ACCA PM Past papers - Section B: Q20 - September 2016 CBE Sample

September 2016 sample exam

Q20 Section B

Mylo runs a cafeteria situated on the ground floor of a large corporate office block. Each of the five floors of the building are occupied and there are in total 1,240 employees.

Mylo sells lunches and snacks in the cafeteria. The lunch menu is freshly prepared each morning and Mylo has to decide how many meals to make each day.

As the office block is located in the city centre, there are several other places situated around the building where staff can buy their lunch, so the level of demand for lunches in the cafeteria is uncertain.

Mylo has analysed daily sales over the previous six months and established four possible demand levels and their associated probabilities.

He has produced the following payoff table to show the daily profits which could be earned from the lunch sales in the cafeteria:

Demand level	Probability	Supply level	Supply level	Supply level	Supply level
		450	620	775	960
		$	$	$	$
450	0.15	1,170	980	810	740
620	0.30	1,170	1,612	1,395	1,290
775	0.40	1,170	1,612	2,015	1,785
960	0.15	1,170	1,612	2,015	2,496

Mylo is now considering investing in a speciality coffee machine. He has estimated the following daily results for the new machine:

	$
Sales (650 units)	1,300
Variable costs	(845)
Contribution	455
Incremental fixed costs	(70)
Profit	385

Indicate, by clicking on the relevant boxes in the table below, whether each of the following statements regarding the sensitivity of this investment are true or false?

The investment is more sensitive to a change in sales volume than sales price	True	False
If variable costs increase by 44% the investment will make a loss	True	False
The investment's sensitivity to incremental fixed costs is 550%	True	False
The margin of safety is 84.6%	True	False