Which of the following investment appraisal methods provides an absolute monetary value on which to base decisions?

• A.Net present value
• B.Profitability index
• C.Accounting rate of return
• D.Internal rate of return

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The management of a leisure company, who are risk averse, have just approved an investment in a new amusement park. The country in which the amusement park will be located has a warm and mostly dry climate throughout the year.
A number of specific risks related to this investment have been identified as follows.
(1) Losses of very small amounts of revenue due to poor weather.
(2) A significant financial liability may arise due to the injury of a member of the public.
(3) Loss of several days of revenue due to rides being unavailable because of poor maintenance routines.
(4) Income fraud as a consequence of the high levels of cash handled by employees.
Using the TARA framework, which is the most appropriate way of managing each of these risks?

• A.Accept risk 1; avoid risk 2; transfer risk 3; reduce risk 4
• B.Reduce risk 1; transfer risk 2; avoid risk 3; accept risk 4
• C.Transfer risk 1; accept risk 2; avoid risk 3; reduce risk 4
• D.Accept risk 1; transfer risk 2; avoid risk 3; reduce risk 4

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A company has a 31 December year end and pays corporation tax at a rate of 30%. Corporation tax is payable 12 months after the end of the year to which the cash flows relate. The company can claim tax allowable depreciation at a rate of 25% reducing balance. It pays $1 million for a machine on 31 December 20X4. The company's cost of capital is 10%.
What is the present value of the benefit of the first portion of tax allowable depreciation?

• A.$250,000
• B.$75,000
• C.$227,500
• D.$68,175

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A company currently absorbs production overheads based on labor hours. The overheads absorbed by the two products that are made, L and M, are $4 per unit and $10 per unit respectively. These were based on the budgeted overheads of $7,000 and budgeted labor hours of 1,750. The budgeted output was 500 units of each product.
The company is investigating the use of activity based costing (ABC). Analysis has shown that the total production overheads of $7,000 are made up of $4,000 for set up costs and $3,000 for inspection costs.
The cost driver for set up costs is the number of set ups and for inspection costs it is the number of inspections.
The cost driver rate for set ups is $160 per set up. Product L would need 5 production runs. Both types of product would need 1 set up for each production run.
Product L would need 2 inspections for each production run. Product M would need 1 inspection per production run.
The products are made in the same department and use the same equipment and staff but they are produced separately.
Which of the following statements are correct?
Select ALL that apply.

• A.If ABC was used, set up costs per unit of Product L would be $1.60.
• B.The current production overhead absorption rate is $500 per hour.
• C.The current production overhead absorption rate is $4.00 per hour.
• D.If ABC was used, set up costs per unit of Product M would be $4.00.
• E.If ABC was used, inspection costs per unit of Product L would be $4.00.
• F.If ABC was used, inspection costs per unit of Product M would be $4.00.

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A company is classifying its quality costs to prepare a quality cost report. Which of the following are conformance costs?
Select ALL that apply.

• A.Prevention Costs
• B.Appraisal Costs
• C.Internal Failure Costs
• D.External Failure Costs

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