A healthcare company specializes in hip, knee and shoulder replacement operations, known as surgical procedures. As well as providing these surgical procedures the company offers pre operation and post operation in-patient care, in a fully equipped hospital, for those patients who will be undergoing the surgical procedures.
Surgeons are paid a fixed fee for each surgical procedure they perform and an additional amount for any follow-up consultations. Post procedure follow-up consultations are only undertaken if there are any complications in relation to the surgical procedure. There is no additional fee charged to patients for any follow up consultations. All other staff are paid annual salaries.
The company's existing costing system uses a single overhead rate, based on revenue, to charge the costs of support activities to the procedures. Concern has been raised about the inaccuracy of procedure costs and the company's accountant has initiated a project to implement an activity-based costing (ABC) system.
The project team has collected the following data on each of the procedures.

Calculate the profit per procedure for each of the three procedures, using the current basis for charging the costs of support activities to procedures.
What was the profit for the knee procedure?

• A. $1510
• B. $1210
• C. $1485
• D. $1390

A company has budgeted to produce 5,000 units of Product B per month. The opening and closing inventories of Product B for next month are budgeted to be 400 units and 900 units respectively. The budgeted selling price and variable production costs per unit for Product B are as follows:

Total budgeted fixed production overheads are $29,500 per month. The company absorbs fixed production overheads on the basis of the budgeted number of units produced. The budgeted profit for Product B for next month, using absorption costing, is $20,700.
Prepare a marginal costing statement which shows the budgeted profit for Product B for next month.
What was the difference between the profit calculation using marginal costing and the profit calculation using absorption costing?

• A. $2950
• B. $2750
• C. $3010
• D. $3610
• E. $2870

Explain THREE benefits that organizations gain from using budgetary planning and control systems.
Select ALL the true statements.

• A. It provides a standard which managers may be motivated to achieve. It can also encourage inefficiency
  and conflict between managers particularly if the budget is imposed from above, whereby it may act as a threat rather than as a challenge.
• B. The budget is a useful device of influencing an operator's thoughts and motivating operators to perform in line with the organization's marketing budget.
• C. Budgeting forces an organization's management to look ahead and set performance targets.
• D. The budget provides an external benchmark against which performance against which performance can be evaluated.
• E. The budget ensures actions of different parts of the organization are coordinated are reconciled otherwise managers take actions for the benefit of their own part of organization that may not benefit the organization as a whole.
• F. Another benefit of budgeting is to set targets to motivate managers and optimize their performance.
• G. The budget acts as a variable mechanism, with actual results being compared with budget.

PL currently earns an annual contribution of $2,880,000 from the sale of 90,000 units of product B. Fixed costs are $800,000 per annum.
The management of PL is considering reducing the selling price per unit to $48. The estimated levels of demand at the revised selling price and the probabilities of them occurring are as follows:

Calculate the probability that the profit will increase from its current level if the selling price is reduced to $48.

• A. The probability therefore that the contribution will exceed $2,880,000 is 50%.
• B. The probability therefore that the contribution will exceed $2,880,000 is 90%.
• C. The probability therefore that the contribution will exceed $2,880,000 is 70%.
• D. The probability therefore that the contribution will exceed $2,880,000 is 40%.