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Preparations of P2 Exam 2021 CIMA Management Unlimited 205 Questions

NEW QUESTION 41
Which of the following criticisms relate to traditional budgeting methods and which relate to the
'beyond budgeting' approach?

Answer:

Explanation:

 

NEW QUESTION 42
Using Porter's value chain, place the tokens to correctly categories the following activities of a manufacturing company.

Answer:

Explanation:

 

NEW QUESTION 43
Which of the following statements is TRUE about the activity based costing system when compared to absorption costing method?

• A. ABC is easier to administer than an absorption costing system
• B. ABC will provide more accurate overhead allocation than absorption costing
• C. ABC will be less detailed than an absorption costing system
• D. ABC will cost less to administer than an absorption costing system

Answer: B

 

NEW QUESTION 44
An electronics company sells a range of tablet computers. Tablet computers come complete with an operating system that is regarded as the market leader. The company aims to launch a new version of its hardware every eighteen months and a major update to its software every three years. The latest version of the tablet computer is always sold at a higher price, but the older version that has been replaced is then sold for a time at a discounted price.
Which pricing model does this company appear to be using?

• A. Skimming and loss leader pricing
• B. Penetration and loss leader pricing
• C. Penetration and product bundling
• D. Skimming and product bundling

Answer: D

 

NEW QUESTION 45
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 F
• B. Project E
• C. Project G
• D. Project H

Answer: A

 

NEW QUESTION 46
An 80% learning curve will apply to the production of a new product. The first unit will require 120 labor hours. The labor rate is $11 per hour.
To the nearest $1, the expected total labor cost for the first 4 units is:

• A. $4,224
• B. $5,280
• C. $845
• D. $3,379

Answer: D

 

NEW QUESTION 47
If transfer prices are set at variable costs, the supplying division does not cover its fixed costs.
Which of the following does NOT resolve this problem?

• A. A system of dual pricing can be adopted.
• B. Each division can be given a share of the overall contribution earned by the organization.
• C. Reduce the level of fixed costs.
• D. Central management can impose a range within which the transfer price should fall.

Answer: C

 

NEW QUESTION 48
The discount rate at which the net present value (NPV) is zero is known as the

• A. internal rate of return
• B. breakeven point
• C. accounting rate of return
• D. risk adjusted discount rate

Answer: A

 

NEW QUESTION 49
We have 2 divisions with the following information: Profit before depreciation: B1=$800,000, B2=S1,000,000; Assets: B1 =$2,000,000, B2=S3,000,000; Capital employed: B1 = $1,700,000 and B2 =
$2,550,000. 20%
straight-line depreciation is used.
Calculate ROI for each division.

• A. ROI for B1 is 25.5% and ROI for B2 is 17.7%
• B. ROI for B1 is 23.5% and ROI for B2 is 23.5%
• C. ROI for B1 is 47% and ROI for B2 is 39.2%
• D. ROI for B1 is 23.5% and ROI for B2 is 15.7%

Answer: D

 

NEW QUESTION 50
A company's competitor has just launched a rival product at a selling price of $38 per unit. Until now the company's selling price of $41.60 per unit has achieved a 30% mark-up on the product's unit cost. The company proposes to use a target costing approach to pricing to remain competitive.
Management has decided to match the competitor's selling price and has set a target cost to achieve a
20% return on the target price.
What is the cost gap?

• A. $0.33
• B. $1.60
• C. $1.28
• D. $3.60

Answer: B

 

NEW QUESTION 51
A goal congruent transfer price will always:

• A. motivate divisional managers by maximising divisional autonomy.
• B. align the decision making of divisional managers with the maximization of divisional profit.
• C. align the decision making of divisional managers with the objectives of the organization as a whole.
• D. ensure that profits are shared equally between the supplying and receiving divisions.

Answer: C

 

NEW QUESTION 52
Juan is looking to invest in the mining industry. He has narrowed his options down to two rival companies, both with sales of £200m. Company A has an EBIT of £10m whereas Company B has an EBIT of £14m.
This would suggest that Company B is the better investment but Juan is suspicious that Company B has more financial backing than Company A.
Which ratios will tell him which company will use his investment the best?

• A. Quick ratio
• B. Profit margin
• C. R.O.C.E
• D. Current ratio

Answer: B,C

 

NEW QUESTION 53
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.

• A. Standard costing is ideal for organisations in a TQM environment
• B. A JIT system is likely to result in economies of scale
• C. ABC is ideal for organisations running a JIT inventory system
• D. Standard Costing is ideal for organisations running a JIT inventory system
• E. A JIT inventory system reduces inventory costs

Answer: A,C

 

NEW QUESTION 54
A learning curve applies to the manufacture of the first 256 units of a product.
During the manufacture of the first 255 units, the time taken to produce each successive unit is expected to:

• A. Reduce at a decreasing rate.
• B. Reduce at an increasing rate.
• C. Reach the steady state.
• D. Reduce at a constant rate.

Answer: A

 

NEW QUESTION 55
A manufacturing company has recently introduced a Total Quality Management (TQM) system. The company has invested heavily in the education and training of its staff, in addition to implementing new product design engineering. There is a plan to sample units from each batch of products manufactured to test for errors, although this has not yet been implemented due to budget constraints.
The company is experiencing high levels of customer complaints, with many faulty units being returned by the customer for refund or replacement. Sales revenue has fallen recently, mainly due to negative press coverage linked to dissatisfied customers.
Select the statement MOST likely to apply.

• A. The high level of internal failure costs is the result of a lack of expenditure on prevention costs.
• B. The high level of internal failure costs is the result of a lack of expenditure on appraisal costs.
• C. The high level of external failure costs is the result of a lack of expenditure on appraisal costs.
• D. The high level of external failure costs is the result of a lack of expenditure on prevention costs.

Answer: C

 

NEW QUESTION 56
Which of the following correctly defines the expected value of a project?

• A. The present value of the positive cash flows that the project will generate.
• B. The most likely amount of incremental wealth that the project will generate.
• C. The weighted average of the possible outcomes of the project.
• D. The actual amount of incremental wealth that the project will generate.

Answer: C

 

NEW QUESTION 57
Three years ago the large number of faulty products being returned by its customers resulted in a company adopting total quality management (TQM). The company has increased expenditure on staff training and product inspections. This has resulted in a reduction in the number of faulty products returned.
Which of the following statements is correct?

• A. Spending more on conformance costs has resulted in a reduction in external failure costs.
• B. Spending more on conformance costs has resulted in a reduction in internal failure costs.
• C. Spending more on non-conformance costs has resulted in a reduction in conformance costs.
• D. Spending more on prevention costs has resulted in a reduction in appraisal costs.

Answer: A

 

NEW QUESTION 58
A manufacturing company sells a large range of products. Forecast data for the next period for one of these products are as follows.

After manufacture, each complete batch must be stored in a local warehouse until it is subsequently sent to the company's main national warehouse. The company does not own a local warehouse. A local warehouse with a maximum capacity of 500 units could be rented for $2,450 for the next period.
Alternatively a larger local warehouse with a maximum capacity of 700 units could be rented for $3,430 for the next period.The company will not begin the manufacture of any new batch until the previous batch has been sent to its main national warehouse.
What would be the change in the total cost of set up and storage if the batch size was changed to 600 units?
Give your answer to the nearest whole $.

Answer:

Explanation:
$3770

 

NEW QUESTION 59
A company currently absorbs production overheads based on labor hours. The overheads absorbed by the two products that are made, L and M, are $4 per unit and $10 per unit respectively. These were based on the budgeted overheads of $7,000 and budgeted labor hours of 1,750. The budgeted output was 500 units of each product.
The company is investigating the use of activity based costing (ABC). Analysis has shown that the total production overheads of $7,000 are made up of $4,000 for set up costs and $3,000 for inspection costs.
The cost driver for set up costs is the number of set ups and for inspection costs it is the number of inspections.
The cost driver rate for set ups is $160 per set up. Product L would need 5 production runs. Both types of product would need 1 set up for each production run.
Product L would need 2 inspections for each production run. Product M would need 1 inspection per production run.
The products are made in the same department and use the same equipment and staff but they are produced separately.
Which of the following statements are correct?
Select ALL that apply.

• A. If ABC was used, set up costs per unit of Product M would be $4.00.
• B. The current production overhead absorption rate is $4.00 per hour.
• C. The current production overhead absorption rate is $500 per hour.
• D. If ABC was used, inspection costs per unit of Product M would be $4.00.
• E. If ABC was used, set up costs per unit of Product L would be $1.60.
• F. If ABC was used, inspection costs per unit of Product L would be $4.00.

Answer: B,D,E

 

NEW QUESTION 60
A project with a 6 year life generates a positive net present value of $1,100. The discount rate is 8%.
To the nearest $, the equivalent annual benefit is:

• A. $238
• B. $177
• C. $5,085
• D. $693

Answer: A

 

NEW QUESTION 61
A senior manager is concerned about the dysfunctional consequences of a company's current approach to budget preparation. The senior manager has discovered that budget holders are carrying budgetary slack forward from one period to the next without this being identified or challenged.
Which of the following approaches to budget preparation is the company using?

• A. Zero-based budgeting
• B. Activity-based budgeting
• C. Incremental budgeting
• D. Beyond budgeting

Answer: C

 

NEW QUESTION 62
A large manufacturing company sells a range of products. Details of one of these products are as follows.

Each completed batch is delivered immediately in full to the one customer that purchases this product.
The delivery vehicle is currently only 50% full when it makes these deliveries. The customer will accept deliveries of any size.
Managers are considering changing the production batch size to 150 units.
Increased material storage would be needed; this can be rented nearby at a cost of $1,500 per month.
The additional storage facility would enable an increase in the reorder quantity for the materials. As a result a 5% discount would be received on all materials purchased.
Using direct product profitability (DPP), what will be the monthly profit attributable to the product if the production batch size is changed to 150 units?
Give your answer to the nearest whole $.

Answer:

Explanation:
$23780

 

NEW QUESTION 63
IOP's product is manufactured using a production process that is known to have a defect rate of 10%.
IOP's quality control department has developed a test that has a 98% probability of classifying a non- defective item correctly and a 2% probability of classifying a non-defective item as defective.
The same test has a 95% probability of classifying a defective item correctly and a 5% probability of classifying a defective item as non-defective.
Calculate the proportion of IOP's output that will be classified as non-defective by the quality control department's test.
Give your answer to one decimal place.

Answer:

Explanation:
99.4 %

 

NEW QUESTION 64
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?

• A. The manager will reject the investment because it will result in a lower bonus than without the investment.
• B. The manager will accept the investment because it will earn a ROCE that is higher than the company's cost of capital.
• C. The manager will reject the investment because it will result in the receipt of no bonus.
• D. The manager will accept the investment because overall the division will earn a ROCE that exceeds the minimum target of 20%.

Answer: A

 

NEW QUESTION 65
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