CIMA Management P2 Real Exam Questions and Answers FREE Updated on Oct 17, 2021
P2 Ultimate Study Guide - DumpsMaterials
NEW QUESTION 19
Which of the following is a valid objective of a transfer pricing system?
- A. To develop a top-down culture
- B. To maintain head office control
- C. To establish centralised decision making
- D. To achieve divisional autonomy
Answer: D
NEW QUESTION 20
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 21
An organization has a decentralized structure in which division A supplies division B with an intermediate product for which there is no external market. Division B carries out further processing and then sells the final product on the external market. Due to organizational policy the current transfer pricing basis is variable cost.
The manager of division A has stated, "The current transfer price is unfair because it does not enable us to recoup our costs".
The manager of division B has stated, "The current transfer pricing system enables us to quote competitive prices for the finished product".
The Chief Executive of the organization is considering imposing a transfer pricing policy that uses dual pricing.
Dual pricing would:
- A. involve a lump sum payment to division A in addition to the payment of the variable cost per unit.
- B. increase divisional autonomy.
- C. be welcomed by both divisional managers.
- D. be welcomed by the manager of division A but the manager of division B would resist it.
Answer: C
NEW QUESTION 22
A company classifies its main factory as an investment centre. Categorise each of the following costs as either controllable or uncontrollable by the investment centre manager.
Answer:
Explanation:
NEW QUESTION 23
Which of the following are TRUE about the theory of constraints? Select ALL that apply.
- A. Ensure that each constraint is being used efficiently
- B. Relieve constraints until the cost of relieving the last constraint exceeds the benefit
- C. Relieve all the constraints in a system simultaneously to ensure optimality
- D. Each resource should be put to its most profitable use
Answer: A,B,D
NEW QUESTION 24
TTR Ltd plans to purchase a new plant for $1,000m on the 1st of January 20X6. The annual sales expected from the production of this plant is S400m per year. The plant has an expected life of five years. The financial accountant has computed the NPV of the project at $61.42m considering a discount rate of 10%.
The marketing director wants to know the percentage drop in revenue that the sales team can afford before the project becomes unviable. Which of the following indicates the percentage required by the marketing director?
- A. 4.05%
- B. 10%
- C. 5.05%
- D. 4.5%
Answer: A
NEW QUESTION 25
Endure Co. makes 1,000 units ofX and 2,000 units of Y.
Costs for X: Material $4, labour $8, direct overhead $2, fixed cost $4.
Costs for Y: Material $9, labour $9, direct overhead $4, fixed cost $6.
Selling price for X and Y are S19 and $25 respectively. Another company can sell ready made product X and product Y's to Endure Co, this company sells X at $12 and Y at $21. Advise Endure Co. on what would be the most cost effective way to source products X and Y.
- A. Endure should buy X and Yfrom the other supplier.
- B. Endure should buy Y but produce X themselves.
- C. Endure should buy X but produce Y themselves.
- D. Endure should produce both X and Y themselves.
Answer: A
NEW QUESTION 26
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 27
One of a company's products is sold to three customers: A, B and C. These customers do not buy anything else from the company. The product costs $20 per unit to manufacture and is sold to the customers for $50 per unit.
The following table shows data for sales and selling costs for the latest period.
Delivery costs of $32,000 and general overheads of $60,000 were incurred during the period.
Deliveries to customers A and B were made by a courier in batches of 100 units; the courier charged
$300 for each batch delivered to customer A and $400 for each batch delivered to customer B.
Deliveries to customer C were made by mail in batches of 10 units at a cost of $60 per batch.
Which of the following statements is correct?
- A. Customer A has the highest sales revenue, the highest profit, and the highest profit:sales ratio
- B. Customers B and C have the same profit:sales ratio.
- C. Customer B has the lowest sales revenue, the lowest profit, and the lowest profit:sales ratio.
- D. Customer B has the highest profit:sales ratio.
Answer: D
NEW QUESTION 28
A project has a positive net present value (NPV) when discounted at a company's weighted average cost of capital (WACC). The project has also been evaluated using a range of other investment appraisal techniques.
It has now been recognized that the project is of much higher risk than the average risk of the company's existing portfolio of projects. It has therefore been decided that the discount rate to be used when evaluating this project should be the WACC adjusted for risk.
As the result of changing the discount rate as described, which of following statements are correct?
Select ALL that apply.
- A. The net present value would increase.
- B. The accounting rate of return would decrease.
- C. The net present value would decrease.
- D. The profitability index would remain unchanged.
- E. The internal rate of return would remain unchanged.
- F. The internal rate of return would decrease.
Answer: C,E
NEW QUESTION 29
A manager must decide which one of three projects should be implemented. For each project the possible outcomes and their associated probabilities can be estimated reliably. The manager has decided to make the decision based solely on which project has the highest expected value of profit.
Which of the following statements are correct?
Select ALL that apply.
- A. The decision is characterized by risk and the manager is risk neutral.
- B. The decision is characterized by uncertainty and the manager is risk seeking.
- C. The range of possible outcomes for each project is not important to the manager.
- D. The manager will select the project with the highest of all of the possible outcomes.
- E. The manager will select the project with the lowest standard deviation.
Answer: A,C
NEW QUESTION 30
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 31
SDF makes cars. Demand for one of SDF's most popular models has declined because of a long-running television program. SDF's car is driven by a villainous character in the program and that has created such a negative association that sales have declined so significantly that SDF is planning to discontinue production.
Which of the following statements is correct? Select ALL that apply.
- A. SDF's board should accept full responsibility for permitting this to happen.
- B. SDF's sales department should have prevented the television production company from buying the car.
- C. Business risks can arise from unexpected events.
- D. The use of a product in a television program can create upside risks.
- E. SDF should have considered the possibility that sales of this car could be affected by public perception, even though the car's practical attributes are unchanged.
Answer: C,D,E
NEW QUESTION 32
Residual income is an appropriate performance measure for which type of responsibility centre?
- A. Profit centre
- B. Revenue centre
- C. Investment centre
- D. Cost centre
Answer: C
NEW QUESTION 33
A not-for-profit organization measures performance using the three Es. If the organization has made optimum utilization of available resources then it should be described as:
- A. Economic
- B. Efficient
- C. Effective
- D. Enterprising
Answer: B
NEW QUESTION 34
GHY has two subsidiaries. GHY-Motor manufactures car engines and GHY-Build designs and assembles cars. In the car industry it is common for manufacturers to buy parts, including engines, from other manufacturers.
GHY has granted GHY-Motor and GHY-Build full autonomy. GHY-Build is considering using an engine from another company for a new model that it is designing. GYY-Motor has a suitable engine, but it charges more than GHY-Build's preferred supplier.
Which of the following statements is correct? Select ALL that apply.
- A. GHY should consider permitting GHY-Motor to charge part of the selling price on engines sold to GHY- Build to head office.
- B. There could be significant non-financial issues associated with GHY-Build's decision to buy another engine.
- C. Parent companies should never grant subsidiaries full autonomy on matters such as intra-group sales.
- D. Forcing GHY-Motor to grant a discount to GHY-Build could lead to dysfunctional behavior.
- E. The threat of dysfunctional behavior is largely theoretical and managers can be trusted to maximise shareholder wealth.
Answer: A,B,D
NEW QUESTION 35
An organization is comprised of two divisions. One of the divisions manufactures a product that it sells both to an imperfect external market and to the other division.
The organization wishes to establish the most suitable basis for the transfer price for this product and is considering either a negotiated transfer price or a market-based transfer price.
Which of the following statements is correct?
- A. A market-based transfer price will ensure both divisional autonomy and goal congruence because part of the division's output is sold to the external market.
- B. A single market price for all of the division's output can be determined easily whereas a negotiated transfer price may result in protracted negotiations.
- C. A negotiated transfer price will always result in goal congruence whereas this is not always true when using a single market-based transfer price.
- D. A negotiated transfer price could help to overcome the problem of establishing a single price for this external market.
Answer: D
NEW QUESTION 36
The following forecast data relate to the first three years of a five year project.
The project will require an initial investment of $30,000 in non-current assets.
All revenue will be received in the year it is earned and all operating costs will be paid in the year they are incurred. Tax will be paid in the following year.
Tax depreciation will be 25% per annum of the reducing balance.
The taxation rate will be 30% of taxable profits.
What is the forecast after tax cash flow for year 3 (to the nearest $10)?
- A. $38,500
- B. $39,750
- C. $45,890
- D. $46,000
Answer: C
NEW QUESTION 37
An airline prides itself on using highly reliable aircraft that are maintained to the highest possible standard and that its flight crews are arguably the best in the industry. Despite that, the directors accept that there remains a slight possibility that there will be a fatal accident.
Which THREE of the following statements are correct?
- A. The airline should cease operations in order to eliminate the risk of a fatal accident.
- B. The airline appears to be behaving responsibly.
- C. Fatal air accidents can be justified on the basis that some risk is inevitable.
- D. It is unlikely that any airline could totally eliminate all possibility of a fatal accident.
- E. The airline's directors can justify their behavior on the basis that they insist on exceeding all relevant statutory and industry safety standards.
Answer: B,D,E
NEW QUESTION 38
The following data are available for a division for the latest period.
What is the division's residual income for the period?
- A. $3,000
- B. 12.50%
- C. 31.25%
- D. $36,000
Answer: A
NEW QUESTION 39
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