- 12 Marks
PM – May 2018 – L2 – Q3a – Cost-Volume-Profit (CVP) Analysis
Explain the different concepts of relevant costs in the context of decision-making.
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- 12 Marks
MA – May 2018 – L2 – Q4a – Relevant Cost and Revenue
Evaluate whether to organize a beauty pageant in-house or outsource to a third party using cost analysis.
Question
PieceJoz FM, a media organization, is considering hosting a two-day beauty pageant in June 2018. The show will be expensive to run and promote. There will be three cash prizes on offer for the pageant, namely:
- 1st Place – GH¢5,000
- 2nd Place = GH¢2,000
- 3rd Place = GH¢1,000.
Other costs will include:
- Three judges of the show will each be paid GH¢400 per day plus a one-off travel expense allowance of GH¢150.
- Promotional costs of GH¢3,000 have been spent to date. A further GH¢1,000 per month will have to be incurred for the five months leading up to the pageant and GH¢4,000 in the month of the show.
- Utility costs incurred each day of the pageant are estimated to follow the function GH¢200 + 5X where X is the number of contestants performing. The council expects 30 contestants per day.
- Stocks of wood and steel to construct the stage. 400 metres of wood already in stock will be used. This originally cost GH¢20 per metre but will not be replaced. It was due to be sold to an employee at a price of GH¢8 per metre. 60 metres of steel that originally cost GH¢18 per metre is to be used. Steel has a scrap value of GH¢10 per metre. This steel will have to be replaced. The market price of steel has increased to GH¢15 per metre.
- 140 labour hours to build the stage. Currently, PieceJoz FM maintenance employees are paid GH¢600 each, plus 20% employers’ costs for a 40-hour week. Two such employees will be idle for the week required to build the stage. The remaining labour will be hired in at a casual rate of GH¢10 per hour.
PieceJoz FM expects that:
- 1,000 people will attend the beauty pageant on the first day and 2,000 on the final day.
- Daily tickets will sell at GH¢12 per adult ticket and GH¢5 per child ticket. It is expected that ticket sales will be 40% children and 60% adult.
- An event organizer called Magic Media has submitted a proposal to organize this program on behalf of PieceJoz FM at a fee of GH¢13,100 including utility cost of GH¢900.
Required:
a) Using the information above, advise, from a financial perspective, whether management of PieceJoz FM should organize the beauty pageant or outsource it to Magic Media.
Find Related Questions by Tags, levels, etc.
- Tags: Financial Decision, Incremental Costs, Outsourcing, Relevant Costs
- Level: Level 2
- Topic: Relevant Cost and Revenue
- Series: MAY 2019
- 12 Marks
PM – May 2018 – L2 – Q3a – Cost-Volume-Profit (CVP) Analysis
Explain the different concepts of relevant costs in the context of decision-making.
Find Related Questions by Tags, levels, etc.
- 12 Marks
MA – May 2018 – L2 – Q4a – Relevant Cost and Revenue
Evaluate whether to organize a beauty pageant in-house or outsource to a third party using cost analysis.
Question
PieceJoz FM, a media organization, is considering hosting a two-day beauty pageant in June 2018. The show will be expensive to run and promote. There will be three cash prizes on offer for the pageant, namely:
- 1st Place – GH¢5,000
- 2nd Place = GH¢2,000
- 3rd Place = GH¢1,000.
Other costs will include:
- Three judges of the show will each be paid GH¢400 per day plus a one-off travel expense allowance of GH¢150.
- Promotional costs of GH¢3,000 have been spent to date. A further GH¢1,000 per month will have to be incurred for the five months leading up to the pageant and GH¢4,000 in the month of the show.
- Utility costs incurred each day of the pageant are estimated to follow the function GH¢200 + 5X where X is the number of contestants performing. The council expects 30 contestants per day.
- Stocks of wood and steel to construct the stage. 400 metres of wood already in stock will be used. This originally cost GH¢20 per metre but will not be replaced. It was due to be sold to an employee at a price of GH¢8 per metre. 60 metres of steel that originally cost GH¢18 per metre is to be used. Steel has a scrap value of GH¢10 per metre. This steel will have to be replaced. The market price of steel has increased to GH¢15 per metre.
- 140 labour hours to build the stage. Currently, PieceJoz FM maintenance employees are paid GH¢600 each, plus 20% employers’ costs for a 40-hour week. Two such employees will be idle for the week required to build the stage. The remaining labour will be hired in at a casual rate of GH¢10 per hour.
PieceJoz FM expects that:
- 1,000 people will attend the beauty pageant on the first day and 2,000 on the final day.
- Daily tickets will sell at GH¢12 per adult ticket and GH¢5 per child ticket. It is expected that ticket sales will be 40% children and 60% adult.
- An event organizer called Magic Media has submitted a proposal to organize this program on behalf of PieceJoz FM at a fee of GH¢13,100 including utility cost of GH¢900.
Required:
a) Using the information above, advise, from a financial perspective, whether management of PieceJoz FM should organize the beauty pageant or outsource it to Magic Media.
Find Related Questions by Tags, levels, etc.
- Tags: Financial Decision, Incremental Costs, Outsourcing, Relevant Costs
- Level: Level 2
- Topic: Relevant Cost and Revenue
- Series: MAY 2019