C to undertake. The profit earned from each of the projects is dependent on economic conditions.
The table below details the profit for each of the possible outcomes and the expected value of each of the projects.

What is the maximum amount that should be paid for perfect information about the economic conditions?

• A. $54.50
• B. $442.50
• C. $497
• D. $57.50

Which of the following would help to explain a favourable material price variance?

• A. Improved processing methods meant that material purchases were lower than standard for the output achieved.
• B. A decision to reduce the raw materials inventory during the period led to a reduced level of material purchases.
• C. An increase in the quantity of material purchased resulted in unexpected bulk discounts.
• D. The material purchased was of a higher quality than standard.

According to a decision tree forecasting, there are three possible outcomes of a project requiring
£10,000 capital investment. They are (along with probability of occurring): £20,000 in revenue (45%),
£35,000 (15%),
£10,000 (30%) and -£6,000 (10%).
However, choosing another project (2) requiring the same investment would give us £12,000 and choosing project 3 would give us a 90% chance of generating revenues of £15,000 but a 5% chance of revenues of £0.
Project 4 is wildly ambitious and boasts an unlikely (5% chance) of generating revenues of £100,000.
There is a 10% probability of negative revenues.
Which is the risk averse investor more likely to take?

• A. Project 1
• B. Project 3
• C. Project 4
• D. Project 2