CIMA P2 - Advanced Management Accounting

The Chief Executive of a large manufacturing company has made the following comment.

"All of our competitors are using both just-in-time(JIT) and Total Quality Management (TQM) whereas we have never used either. Consequently we are lagging behind our competitors because their levels of inventory and quality costs are significantly below ours. I want to see JIT fully implemented, both for purchasing and for production, in 4 weeks' time and TQM fully implemented 4 weeks after that."

Which of the following provide appropriate advice to the Chief Executive?

Select ALL that apply.

A company is considering investing $680,000 in a machine to manufacture a new product. A consultant has been appointed to advise on the investment and the company is committed to paying $10,000 to the consultant in year 1, even if the project does not go ahead.

300,000 units of the new product will be produced and sold each year. Unit cost and revenue information based on this level of output is as follows.

60% of the overhead cost is variable. Of the remainder, 10% consists of allocated head office overheads.

The selling price will increase by 2% each year in line with inflation, beginning in year 2. Fixed price contracts mean that all unit costs will remain unaltered.

Taxation information:

• 100% first year allowance will be available for the purchase of the machinery.

• The taxation rate is 30% of taxable profits, payable in the year after that in which the liability arises.

For the purpose of deciding whether to proceed with the investment, what is the relevant cash flow in year 2?

An organization is competing in the high technology market. It sets a high sales price for its products initially to target the early adopters, and then the price is gradually reduced.

This pricing strategy is known as:

A company operates a divisional structure. The manager of division D receives a bonus based on the division's annual return on capital employed (ROCE).

A minimum ROCE of 20% must be achieved to receive any bonus and thereafter the bonus increases in line with increases in ROCE.

This year division D achieved a ROCE of 24% and the divisional manager received a large bonus.

The manager is considering an investment in a new machine for next year. The incremental ROCE earned by the machine is expected to be 19% although the ROCE for the division as a whole with the machine is expected to be 22%. Without the machine, ROCE is likely to be stable at 24%.

The cost of capital for the company as a whole is 18% per year.

Which of the following statements is correct?

An organization produces only two products. Each month it produces 1,000 units of product A and 10,000 units of product B.

Using traditional absorption costing the products have very similar unit costs. However when costs are calculated using activity-based costing (ABC), product A's unit cost is significantly higher than that of product B.

Which of the following factors has the potential to cause this difference?

Select ALL that apply.

An organization wants to increase the use value that customers place on one of its products - a laptop computer.

Which of the following actions, taken to increase the value to the customer, would increase the product's use value?

Select ALL that apply.

The following calculation of the net present value (NPV) of a project has been produced.

By how much can the forecast revenue decrease before the project is not viable?

During a Board meeting at a manufacturing company, concerns regarding the analysing of the current inventory management systems and processes are brought up.

Attendees of the meeting have made several claims and suggestions but the managing director admits that he does not know who to believe and so has asked you to let him know which statements of the following

statements are TRUE?

Select ALL that apply.

S is considering launching a new product.

The variable costs of manufacturing the product will be $6 per unit.

The product must be manufactured in batches of 2,000 units. The machine set up cost for each batch will be $4,000.

Maximum capacity will be 8,000 units each year.

Market research has shown that the unit selling price will affect the demand for the product as follows.

Which unit selling price will maximise annual profit?

For a pharmaceutical manufacturer, in which perspective of the Balanced Scorecard should the performance measure 'number of patents granted during the year' be included?