Managing Organisational Performance

Answer ALL 20 questions in this section.
You must choose an answer for each MCQ. There is only ONE correct answer to each question. If you choose more than one answer to a question, you will receive no marks for your choice. You must choose an answer for each MCQ and provide a short written justification, including calculations, as needed, for your answer.
The recommended word limit for Section A is approximately 700 words.

All questions carry equal marks – two marks per question: one mark for the answer and one mark for the justification (40 marks in total).
1. The following statements have been made about life cycle costing.
1. Life cycle costing can be applied to products with a short life cycle.
2. Product life cycle costing is not well-suited for use within budgetary control systems. Which of the following statements is/are true?
a. 1 only
b. 2 only
c. Neither 1 nor 2
d. Both 1 and 2

2. Product Alpha is made in a process where machine time is a bottleneck resource. Each unit requires 0.1 machine hours. The costs and selling price of product Alpha are as follows:

  • Materials £6
  • Labour £3
  • Other factory costs £5
  • Selling Price £15

Using throughput accounting, what is the return per factory hour?
a. £60
b. £90
c. £10
d. £4

3. Given the following data has been established for product Beta, a new product in its design phase.
Product Beta target selling price £10 per unit
Target Profit 25% on cost
Current cost £8.40 per unit
What is the target cost gap for product Beta?
a. £0.40
b. £0.60
c. £0.90
d. £1.60

4. Paddington plc manufactures advanced cordless saws in a single factory. Each saw sells for £200 and the material costs £80 per unit. There is no limit to sales demand. Other production costs are £1,100,000 per year. Each saw requires the use of multiple machines of which, one machine is old and often breaks down. This means only 15,000 saws can be produced per year. The factory is open for 50 weeks of the year and operates 40 hours a week.
What is the throughput accounting ratio for Paddington plc’s factory?
a. 1.32
b. 1.53
c. 1.64
d. 2.19

5. Which of the following reasons would the choice of penetration pricing be suitable when establishing the price of a new product?
a. To discourage new entrants to the market
b. To increase the length of the initial stage of life cycle
c. To ensure the product is as profitable as possible
d. To set a price for the product to ensure it has a low elasticity of demand

6. A company is budgeting to sell 230,000 units of its product next year at a price of £15 per unit. Fixed costs will be £1,400,000 with variable costs of £8. What is the break-
even revenue and margin of safety in the budget?
a. Break even £2,700,000, margin of safety 13%
b. Break even £2,700,000, margin of safety 15%
c. Break even £3,000,000, margin of safety 13%
d. Break even £3,000,000, margin of safety 15%

7. The following budget data has been prepared for a company that manufactures four products
Alpha Beta Gamma Delta
Sales price per unit £9.00 £6.00 £4.00 £8.00
Variable cost per unit £5.50 £4.00 £2.20 £4.00
Budget sales units 20,000 25,000 50,000 12,500
Direct labour hours per unit
0.5 hr 0.25 hr 0.30 hr 0.8 hr

The total number of direct labour hours available is 24,000 hours. Which products should it make and sell in the period?
a. Alpha, Beta and Gamma
b. Alpha, Beta and Delta
c. Alpha and Beta only
d. Alpha and Delta only

8. The main purpose of sensitivity analysis is to:
a. predict the outcome of future events in an uncertain situation
b. determine the worst possible outcome in a set situation
c. understand how different assumptions and variables impact each other
d. gain insight into how critical certain assumptions or variables are

9. Dig Ltd has been requested by a customer to help with some garden landscaping. The material which needs to be used and available information is as follows:
Amount required
Amount in stock
Historic price per kg
Current Price per kg
Scrap Value per kg
Cotswold stone 500 300 £12 £15 £5
Green slate 200 200 £24 £20 £8

The Cotswold stone is regularly used in projects by the company but the green slate is no longer used and has no alternative use. What is the relevant cost of material for this job?
a. £5,200
b. £8,400
c. £9,100
d. £10,800

10. A company is deciding which project to go ahead with from the following four mutually exclusive projects. The profit output depends on the strength of the economy.
Strong economy
Moderate economy
Weak economy
Project A £70,000 £10,000 (£7,000)
Project B £40,000 £21,000 £5,000
Project C £50,000 £20,000 (£6,000)
Project D £25,000 £12,000 £5,000
Probability of outlook 10% 40% 50%

Which project offers the highest expected value?
a. Project A
b. Project B
c. Project C
d. Project D

11. Extracts from the flexible budgets of a manufacturing company are as follows.
Quantity to produce 5,000 units 9,000 units
Materials costs £50,000 £90,000
Labour costs £55,000 £79,000
Production costs £80,000 £80,000

What would be the total expenditure incurred when 6,000 units are produced?
a. £259,000
b. £248,000
c. £230,000
d. £233,000

12. The following statements have been made about zero based budgeting.
(1) The zero-based budgeting process seeks to identify long term benefits and improvements, even if they are sometimes made at the expense of short-term profitability.
(2) A restriction on the use of zero-based budgeting is that management do not always have the skills to apply it. Which of the above statements is/are true?
a. 1 only
b. 2 only
c. Neither 1 nor 2
d. Both 1 and 2

13. The following statements have been made about planning and operational variances.
(1) No one may accept responsibility for planning variances.
(2) It is usually easy to identify in retrospect what prices and quantities were, but not nearly so easy to identify what they should have been. Which of the above statements is/are true?
a. 1 only
b. 2 only
c. Neither 1 nor 2
d. Both 1 and 2

14. ‘Beyond Budgeting’ is considered an alternative to traditional budgeting as a result of criticisms of traditional budgeting. Which of the following is NOT a criticism of traditional budgeting?
a. Budgets protect rather than reduce costs
b. Budgets focus on sales targets rather than customer satisfaction
c. Managers do not give budgeting enough of their time
d. Budgets discourage innovation and initiative