Perfect Tyre Suppliers is a newly formed locally owned company seeking to enter the motor

accessory markets where it will supply two types of tyres namely: Michelin and Tornado. The

demand for tyres will fluctuate depending on the state of the economy. It will employ 20

employees at its manufacturing plant performing different functions. The Managing Director

recently attended an international conference on risk management. During the conference it

was stated how the statistical concept of standard deviation can be used to measure risk. He

has therefore contracted you as the management accountant with the aim of exploring how the use of standard deviation can help him make decisions pertaining to the risk profile of each tyre type.

The following probability distribution has been provided by the managing director based on his industry experience:

A company is considering the launch of a new 5G mobile phone. Experience from the sale of

previous models has shown that the expected life of the new model is three years and life

cycle sales will total 25 million units. Sales volumes over the life cycle of the product will follow

the pattern shown below.

• Year 1 – 30%

• Year 2 – 40%

• Year 3- 30%

The company’s research and development division, which has an annual budget of N$35

million has developed a prototype of the 5G phone. A further investment of N$600 million in a

new manufacturing facility will be required at the start of year 1 to put the new model into

production. The new model will be marketed at a premium price of N$300 per unit throughout

the life of the model.

The 5G model will be produced exclusively in the new manufacturing facility. The total fixed

manufacturing costs will be N$300 million per year excluding depreciation. It is also anticipated

that a further N$150 million will be spent in each of years 1 and 2 and N$100 million in year

3, on further deve!opment and marketing of the new model. The variable cost per unit will be

N$125 and this is expected to remain the same throughout the life of the model. It is estimated

that the launch of the new model will result in a reduction in sales of the current 4G model of

2 million units in the first year after which there will no longer be a market for the 4G model. It

was never anticipated that there would be a market for the 4G model after this period. The

contribution per unit of the 4G model is N$100

Netflix is the world’s leading streaming entertainment service with over 209 million subscribers

in over 190 countries (July 2021 ). Netflix started in 1997 as a DVD mail rental business. In

2007, the company shifted its business model and decided to go digital with the introduction

of streaming media. Customers can now access a wide range of movies, TV series, and

original Netflix content for an affordable, no-commitment monthly fee.

Netflix is considering launching a new, innovative product onto the Namibian market and is

trying to decide on the right launch price for the product. The product’s expected life is three

years. Given the high level of costs which have been incurred in developing the product, Netflix

wants to ensure that it sets its price at the right level and has therefore consulted a market

research company to help it do this. The research, which relates to similar but not identical

products launched by other companies, has revealed that at a price of N$60, annual demand

would be expected to be 250 000 units. However, for every N$2 increase in selling price,

demand would be expected to fall by 2 000 units, and for every N$2 decrease in selling price, demand would be expected to increase by 2 000 units.

The Portable Garage Co (PGC) is a company specialising in the manufacture and sale of a

range of products for motorists. It is split into two divisions: the battery division (Division B)

and the adaptor division (Division A). Division B sells one product – portable battery chargers

for motorists which can be attached to a car’s own battery and used to start up the engine

when the car’s own battery fails. Division A sells adaptors which are used by customers to

charge mobile devices and laptops by attaching them to the car’s internal power source.

Recently, Division B has upgraded its portable battery so it can also be used to rapidly charge

mobile devices and laptops. The mobile device or laptop must be attached to the battery using

a special adaptor which is supplied to the customer with the battery. Division B currently buys

the adaptors from Division A, which also sells them externally to other companies.

The following data is available for both divisions:

Division B

Selling price for each portable battery, includinq adaptor N$180

Costs per batterv:

Adaptor from Division A N$13

Other materials from external suooliers N$45

Labour costs N$35

Annual fixed overheads