What is the relevant cost of the market research project?

Question 1 (3 points)

Q10-1: Fixed costs are costs that:

Question 1 options:

	Never change
	Change with increases in business activity
	Do not change with increases in business activity
	Change when activity reaches a critical lev

Question 2 (3 points)

Q10-2: The volume of activity and costs which a business expects over the short-term planning horizon is represented in the:

Question 2 options:

	CVP analysis
	Profit-volume graph
	Breakeven calculation
	Relevant range

Question 3 (5 points)

Q10-3: A professional services business has fixed costs of €150,000 and variable costs of €15 per hour. The difference between average costs at a level of activity of 12,000 and 15,000 units is:

Question 3 options:

	A reduction of €2.50
	An increase of €2.50
	An increase of €15
	A reduction of €25

Question 4 (4 points)

Q10-4: Use the following information to determine the breakeven in units, breakeven in £, the number of units to get close to the Target Profit, and the amount of £ estimated from the unit sensitivity analysis. Then match the item with the correct units or £.

Fixed costs= £240,000 Selling price per unit= £18.00 Variable costs per unit= £12.60 Target profit= £120,000

Question 4 options:

44,444 66,667 800,000 1,200,000

1. breakeven in units 2. breakeven in £ 3. number of units to approximate Target Profit 4. amount of £ estimated from the unit sensitivity analysis

Question 5 (1 point)

Q10-5: Looking at Q10-4, if expected sales are 50,000 units, the margin of safety is closest to:

Question 5 options:

	11.1%
	12.5%
	30%
	50%

Question 6 (1 point)

Q10-6: BCD Inc sells its products for $12 each. The company’s volume has remained unchanged for some time at 10,000 units per month although it has spare capacity. Production costs are $10 per unit including fixed costs which average $3 per unit for the production volume. A customer has requested a special order of 2,000 of BCD’s products at a special price of $9. BCD should:

Question 6 options:

	Reject the order because there would be a loss of $2,000
	Reject the order because the selling price of $9 is lower than the cost price of $10
	Accept the order because there would be an additional profit of $4,000
	Accept the order because there would be additional revenue of $18,000

Question 7 (3 points)

Q11-1: A standard cost may be defined as:

Question 7 options:

	The actual quantities of material and labour multiplied by the costs of material and labour
	The standard quantities of material and labour multiplied by the costs of material and labour
	The actual quantities of material and labour multiplied by the costs of material and labour
	The standard quantities of material and labour multiplied by the costs of material and labour expressed per unit

Question 8 (3 points)

Q11-2: The accounting system which records production costs for a batch of identical goods is:

Question 8 options:

	Custom costing
	Batch costing
	Job costing
	Process costing

Question 9 (5 points)

Q11-3: Little Known Tax, Ltd prepares tax returns for clients. The firm employs six bookkeepers who cost the firm £10,000 in total each week. Each bookkeeper is expected to charge 30 hours per week to client jobs. At the end of the week the total hours charged by the six bookkeepers to client jobs is 150. The cost of spare capacity is closest to:

Question 9 options:

	£1668
	£30
	£150
	£5555

Question 10 (5 points)

Q11-4: Last Group has a rental cost of €25,000 per month with a four-year lease term. Casual staff are employed on a weekly basis to carry out telephone sales. The cost of casual staff is €12,000 per month and telephone call costs are €5,000 per month. An offshore call centre has offered to carry out the telephone sales activity from its own premises and using its own staff and telephone services for a fixed payment of €15,000 per month. The call centre’s outsourcing proposal should be:

Question 10 options:

	Accepted because the relevant cost is €42,000 compared to €40,000 for in-house telephone sales
	Accepted because the relevant cost is €15,000 compared to €17,000 for in-house telephone sales
	Rejected because the relevant cost is €45,000 compared to €42,000 for in-house telephone sales
	Rejected because the relevant cost is €17,000 compared to €15,000 for in-house telephone sales

Question 11 (5 points)

Q12-1: An accounting consultant is paid a salary of £80,000 per annum and his employer pays up to of 18% of base salary for medical, life, and dental insurance. His employer also contributes toward a retirement plan at a maximum of 8% of base salary. Assuming the consultants works 250 days per year and is productive for 81% of that time, his daily cost rate is closest to:

Question 11 options:

	£378
	£327
	£302
	£403

Question 12 (6 points)

Q12-2: Upper Central Consultancy (UCC) wishes to bid for a market research project. The cost estimates on which UCC will base its bid are shown below:

275 hours work in initial data collection and preparation of research questionnaire. The hours are broken down as follows:

135 hours are available from existing staff that are not currently utilized. Their total employment cost is £22 per hour.

140 hours will have to be bought in from a Temporary Staff Agency for a cost of £16 per hour.

UCC’s in-house existing library resources will be utilized to provide data for the project. The research data that will be used was purchased some months previously at a cost of £2,050. The data has never been used before and is unlikely to be used again. An additional updated report will however have to be purchased at a cost of £500.

Printing and postage of questionnaires will incur a cost of £1,100.

The in-house computer processing facility will process returned questionnaires. The computer facility makes an internal charge of £2,000 for each survey it processes.

The consultancy will have to purchase a specialist software package to undertake the sophisticated statistical analysis required at a cost of £1,750 and incur training costs of £600 to learn how to use the package. The package may be used again in the future.

A manager will be involved in the detailed planning, design and logistics for the research. The management time has been costed at 14 days at £550 but he is very busy and will have to be remunerated through overtime at an additional cost of £3,500 in order for him to carry out other work that he is committed to complete.

A partner will supervise the whole project. An estimate of her time has been costed at £1,600 although the consultancy will not incur any additional costs for the project.

Using all of the above information, calculate the cost for the market research project based on absorption costing principles. Please detail all of your work.

Question 12 options:

	25,001
	22,005
	28,107
	26,010

Question 13 (6 points)

Q12-3: Using the information from Q12-2 above, what is the relevant cost of the market research project?

Question 13 options:

	9,690
	11,290
	17,390
	11,740

2

3

11165

3

1

2

4

1

11166

1

11167

11168

11169

9

10

11172

11173

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0