The assignment has three questions only two should be answered. Each
question carries the same maximum mark.
Assignment Requirements
You are required to answer two of the following three questions, each question is
worth 50% of the marks:
Question 1
Gemini plc manufactures four products using the same machinery. The following details relate to
its products:
Product A £
per unit
Product B £
per unit
Product C
£ per unit
Product D
£ per unit
Selling price 28 34 45 46
Direct material 6 7 9 7
Direct labour 5 5 10 10
Variable overhead 3 3 6 6
Fixed overhead * 8 8 16 16
Profit 6 11 4 7
Labour hours 1 1 2 2
Machine hours 4 3 4 5
Units Units Units Units
Maximum demand per week 200 180 250 100
*Absorbed based on budgeted labour hours of 1000 per week.
There is a maximum of 2000 machine hours available per week.
Requirement:
(a) Determine the production plan which will maximize the weekly profit of Gemini plc and prepare a profit statement showing the profit your plan will yield.
25 marks
(b) The marketing director of Gemini plc is concerned at the company’s inability to meet the quantity demanded by its customers. One consideration to overcome this is to increase the number of hours worked using the existing machinery by working overtime. Such overtime would be paid at a premium of 50% above normal labour rates, and variable overhead costs would be expected to increase in proportion to labour costs.
Requirement:
Critically evaluate this strategy and state your findings (quantitative and qualitative) as to the expected increase in contribution (if any) and discuss any issues (in particular in regard to overtime working) that could arise and would need to be resolved.
25 marks Total 50 marks
Question 2
Companies have found that offering discounts to customers in return for early payment can be counterproductive in terms of the resulting adverse effect on profitability. This is when the reduction in profitability outweighs any marginal improvements gained from the benefit of a reduction in the working capital requirement.
a) Given the above critically discuss the alternative measures to offering discounts to
customers that could prove more effective in reducing the working capital
requirement for a company with only minimal potential reductions in profitability.
25 marks
b) Critically evaluate the methods that can be adopted to manage and achieve the
efficient control of inventories and gain the resulting benefits for improving cashflow
and ultimately profit in a business.
25 marks Total 50 marks
Question 3
Many organisations use transfer pricing when transferring products between different
divisions of the same organisation. You are required to critically discuss the advantages and disadvantages of two of the following methods:
1) Market based transfer prices;
2) Full cost transfer prices;
3) Marginal/variable cost transfer prices; 4) Cost-plus a mark-up transfer prices; and
5) Negotiated transfer prices.
Choose any two of the above five transfer pricing methods:
(a) The first chosen method 25 marks
(b) The second chosen method 25 marks Total 50 marks
The report should include critical evaluation of the models and concepts proposed
outlining their merits and limitations. You may incorporate logical assumptions with regard to the company and use numerical examples to illustrate the models and concepts that you propose to adopt
