Calculate the sensitivity of the investment decision to a change in the annual fixed costs.
By how much should the present value of the fixed cost increase, before this project is not viable?

• A. $7698
• B. $9050
• C. $8675
• D. $6390

A company sells and services photocopying machines. Its sales department sells the machines and consumables, including ink and paper, and its service department provides an after sales service to its customers. The after sales service includes planned maintenance of the machine and repairs in the event of a machine breakdown. Service department customers are charged an amount per copy that differs depending on the size of the machine.
The company's existing costing system uses a single overhead rate, based on total sales revenue from copy charges, to charge the cost of the Service Department's support activities to each size of machine. The Service Manager has suggested that the copy charge should more accurately reflect the costs involved. The company's accountant has decided to implement an activity-based costing system and has obtained the following information about the support activities of the service department:

Calculate the annual profit per machine for each of the three sizes of machine using activity-based costing.

• A. Profit Per Machine using ABC: Small $186, Medium $1441, Large $2046
• B. Profit Per Machine using ABC: Small $176, Medium $1341, Large $946
• C. Profit Per Machine using ABC: Small $196, Medium $1191, Large $1046
• D. Profit Per Machine using ABC: Small $166, Medium $1241, Large $746
• E. Profit Per Machine using ABC: Small $376, Medium $2341, Large $986
• F. Profit Per Machine using ABC: Small $1076, Medium $1041, Large $1946

A company's budget for the next period shows that it would breakeven at sales revenue of $800,000 and fixed costs of $320,000.
The sales revenue needed to achieve a profit of $200,000 in the next period would be:

• A. $1,780,000
• B. $1,390,000
• C. $1,400,000
• D. $1,300,000
• E. $1,950,000

A medium-sized manufacturing company, which operates in the electronics industry, has employed a firm of consultants to carry out a review of the company's planning and control systems. The company presently uses a traditional incremental budgeting system and the inventory management system is based on economic order quantities (EOQ) and reorder levels. The company's normal production patterns have changed significantly over the previous few years as a result of increasing demand for customized products. This has resulted in shorter production runs and difficulties with production and resource planning. The consultants have recommended the implementation of activity based budgeting and a manufacturing resource planning system to improve planning and resource management.
What are the benefits for the company that could occur following the introduction of an activity based budgeting system?
Select ALL the correct answers.

• A. Activity based techniques including activity based budgeting focus on the outputs of a process rather than the input to the process. This approach provides a clear framework for understanding the link between costs and the level of activity. It allows the ranking of activities and the determination of how limited resources should be allocated across competing activities.
• B. The approach under an Activity based Budgeting System is to make arbitrary cuts in order to meet overall financial targets.
• C. Under an activity based budgeting system, resource allocation is linked to the strategic plan and is prepared after considering alternative strategies. This approach ensures that new activities that are required to meet the company's strategic objectives are included in the budget.
• D. Under a traditional incremental budgeting system the focus is on existing resources and operations.
  Adjustments are then made for changes in activity and price which results in past inefficiencies being perpetuated. Under an activity based budgeting system, only resources that are needed to perform activities required to meet the budgeted production and sales volumes are included.
• E. Activity Based Budgeting Systems present costs under functional headings i.e. the emphasis is on the nature of the cost. The weakness if this approach is that it gives little indication of the link between the level of activity and the cost incurred.