An organization uses a balanced scorecard approach to performance measurement, both at the corporate level and to assess the performance of each of its responsibility centre managers.
Which THREE of the following statements are valid in respect of the effect of this approach on the behavior of the responsibility centre managers?

• A.It provides them with a range of performance measures to discourage a tendency to focus on only one measure.
• B.It encourages them to focus mainly on short-term financial measures.
• C.It provides them with clear guidance as to how customer satisfaction problems should be solved.
• D.It encourages them to identify, and deal with, problems at an earlier stage.
• E.It encourages them to make decisions that are in line with corporate objectives.

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A company is considering investing $680,000 in a machine to manufacture a new product. A consultant has been appointed to advise on the investment and the company is committed to paying $10,000 to the consultant in year 1, even if the project does not go ahead.
300,000 units of the new product will be produced and sold each year. Unit cost and revenue information based on this level of output is as follows.

60% of the overhead cost is variable. Of the remainder, 10% consists of allocated head office overheads.
The selling price will increase by 2% each year in line with inflation, beginning in year 2. Fixed price contracts mean that all unit costs will remain unaltered.
Taxation information:
* 100% first year allowance will be available for the purchase of the machinery.
* The taxation rate is 30% of taxable profits, payable in the year after that in which the liability arises.
For the purpose of deciding whether to proceed with the investment, what is the relevant cash flow in year 2?

• A.$1,102,320
• B.$1,326,960
• C.$1,099,320
• D.$1,288,800

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A project is viable because it has a positive net present value (NPV).
Details of four of the input variables, together with the sensitivity of the viability of the project to a change in each one in isolation, are given below.

Which of the following statements is correct?

• A.If the incremental annual cash contributions reduce by more than 8% then the project will no longer be viable.
• B.If the rate of taxation on profits increases to 40% then the project will no longer be viable.
• C.The resale value at the end of the project is the most sensitive of the four variables.
• D.A 1% change in the initial investment will result in a change of 3% in the NPV.

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Using the Value Chain model for a manufacturing company, place the correct primary activity classification against each of the activities described.

Correct Answer:

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A company is considering investing $150,000 in a project which will generate the following contributions during the first three years.
Tax depreciation allowance is 25% each year of the reducing balance.

The taxation rate is 30% of taxable profits and tax is payable in the year after that in which it arises.
To the nearest $10, what is the forecast total project cash flow in year 3?

• A.$74,400
• B.$71,430
• C.$82,840
• D.$85,650

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