CIMA paper 2 management accounting study text

CIMA Paper P2 Advanced Management Accounting Study Text Published by: Kaplan Publishing UK Unit 2 The Business Centre, Molly Millars Lane, Wokingham, Berkshire RG41 2QZ Copyright © 2015 Kaplan Financial Limited. All rights reserved. No part of this publication may be reproduced, stored in a retrieval system or transmitted in any form or by any means electronic, mechanical, photocopying, recording or otherwise without the prior written permission of the publisher. Acknowledgements We are grateful to the CIMA for permission to reproduce past examination questions. The answers to CIMA Exams have been prepared by Kaplan Publishing, except in the case of the CIMA November 2010 and subsequent CIMA Exam answers where the official CIMA answers have been reproduced. Notice The text in this material and any others made available by any Kaplan Group company does not amount to advice on a particular matter and should not be taken as such. 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ISBN: 9781784153007 Printed and bound in Great Britain. ii Contents Page Chapter ActivityBased Costing and ActivityBased Management Chapter The Modern Business Environment 53 Chapter Costing Techniques 93 Chapter Learning Curves 123 Chapter Responsibility Centres 151 Chapter Performance Measures and Budgetary Control 177 Chapter Alternative measures of performance 207 Chapter The Pricing Decision 243 Chapter Transfer Pricing 297 Chapter 10 Investment appraisal techniques 347 Chapter 11 Further aspects of investment appraisal 413 Chapter 12 The treatment of uncertainty and risk in decision 495 making Chapter 13 Risk Management 559 Chapter 14 Collecting and using information 589 iii iv chapter Intro Introduction v How to use the materials These official CIMA learning materials have been carefully designed to make your learning experience as easy as possible and to give you the best chances of success in your Objective Test Examination. The product range contains a number of features to help you in the study process. They include: • • • a detailed explanation of all syllabus areas; extensive ‘practical’ materials; generous question practice, together with full solutions This Study Text has been designed with the needs of home study and distance learning candidates in mind. Such students require very full coverage of the syllabus topics, and also the facility to undertake extensive question practice. However, the Study Text is also ideal for fully taught courses. The main body of the text is divided into a number of chapters, each of which is organised on the following pattern: vi • Detailed learning outcomes. These describe the knowledge expected after your studies of the chapter are complete. You should assimilate these before beginning detailed work on the chapter, so that you can appreciate where your studies are leading • Stepbystep topic coverage. This is the heart of each chapter, containing detailed explanatory text supported where appropriate by worked examples and exercises. You should work carefully through this section, ensuring that you understand the material being explained and can tackle the examples and exercises successfully. Remember that in many cases knowledge is cumulative: if you fail to digest earlier material thoroughly, you may struggle to understand later chapters • Activities. Some chapters are illustrated by more practical elements, such as comments and questions designed to stimulate discussion • • Question practice. The text contains three styles of question: – Examstyle objective test questions (OTQs) – ‘Integration’ questions – these test your ability to understand topics within a wider context. This is particularly important with calculations where OTQs may focus on just one element but an integration question tackles the full calculation, just as you would be expected to do in the workplace – ‘Case’ style questions – these test your ability to analyse and discuss issues in greater depth, particularly focusing on scenarios that are less clear cut than in the Objective Test Examination, and thus provide excellent practice for developing the skills needed for success in the Management Level Case Study Examination Solutions. Avoid the temptation merely to ‘audit’ the solutions provided. It is an illusion to think that this provides the same benefits as you would gain from a serious attempt of your own. However, if you are struggling to get started on a question you should read the introductory guidance provided at the beginning of the solution, where provided, and then make your own attempt before referring back to the full solution If you work conscientiously through this Official CIMA Study Text according to the guidelines above you will be giving yourself an excellent chance of success in your Objective Test Examination. Good luck with your studies! Quality and accuracy are of the utmost importance to us so if you spot an error in any of our products, please send an email to mykaplanreporting@kaplan.com with full details, or follow the link to the feedback form in MyKaplan. Our Quality Coordinator will work with our technical team to verify the error and take action to ensure it is corrected in future editions. Icon Explanations Definition – These sections explain important areas of knowledge which must be understood and reproduced in an assessment environment Key point – Identifies topics which are key to success and are often examined. Supplementary reading – These sections will help to provide a deeper understanding of core areas. The supplementary reading is NOT optional reading. It is vital to provide you with the breadth of knowledge you will need to address the wide range of topics within your syllabus that could feature in an assessment question Reference to this text is vital when self studying Test your understanding – Following key points and definitions are exercises which give the opportunity to assess the understanding of these core areas vii Illustration – To help develop an understanding of particular topics. The illustrative examples are useful in preparing for the Test your understanding exercises. Exclamation mark – This symbol signifies a topic which can be more difficult to understand. When reviewing these areas, care should be taken Study technique Passing exams is partly a matter of intellectual ability, but however accomplished you are in that respect you can improve your chances significantly by the use of appropriate study and revision techniques. In this section we briefly outline some tips for effective study during the earlier stages of your approach to the Objective Test Examination. We also mention some techniques that you will find useful at the revision stage. Planning To begin with, formal planning is essential to get the best return from the time you spend studying. Estimate how much time in total you are going to need for each subject you are studying. Remember that you need to allow time for revision as well as for initial study of the material. With your study material before you, decide which chapters you are going to study in each week, and which weeks you will devote to revision and final question practice. Prepare a written schedule summarising the above and stick to it! It is essential to know your syllabus. As your studies progress you will become more familiar with how long it takes to cover topics in sufficient depth. Your timetable may need to be adapted to allocate enough time for the whole syllabus. Students are advised to refer to the notice of examinable legislation published regularly in CIMA’s magazine (Financial Management), the students enewsletter (Velocity) and on the CIMA website, to ensure they are uptodate. The amount of space allocated to a topic in the Study Text is not a very good guide as to how long it will take you. The syllabus weighting is the better guide as to how long you should spend on a syllabus topic. Tips for effective studying (1) Aim to find a quiet and undisturbed location for your study, and plan as far as possible to use the same period of time each day. Getting into a routine helps to avoid wasting time. Make sure that you have all the materials you need before you begin so as to minimise interruptions viii (2) Store all your materials in one place, so that you do not waste time searching for items every time you want to begin studying. If you have to pack everything away after each study period, keep your study materials in a box, or even a suitcase, which will not be disturbed until the next time (3) Limit distractions. To make the most effective use of your study periods you should be able to apply total concentration, so turn off all entertainment equipment, set your phones to message mode, and put up your ‘do not disturb’ sign (4) Your timetable will tell you which topic to study. However, before diving in and becoming engrossed in the finer points, make sure you have an overall picture of all the areas that need to be covered by the end of that session. After an hour, allow yourself a short break and move away from your Study Text. With experience, you will learn to assess the pace you need to work at. Each study session should focus on component learning outcomes – the basis for all questions (5) Work carefully through a chapter, making notes as you go. When you have covered a suitable amount of material, vary the pattern by attempting a practice question. When you have finished your attempt, make notes of any mistakes you made, or any areas that you failed to cover or covered more briefly. Be aware that all component learning outcomes will be tested in each examination (6) Make notes as you study, and discover the techniques that work best for you. Your notes may be in the form of lists, bullet points, diagrams, summaries, ‘mind maps’, or the written word, but remember that you will need to refer back to them at a later date, so they must be intelligible. If you are on a taught course, make sure you highlight any issues you would like to follow up with your lecturer (7) Organise your notes. Make sure that all your notes, calculations etc. can be effectively filed and easily retrieved later Objective Test Objective Test questions require you to choose or provide a response to a question whose correct answer is predetermined. The most common types of Objective Test question you will see are: • Multiple choice, where you have to choose the correct answer(s) from a list of possible answers. This could either be numbers or text • Multiple choice with more choices and answers, for example, choosing two correct answers from a list of eight possible answers. This could either be numbers or text • Single numeric entry, where you give your numeric answer, for example, profit is $10,000 • Multiple entry, where you give several numeric answers ix • True/false questions, where you state whether a statement is true or false • Matching pairs of text, for example, matching a technical term with the correct definition • Other types could be matching text with graphs and labelling graphs/diagrams In every chapter of this Study Text we have introduced these types of questions, but obviously we have had to label answers A, B, C etc rather than using click boxes. For convenience we have retained quite a few questions where an initial scenario leads to a number of subquestions. There will be questions of this type in the Objective Test Examination but they will rarely have more than three subquestions. Guidance re CIMA onscreen calculator As part of the CIMA Objective Test software, candidates are now provided with a calculator. This calculator is onscreen and is available for the duration of the assessment. The calculator is available in each of the Objective Test Examinations and is accessed by clicking the calculator button in the top left hand corner of the screen at any time during the assessment. All candidates must complete a 15minute tutorial before the assessment begins and will have the opportunity to familiarise themselves with the calculator and practise using it. Candidates may practise using the calculator by downloading and installing the practice exam at http://www.vue.com/athena/. The calculator can be accessed from the fourth sample question (of 12). Please note that the practice exam and tutorial provided by Pearson VUE at http://www.vue.com/athena/ is not specific to CIMA and includes the full range of question types the Pearson VUE software supports, some of which CIMA does not currently use. Fundamentals of Objective Tests The Objective Tests are 90minute assessments comprising 60 compulsory questions, with one or more parts. There will be no choice and all questions should be attempted. Structure of subjects and learning outcomes Each subject within the syllabus is divided into a number of broad syllabus topics. The topics contain one or more lead learning outcomes, related component learning outcomes and indicative knowledge content. x Activity-Based Costing and Activity-Based Management 17 Practice Questions Objective Test Question 1: ABC vs traditional costing Company A manufactures three smartphones. Company A currently operates a traditional absorption costing system, but has decided to use an activity based costing (ABC) system on a trial basis for its procurement operation. A timebased cost driver is used to charge the procurement costs to the smartphones under the ABC system. The following unit manufacturing costs have been determined using both traditional absorption costing and activity based costing: Traditional absorption costing Activity Based Costing Smartphone Type 1 $90 $108 Smartphone Type 2 $102 $104 Smartphone Type 3 $95 $85 Place each of the following statements in a grey cell, against the product to which it is most likely to relate: Smartphone Type 1 Smartphone Type 2 Smartphone Type 3 This smartphone uses a lot of parts and materials that are readily available. It does not require any special order: only one supplier is involved, who has been supplying Company A for years. All the components are readily available in the warehouse. Assembling the phone is very straightforward, and does not incur any specific costs. 38 This smartphone This smartphone has relatively few uses a lot of parts components that and materials that are generally are difficult to purchased in bulk. obtain, and so puts However, the the buying camera department under components pressure. require a special order to a supplier overseas. chapter Objective Test Question 2: Activity Based Management An engineering company is thinking about implementing activitybased management principles. Which of the following is a correct definition of activitybased management? Select the ONE definition that applies. (i) ABM is an approach to the costing and monitoring of activities which involves tracing resources consumption and costing final outputs. Resources are assigned to activities and activities to cost objects based on consumption estimates. The latter utilise cost drivers to attach activities costs to outputs (ii) ABM involves the identification and evaluation of the activity drivers used to trace the cost of activities to cost objects. It may also involve selecting activity drivers with potential to contribute to the cost management function, with particular reference to cost reduction (iii) ABM is a method of budgeting based on an activity framework and utilising cost driver data in the budget setting and variance feedback processes (iv) ABM is a system of management which uses activitybased cost information for a variety of purposes including cost reduction, cost modelling and customer profitability analysis (v) ABM is a grouping of all cost elements associated with an activity Objective Test Question 3: Direct Product Profitability AB plc is a supermarket group which incurs the following costs: (i) The boughtin price of the good (ii) Inventory financing costs (iii) Shelf refilling costs (iv) Costs of repacking or 'pack out' prior to storage before sale AB plc's calculation of Direct Product Profitability would include: A All of the above costs B All of the above costs, except (ii) C All of the above costs, except (iv) D Costs (i) and (ii) only E Cost (i) only 39 Activity-Based Costing and Activity-Based Management Data Set Question: Walken Supermarkets Walken Supermarkets sells over 30,000 product lines. It wishes to introduce Direct Product Profitability analysis and a team of management accountants have ascertained the following information relating to the following year: Budgeted weekly overhead $ Warehouse costs 75,000 Supermarket costs 40,000 per supermarket Transportation costs 400 per delivery The warehouse is expected to handle 10,000 cubic metres (m3) of goods. Each supermarket will handle 5,000 m of goods each week Each transportation vehicle holds 40 m3 of goods Three products sold by Walken are Kitchen Roll (KR), Tinned Spaghetti (TS) and Toothpaste (T): Retail price per item Boughtin price per item Number of items per case Number of cases per m3 Time in warehouse Time in supermarket KR $1.00 $0.60 10 20 1 week 2 weeks TS $0.60 $0.30 25 30 2 weeks 4 weeks T $1.75 $1.00 40 20 3 weeks 2 weeks Required: Calculate the following figures, in $, to four decimal places: 40 The net profit per kitchen roll $ The net profit per tin of spaghetti $ The net profit per tube of toothpaste $ chapter Case Study Style Question: Casamia PRESEEN MATERIAL Casamia plc purchases a range of good quality gift and household products from around the world; it then sells these products through ‘mail order’ or retail outlets. The company receives ‘mail orders’ by post, telephone and Internet. Retail outlets are either department stores or Casamia plc’s own small shops. The company started to set up its own shops after a recession in the early 1990s and regards them as the flagship of its business; sales revenue has gradually built up over the last 10 years. There are now 50 department stores and 10 shops. The company has made good profits over the last few years but recently trading has been difficult. As a consequence, the management team has decided that a fundamental reappraisal of the business is now necessary if the company is to continue trading. Meanwhile, the budgeting process for the coming year is proceeding. Casamia uses an activitybased costing (ABC) system and the following estimated cost information for the coming year is available: Retail outlet costs: Activity Cost driver Calls Per Year Rate per Department Own shop cost driver store $15 40 calls 350 calls Telephone queries and request to Casamia Sales visits to shops Visits and stores by Casamia sales staff Shop orders Orders Packaging Deliveries Delivery to shops Deliveries $250 $20 $100 $150 2 visits 4 visits 25 orders 150 orders 28 deliveries 150 deliveries 28 deliveries 150 deliveries Staffing, rental and service costs for each of Casamia plc’s own shops cost on average $300,000 a year. 41 Activity-Based Costing and Activity-Based Management Mail order costs: Activity Processing 'mail orders' Dealing with 'mail order' queries Cost driver Orders Orders Rate per cost driver Post Telephone Internet $5 $4 $6 $4 $3 $1 Packaging and deliveries for 'mail orders' – cost per package $10 Number of packages per order Packages 2 2 1 The total number of orders through the whole 'mail order' business for the coming year is expected to be 80,000. The maintenance of the internet link is estimated to cost $80,000 for the coming year. The following additional information for the coming year has been prepared: Department Own shop Post Telephone Internet store Sales revenue per $50,000 $1,000,000 outlet Sales revenue per $150 $300 $100 order Gross margin: 30% 40% 40% 40% 40% markup on purchase costs Number of outlets 50 10 Percentage of 'mail 30% 60% 10% orders' Expected Head office and warehousing costs for the coming year: Warehouse IT Administration Personnel Total 42 $ $2,750,000 $550,000 $750,000 $300,000 ––––––––– $4,350,000 ––––––––– chapter Task: Report You receive the following email from the Financial Controller: 43 Activity-Based Costing and Activity-Based Management Test your understanding answers Example 1: I Co The answer is $108,428. In the exam, different answers will be accepted if they are due to rounding differences. Old costs allocated: $1,150,000 * (200/350) = $657,142.86; plus 15% => $755,714.78 ABC Allocation: [400,000 * (40/80)] + [600,000 * (200/350)] + [150,000 * (4/30)] = $562,857.14, plus 15% => $647,285.71. Therefore, the change in fee is $108,428 decrease. Example 2: Manufacturing Business Solution (a) Workings Number of batches Number of setups Special parts Direct labour hours 44 M1 4 4 16,000 16,000 M2 80 240 64,000 20,000 Total 84 244 80,000 36,000 chapter Activity Cost $ Setups 97,600 Materials handling 42,000 Special parts handling 50,000 Invoicing 31,000 Other overheads 108,000 –––––– 328,600 –––––– M1 M2 $ $ Cost per setup $400 1,600 96,000 Cost per batch $500 2,000 40,000 Cost per part $0.625 10,000 40,000 Cost per order $100 6,000 25,000 Cost per hour $3 48,000 60,000 –––––– –––––– 67,600 261,000 –––––– –––––– M1 $ Sales Direct materials Direct labour Overheads Total costs Profit/(loss) Profit/loss per unit M2 $ $432,000 88,000 128,000 67,600 ––––––– $ $ 584,000 168,000 160,000 261,000 ––––––– 283,600 ––––––– 148,400 ––––––– 18.55 ––––––– 589,000 ––––––– (5,000) ––––––– (0.625) ––––––– (b) The figures suggest that model M2 is less profitable than M1. The sales manager should try to persuade the customer to buy model M1. Note that the apparent loss on M2 does not necessarily mean that production should be ceased. To assess this management should consider the incremental relevant cash flows involved – e.g. is the product making positive contribution, how many overheads are avoidable? They could also consider ways to reduce the cost drivers for the product to reduce its share of the overheads and convert the product loss into a profit 45 Activity-Based Costing and Activity-Based Management Example 3: DPP The cold storage was included in the space of general storage, and therefore the frozen desserts should be allocated a share of the general costs as well as the cold storage costs. General storage = $90,000/45,000 = $2 m3 Cold storage = $5,000/100 = $50 m3 Net profit of FD = $4 – $0.4 – 0.03 m3 × ($50 + $2) = $2.04 Net profit of SD = $30 – $5 – (0.3 m3 × $2) = $24.40 Objective Test Question 1: ABC vs traditional costing Smartphone Type 1 This smartphone uses a lot of parts and materials that are difficult to obtain, and so puts the buying department under pressure. Smartphone Type 2 This smartphone has relatively few components that are generally purchased in bulk. However, the camera components require a special order to a supplier overseas Smartphone Type 3 This smartphone uses a lot of parts and materials that are readily available. It does not require any special order : only one supplier is involved, who has been supplying Company A for years. All the components are readily available in the warehouse. Assembling the phone is very straightforward, and does not incur any specific costs. Smartphone 1 has a higher cost under ABC, which suggests a more complex item using specific parts and materials. Smartphone 2 has a marginally higher cost under ABC, which suggests the use of mostly readily available components. Smartphone 3 has a lower cost under ABC, which suggests a standard product using few, if any, specific or complex components. 46 chapter Objective Test Question 2: Activity Based Management The answer is (iv): ABM uses the information provided by an ABC analysis to improve organisational profitability. Option (i) defines ABC. Option (ii) defines activity driver analysis. Option (iii) defines activity based budgeting. Option (v) defines an activity cost pool. Objective Test Question 3: Direct Product Profitability The answer is A: All of the costs described can be identified with specific goods and would be deducted from the selling price to determine the direct product profit. Data Set Question: Walken Supermarkets Warehouse cost $75,000 ÷ 10,000 = $7.50 per m3 Supermarket cost $40,000 ÷ 5,000 = $8.00 per m3 Transportation cost $400 ÷ 40 = $10 per m Retail price Less boughtin price Gross margin Less overheads: Warehouse costs (see workings) Supermarket costs (see workings) Transportation costs (see workings) Net profit KR $ 1.00 (0.60) ––––– 0.40 0.0375 0.08 0.05 ––––––– 0.2325 ––––––– TS $ 0.60 (0.30) ––––– 0.30 0.02 0.0427 0.0133 ––––––– 0.2240 ––––––– T $ 1.75 (1.00) ––––– 0.75 0.0281 0.02 0.0125 ––––––– 0.6894 ––––––– 47 Activity-Based Costing and Activity-Based Management Workings: Numberof itemsperm3 10ì20=200 25ì30=750 40ì20=800 Warehousecharge: Kitchenroll($7.50ữ200)ì1week=0.0375 Tinnedspaghetti($7.50ữ750)ì2weeks=0.02 Toothpaste($7.50ữ800)ì3weeks=0.028125 Supermarket cost: Kitchenroll($8.00ữ200)ì2weeks=0.08 Tinnedspaghetti($8.00ữ750)ì4weeks=0.0427 Toothpaste($8.00ữ800)ì2weeks=0.02 Transportation costs: Kitchenroll$10perm3(ữ20casesperm3)(ữ10itemspercase)= 0.05peritem Tinned spaghetti $10 per m3 (÷ 30 cases per m3) (÷ 25 items per case) = 0.0133 per item Toothpaste $10 per m3 (÷ 20 cases per m3)(÷ 40 items per case) =0.0125 per item 48 chapter Case Study Style Question: Casamia REPORT To: Financial Controller From: Management Accountant Date: 03 June Subject: Profitability of different types of sales outlets The aim of this report is to determine the expected profitability of the different types of sales outlets for the coming year. In summary, the calculations in the attached appendices (Appendix 'A' to 'E') show the following: • • Casamia's own shops will make a considerable ‘loss’ • The telephone mail order, that is 46% of the business, will generate 104% of the current total profit • The Internet business is not particularly profitable in the coming year, but it will presumably grow quite quickly. If this happens, the charge for maintaining the Internet, which is expressed by each order, will presumably decline as it is likely to be a semifixed cost The department store sales will not generate as good a profit as the ‘mail order’ side (1) Usefulness of information The calculations show the profitability of the different types of outlet for the coming year only, which is of some use. For example, it shows that Casamia's own shops make a considerable loss and it would appear, on the surface, that the company would be better off without them, perhaps transferring the business to franchises within department stores. It also indicates that the emphasis of the business should be switched to the mail order side, as it is more profitable and, in particular, to the telephone section 49 Activity-Based Costing and Activity-Based Management (2) The need for further information However, the latter shows how dangerous this kind of assumption can be because the telephone section may have peaked and, in future, growth in the Internet section may be at the expense of the telephone section. Therefore, decisions about future strategies cannot be made on predicted shortterm costs and revenues. Any attempt to do so could prove disastrous. Growth in the market, competitors’ moves, customers’ needs and requirements must be the basis for any decisions. The ABC costs could, however, be used to highlight areas for cost reduction and procedural changes which could assist longerterm profitability. ABC is a method for apportioning costs and it suffers from the same defects as every absorption method. In Casamia's case, the analysis does not look very detailed/accurate and so may be little better than a traditional absorption system. The head office and warehousing costs need to be examined in detail to determine which type of outlet incurs what part of the cost, as these costs may be caused and used more by some types of outlets than others. If this is so, what would happen to cost if one type of outlet was abandoned and others increased in size? (3) Other information needed to make a more informed judgement is likely to be: Customers’ changing purchasing habits Same customer purchases across outlet types, that is, do customers buy from shops and order by telephone Competitors’ moves New entrants into the market – especially in the Internet business Future economic conditions Exchange rate movements – as some goods are imported Increase in disposable income The image created by the different types of outlet, that is do their own shops create the brand or company name 50 chapter Past data to establish trends. Then, specific information will need to be collected for the fundamental reappraisal of the business. For example, if the decision to close Casamia's own shops was being considered, a detailed study of the interrelationship between outlets should be carried out, as having the products on display in shops might be necessary in order to maintain the high level of telephone orders. For instance, potential customers may visit to see colours, quality, and so on. Products on display are also a form of advertising for the company and this would be lost if the shops were closed. Appendix A: Calculation of net margin per type of outlet Mail order Sales revenue Gross margin (50,000 + 1.30, etc) Department Own shop Post Telephone Internet Store 50,000 1,000,000 150.00 300.00 100.00 11,538 285,714 42.86 85.71 28.57 Less: Staffing etc 300,000 Telephone queries ($15 × 40, etc) 600 5,250 Sales visits ($250 × 2, etc) 500 1,000 Orders ($20 × 25, etc) 500 3,000 Packaging ($100 × 28, etc) 2,800 15,000 Delivery ($150 × 28, etc) 4,200 22,500 Order cost 5.00 6.00 3.00 Queries 4.00 4.00 1.00 Packing & delivery ($10 × 2, etc) 20.00 20.00 10.00 Internet cost2 10.00 –––––– 8,600 346,750 29.00 30.00 24.00 –––––– ––––––– ––––– ––––– –––––– Net margin 2,938 (61,036) 13.86 Net margin/sales 5.9% 4th 9.2% 5th 2nd 55.71 4.57 18.6% 4.6% 1st 3rd 51 Activity-Based Costing and Activity-Based Management Appendix B: Calculation of total margin for each type of outlet Department Stores Total revenue Total net margin Mail order Own shops $000 $000 2,500 10,000 Total Post Telephone Internet $000 $000 $000 3,600 14,400 146.90 (610.36) 332.64 2,674.08 800 $000 31,300 36.56 2,579.82 Appendix C: Gross margin calculation for 30% of purchase cost 100 = 0.3X + X X = 76.92% 0.3 X = 23.076% $50,000 × 23.076% = $11.538 Appendix D: Mail order Total number of mail orders = 80,000. So number of Internet orders = 80,000 × 10% = 8,000 Internet link cost per order = $80,000/8,000 orders = $10 Appendix E: Calculation of total revenues and net margins ($000) Total revenue Department Stores 50 outlets Own shops 10 outlets Mail order – post 80,000 × 30% = 24,000 orders Mail order – telephone 80,000 × 60% = 48,000 orders (× $50,000) $2,500 Total net margin (× 2,938) 146.9 (× $1,000,000) 10,000 (× $61,036) (610.36) (× $150) 3,600 (× $13.86) 332.64 (× $300) 14,400 (× $55.71) 2,674.08 Mail order – Internet 80,000 × 10% = 8,000 orders 52 (× $100) 800 (× $4.57) $36.56 ... 1.647 2. 322 2. 914 3.433 Interest rates (r) 15% 16% 0.870 0.8 62 1. 626 1.605 2. 283 2. 246 2. 855 2. 798 3.3 52 3 .27 4 17% 0.855 1.585 2. 210 2. 743 3.199 18% 0.847 1.566 2. 174 2. 690 3. 127 19% 0.840 1.547 2. 140... 6.9 82 7.191 5.938 6.194 6. 424 6. 628 6.811 5.687 5.918 6. 122 6.3 02 6.4 62 5.453 5.660 5.8 42 6.0 02 6.1 42 5 .23 4 5. 421 5.583 5. 724 5.847 5. 029 5.197 5.3 42 5.468 5.575 4.836 4.988 5.118 5 .22 9 5. 324 ... 0 .23 2 0 .21 5 9% 0.917 0.8 42 0.7 72 0.708 0.650 0.596 0.547 0.5 02 0.460 0. 422 0.388 0.356 0. 326 0 .29 9 0 .27 5 0 .25 2 0 .23 1 0 .21 2 0.194 0.178 10% 0.909 0. 826 0.751 0.683 0. 621 0.564 0.513 0.467 0. 424 0.386