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CIMA P2 - Advanced Management Accounting

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Total 202 questions

Which of the following statements are correct with regard to responsibility centres?

Select ALL that apply.

A.

Revenue centre managers have a lower level of decision-making authority than profit centre managers.

B.

Revenue centre managers and profit centre managers are accountable for controllable costs only.

C.

Profit centre managers and investment centre managers are responsible for the majority of operating costs incurred.

D.

Investment centre managers have a higher level of managerial authority than profit centre managers.

E.

Managers of profit centres have authority over the level of investment in working capital but managers of cost centres do not.

A company is investing $150,000 in a project which will yield an annual cash inflow of $40,000 for eight years. The company's cost of capital is 10%.

To the nearest $100, what is the project's equivalent annual net present value?

A.

$11,900

B.

$7,900

C.

$63,400

D.

$21,300

In order to remain competitive an organization wishes to achieve cost savings for one of its existing products.

Which of the following correctly describes methods which the organization can use to achieve these cost savings?

Select ALL that apply.

A.

Functional analysis is carried out only on existing products and is concerned only with minimizing the cost of the originally defined functions of a product.

B.

Value engineering is a fundamental rethinking and radical redesign of an organization's existing processes.

C.

Target costing is continuously setting new stretch targets while the product is in production.

D.

Value analysis is examining a product's costs in order to achieve its purpose at a reduced cost while maintaining its reliability and quality.

E.

Kaizen costing is seeking to make cost savings by continuously making small incremental cost reductions while the product is in production.

A company is determining the selling price for its new product.

At a selling price of $16 per unit there will be zero demand but for every $1 reduction in the price, demand will increase by 100 units per period.

Production must be in batches of 100 units. The variable cost per unit will be $8 if 400 units are produced in a period. For each additional batch produced in a period the variable cost per unit will increase by $1 per unit for the additional batch only.

No inventories will be held.

Which of the following sales and production volumes will generate the highest contribution per period?

A.

400 units

B.

500 units

C.

600 units

D.

700 units

The performance of an investment centre manager is assessed by return on investment (ROI) alone. At present, his expected ROI for next year is 15%. The manager must now decide whether to invest in a new project that is expected to yield an ROI of 14%. The cost of capital is 12%.

Indicate whether each of the following statements is true or false.

Which of the following factors would prevent a learning curve being observed for a task?

A.

The task has a significant automated element.

B.

The task is repetitive.

C.

The task has a significant manual element.

D.

There is a low rate of labor turnover of the staff carrying out the task.

Which of the following statements is true?

A.

Risk transfer means the management of a portfolio of different risks.

B.

Insuring risks means that businesses will not need to take any measures to reduce those risks.

C.

High frequency, high severity risks are always strategic risks.

D.

Risk hedging is taking action to offset one risk by incurring a new risk in the opposite direction.

Division A is an investment centre with assets of $7.3 million. The following is an extract from the annual budget for division A:

The cost of capital is 14%.

Calculate the residual income for division A.

A.

$808,000

B.

$1,727,800

C.

$358,000

D.

$2,008,000

SkillWeave Industries are focused on managing the risk of selling their cars to the region due to economic turmoil, and have now begun using funds from sales in the region to fund supplier purchases from that region to

reduce the risk from the volatile currency. However, SkillWeave want to go a step further and make the risk even less sizeable.

Which of the following is a method by which SkillWeave can operate in the market and transfer the risk of exchange rate exposure to another party?

A.

Invoice international sales in domestic currency

B.

Temporarily stop operating in that target market

C.

Arrange a forward foreign exchange rate contract agreeing to buy a given amount of the foreign currency in 3 months time for a fixed exchange rate based on current rates

D.

Put a sale on all vehicles stationed in the region to clear stock quickly

A company has a maximum of $2 million to invest and has identified four viable projects, E, F, G and H.

The initial investment for each of the projects is the maximum amount that can be invested in the project, but any amount up to the maximum can be invested. The projects are divisible.

The projects have been evaluated using net present value, as below. All figures are $ millions.

In which project should the company invest $2 million?

A.

Project E

B.

Project F

C.

Project G

D.

Project H