PM C Decision-making techniques

Written by Mahnoor Sheikh (ACCA)

ACCA · Performance Management · 16 questions

Name: ____________________ Date: ____________

A product mix is 2 units of A (contribution $8) to 1 unit of B (contribution $12). Fixed costs are $56,000. What are the total break-even units for the mix?
- A 5,600 units
- B 4,667 units
- C 6,000 units
- D 7,000 units
Product X earns $12 contribution using 2 hours of the scarce resource and product Y earns $15 using 3 hours. Which should be made first?
- A X, at $6 an hour
- B Y, at $5 an hour
- C Y, at $15 a unit
- D Both equally
With two or more scarce resources, the best production plan is usually found by:
- A Simple ranking by contribution per unit
- B Variance analysis
- C Linear programming
- D Break-even analysis
What is the shadow price of a scarce resource?
- A The extra contribution from one more unit of the resource
- B The market price of the resource
- C The cost of the resource per unit
- D The total contribution from all of the resource
A 4 percent rise in price cuts quantity demanded by 10 percent. What is the price elasticity of demand?
- A 2.5
- B -14
- C -2.5
- D -0.4
Profit is maximised where:
- A Total revenue is highest
- B Marginal revenue is zero
- C Price equals average cost
- D Marginal revenue equals marginal cost
Demand is P = 100 - 0.02Q and marginal cost is $20. What is the profit-maximising price?
- A $20
- B $100
- C $60
- D $80
A new product is launched at a high price which is later lowered. This is:
- A Cost-plus pricing
- B Market skimming
- C Market penetration
- D Loss leader pricing
A division is at full capacity. The marginal cost of an item is $14 and it can be sold outside for $22. What is the minimum transfer price?
- A $14
- B $8
- C $22
- D $36
A company has spare capacity and receives a special order. Which costs are relevant?
- A Fixed overheads absorbed
- B All production costs
- C Costs already incurred
- D Only the extra costs caused by the order
Payoffs for three plans in a good, medium and poor market are A: 120, 80, 20; B: 90, 70, 50; C: 60, 60, 60. Which plan does maximin choose?
- A C
- B A
- C B
- D None of them
Using the same payoffs (A: 120, 80, 20; B: 90, 70, 50; C: 60, 60, 60), which plan does maximax choose?
- A A
- B B
- C C
- D None of them
Payoffs for three plans are A: 120, 80, 20; B: 90, 70, 50; C: 60, 60, 60. Which plan does the minimax regret rule choose?
- A B
- B A
- C C
- D None of them
The probabilities of a good, medium and poor market are 0.3, 0.5 and 0.2. Plan A pays 120, 80 and 20. What is the expected value of plan A?
- A 60
- B 40
- C 73
- D 80
The expected value with perfect information is 88 and the best expected value without it is 80. What is the value of perfect information?
- A 80
- B 88
- C 168
- D 8
What does sensitivity analysis show?
- A The probability of each outcome
- B The best decision in every case
- C How far a variable can change before the decision changes
- D The cost of a project

Answer key

1. C, 2. A, 3. C, 4. A, 5. C, 6. D, 7. C, 8. B, 9. C, 10. D, 11. A, 12. A, 13. A, 14. D, 15. D, 16. C

Average contribution = (2 x 8 + 1 x 12) / 3 = $9.33. Break-even = 56,000 / 9.33.
Rank by contribution per unit of the scarce resource.
The optimum lies at a corner of the feasible region.
It shows the most worth paying for extra units.
-10 / 4 = -2.5, so demand is elastic.
At that quantity, the next unit adds as much to cost as to revenue.
MR = 100 - 0.04Q = 20, so Q = 2,000 and P = 100 - 40 = 60.
Skimming takes high margins from early buyers.
Minimum = marginal cost plus opportunity cost = 14 + 8.
Fixed costs that do not change are not relevant.
Maximin chooses the best of the worst outcomes: C gives 60.
Maximax picks the highest possible payoff, which is 120 for A.
The largest regrets are A 40, B 30 and C 60, so B has the smallest.
0.3 x 120 + 0.5 x 80 + 0.2 x 20 = 36 + 40 + 4 = 80.
88 - 80.
It tests the effect of changes in key variables.