Cima Study Text Management Paper P2 Advanced Management Accounting Study Text For Exams In 2015 1st Edition Bpp Learning Media - Solutions

The VWXYZ Company produces a variety of high-quality garden furniture and associated items, mostly in wood and wrought iron.There is potential to expand the business. The directors have identified three main options for a four-year plan.(a) Expand its flourishing retail outlet to include all
An organisation with a cost of capital of 14% is considering investing in a project costing $500,000 that would yield cash inflows of $100,000 pa in perpetuity.Required Choose the appropriate words from those highlighted in the sentence below.The project should be/should not be undertaken.
What is the present value of $2,000 costs incurred each year from years 3–6 when the cost of capital is 5%?A $6,300 B $6,434 C $6,000 D $4,706
LCH manufactures product X which it sells for $5 per unit. Variable costs of production are currently $3 per unit, and fixed costs 50c per unit. A new machine is available which would cost $90,000 but which could be used to make product X for a variable cost of only $2.50 per unit. Fixed costs,
The present value of the future returns, discounted at ......, is ............ This means that if Spender can invest now to earn a return of ....... on its investments, it would have to invest ............ now to earn........... after 2 years plus .............. after 3 years.
Spender expects the cash inflow from an investment to be $40,000 after 2 years and another $30,000 after 3 years. Its target rate of return is 12%.Required Fill in the blank in the sentence below.The present value of these future returns is $.................. .
A company is considering two capital expenditure proposals. Both proposals are for similar products and both are expected to operate for four years. Only one proposal can be accepted.The following information is available.Depreciation is charged on the straight line basis.Required (a) Calculate the
Choose the correct words from those highlighted.The more head office has to impose its own decisions on profit centres, the more/less decentralisation of authority there will be and the more/less effective the profit centre system of accounting will be for motivating divisional managers.
In which of the following circumstances is there a strong argument that profit centre accounting is a waste of time?A When the transferred item is also sold on an external market B When the supplying division is based in a different country to head office C If the transferred item is a major
Transfer prices based on standard cost provide an incentive for the receiving division to control costs.True or false?
Choose the correct words from those highlighted.Taxation on profits in country C is charged at a higher rate than in country D. When goods are transferred from a subsidiary in country C to a subsidiary in country D it would be beneficial, from the point of view of the whole organisation, to charge
Choose the correct words from those highlighted.When transfer prices are based on opportunity costs, opportunity costs are either the (1)contribution/profit forgone by the (2) receiving/supplying division in transferring (3) internally/externally rather than (4) selling externally/transferring
Profits are maximised when marginal cost is equal to marginal revenue. True or false?
Division P transfers its output to Division Q at variable cost. Once a year P charges a fixed fee to Q, representing an allowance for P's fixed costs. This type of transfer pricing system is commonly known as A Dual pricing B Negotiated transfer pricing C Opportunity cost based transfer pricing D
Fill in the gaps.Market value as a transfer price has certain disadvantages.(a) The market price might be ……………….., induced by adverse economic conditions, say.(b) There might be an ……………….. external market, so that if the transferring division tried to sell more externally,
Put ticks in the appropriate column to highlight whether or not a transfer price should fulfil each of the following criteria.
You should try to learn the above rules, and refer back to the appropriate part of the chapter if you are not sure about any point. Read through the rules again and then answer these questions.(a) In what situation should the transfer price be the external market price?(b) How should the transfer
Divisions J and A are in M Group. Division J manufactures part N. Three units of part N are used in product Z manufactured by Division A. Division J has no external customers for part N. Division J transfers part N to Division A at variable cost ($35 per part) plus 50%. The variable cost to
Explain how the following figures are calculated, or arrived at.(a) Example 6.1 – T net revenues(b) Example 6.1 Discussion and solution (b) – Division S marginal costs(c) Example 6.1 Discussion and solution (b) – Division T net marginal revenue(d) Example 6.1 – a transfer price of $2.10 per
Company H has reported annual profits for 20X7 of $83.4m. This is after charging $8.3m for development costs of a new product that is expected to last for the current year and two more years. The cost of capital is 12% per annum. Fixed assets have a historical cost of $110m and the replacement cost
EVA® is calculated as operating profit less a capital charge. True or false?
Choose the correct words from those highlighted.If accounting ROI is used as a guideline for investment decisions, it should be/should not be looked at over the full life of the investment. In the short term, the accounting ROI is likely to be high/low because the net book value of the asset will
'The use of residual income in performance measurement will avoid dysfunctional decision making because it will always lead to the correct decision concerning capital investments.' True or false?
An investment centre with capital employed of $570,000 is budgeted to earn a profit of $119,700 next year. A proposed non-current asset investment of $50,000, not included in the budget at present will earn a profit next year of $8,500 after depreciation. The company's cost of capital is 15%. What
Choose the correct words from those highlighted.ROI based on profits as a % of net assets employed will (1) increase/decrease as an asset gets older and its book value (2) increases/reduces. This could therefore create an (3) incentive/disincentive to investment centre managers to reinvest in new
Choose the correct words from those highlighted.In general, a current ratio in excess of 1/less than 1/approximately zero should be expected.
Give five examples of a financial performance measure. ……………………….  ………………………. ……………………….  ………………………. ……………………….
A division with capital employed of $400,000 currently earns an ROI of 22%. It can make an additional investment of $50,000 for a 5-year life with nil residual value. The average net profit from this investment would be $12,000 after depreciation. The division's cost of capital is 14%.What are the
Repeat Question 6.4: ROI calculation (1), measuring ROI as return on gross assets.
A new company has non-current assets of £460,000 which will be depreciated to nil on a straight-line basis over 10 years. Net current assets will consistently be £75,000, and annual profit will consistently be £30,000. ROI is measured as return on net assets.Required Calculate the company's ROI
Calculate liquidity and working capital ratios from the accounts of a manufacturer of products for the construction industry, and comment on the ratios.
Which of the following definitions is/are correct?1 An imposed budget is a budget which, by recognising different cost behaviour patterns, is designed to change as the volume of activity changes 2 Bottom-up budgeting is a process where all budget holders have the opportunity to participate A
Which of the following is not consistent with the concepts of the Beyond Budgeting approach?A Continuous forecasting B Participative planning C Centralised decision making D Relative performance measures
For each organisation there is an ideal solution to the conflicts caused by the operation of a budgetary control system and it is the responsibility of the management accountant to find that solution. True or false?
What is goal congruence (in terms of organisational control systems)?A When the goals of management and employees harmonise with the goals of the organisation as a whole B When the goals of management harmonise with the goals of employees C When the work-related goals of management harmonise with
Not all fixed costs are non-controllable in the short term. True or false?
Choose the appropriate words from those highlighted.The correct approach to budgetary control is to compare actual/budgeted results with a budget that has been flexed to the actual/budgeted level of activity.
In the context of a balanced scorecard approach to performance measurement, to which of the four perspectives does each measure relate?Performance measure Perspective(a) Time taken to develop new products …………………….(b) Percentage of on-time deliveries …………………….(c)
Choose the appropriate words from those highlighted.An expectations/aspirations budget would be most useful for the purposes of planning and decision making based on reasonable expectations, whereas an aspirations/expectations budget is more appropriate for improving motivation by setting targets
Match the descriptions to the budgeting style.Description(a) Budget allowances are set without the involvement of the budget holder(b) All budget holders are involved in setting their own budgets(c) Budget allowances are set on the basis of discussions between budget holders and those to whom they
What is the controllability principle?
An extract of the costs incurred at two different activity levels is shown. Classify the costs according to their behaviour patterns and show the budget cost allowance for an activity of 1,500 units.Budget cost allowance 1,000 units 2,000 units Type of cost for 1,500 units$ $ $(a) Fuel 3,000 6,000
Fill in the blanks.A flexible budget is a budget which, by recognising ……………………………., is designed to……………………………. as the level of activity changes.
In what circumstances might participative budgets not be effective?A In centralised organisations B In well-established organisations C In very large businesses D During periods of economic affluence 13. Identify THREE criticisms that are levelled at the traditional budgeting process by advocates
If a price is regulated, the elasticity of demand is:A –1 B 0 C 1 D Infinity
'Own label' pricing is a form of psychological pricing. True or false?
Choose the correct word from those highlighted.Market-skimming/penetration pricing should be used if an organisation wishes to discourage new entrants into a market.
Fill in the blank.The ………………. price is the price at which an organisation will break even if it undertakes particular work.
Pricing based on mark-up per unit of limiting factor is particularly useful if an organisation is not working to full capacity. True or false?
A theatre offers a special deal whereby two show tickets and pre-theatre dinner can be purchased as a package for a reduced price. This pricing strategy is usually referred to as A Loss leader pricing B Optional extras C Product bundling D Price discrimination
Fill in the blanks.(a) One of the problems with relying on a full cost-plus approach to pricing is that it fails to recognise that since price may be determining demand, there will be a …………………….. combination of…………. and …………….(b) An advantage of the full cost-plus
At the point of profit maximisation, the gradients of the total cost curve and total revenue curve are the same in absolute terms, but one is positive, one is negative. True or false?
Fill in the blanks.When demand is linear, the equation for the demand curve is P = a – bx where P = …………………….x = …………………….a = …………………….b = …………………….The constant a is calculated as $ (....................) + (
Label the graph with the terms provided.
A company knows that demand for its new product will be highly elastic. The most appropriate pricing strategy for the new product will be market-skimming pricing. True or false?
What are the four stages of the product life cycle?A Appearance, growth, maturity, saturation B Birth, growth, adolescence, old age C Introduction, expansion, maturity, death D Introduction, growth, maturity, saturation and decline
Choose the correct words from those highlighted.The price elasticity of demand for a particular good at the current price is 1.2. Demand for this good at this price is (1) elastic/inelastic. If the price of the good is reduced, total sales revenue will (2)rise/fall/stay the same.
As management accountant to a group of companies manufacturing footwear, you have been asked to consider the following two subjects that are to be discussed at the next group pricing committee meeting.(a) The possibility of differential pricing for different sizes of shoes(b) The levels of prices
JPM is just about to launch a new product.Production capacity means that a maximum of 120 units can be manufactured each week and manufacture must be in batches of ten. The marketing department estimates that at a price of $120 no units will be sold but, for each $3 reduction in prices, ten
A product has the following costs.$Direct materials 5 Direct labour 3 Variable overheads 7 Fixed overheads are $10,000 per month. Budgeted sales per month are 400 units to allow the product to break even.Required Fill in the blank in the sentence below.The mark-up which needs to be added to
A product's full cost is $4.75 and it is sold at full cost plus 70%. A competitor has just launched a similar product selling for $7.99.Required Fill in the gap in the sentence below.The cost-plus percentage will need to be reduced by...... %.
An organisation operates in a market where there is imperfect competition, so that to sell more units of output, it must reduce the sales price of all the units it sells. The following data is available for prices and costs.The total cost of zero output is $600.Required Complete the table below to
AB has used market research to determine that if a price of $250 is charged for product G, demand will be 12,000 units. It has also been established that demand will rise or fall by 5 units for every $1 fall/rise in the selling price. The marginal cost of product G is $80.Required If marginal
Learning outcomes C2(a)Maximum demand for AL's product is 8,000 units per annum. Demand will reduce by 50 units for every$1 increase in the selling price.AL has calculated that the profit-maximising selling price for the coming year will be $10?
A cartel is often formed in which type of market?
Draw a curve of a typical product life cycle.
Life cycle costing is the profiling of cost over a product's production life. True or false?
T plc has developed a new product, the TF8. The time taken to produce the first unit was 18 minutes.Assuming that an 80% learning curve applies, the time allowed for the fifth unit (to 2 decimal places)should be A 5.79 minutes B 7.53 minutes C 10.72 minutes D 11.52 minutes Note. For an 80% learning
A company is about to commence work on a repeat order for a customer. The item to be manufactured is identical to the first order, and it is expected that a 90 per cent learning curve will apply to the labour operations. The time taken to produce the first item was 100 hours. If labour is paid at
In the formula for the learning curve, Yx = aXb, how is the value of b calculated?A Log of the learning rate/log of 2 B Log of 2/learning rate C Learning rate  log of 2 D Log of learning rate/2
The labour time analyses have shown that the learning curve follows the general form Y = aXb Where Y = average labour hours per unit X = cumulative number of units a = number of labour hours for first unit b = the learning index Sciento Products is planning to produce a new version of the V8, the
Sciento Products manufactures complex electronic measuring instruments for which highly skilled labour is required.Analysis of production times has shown that there is a learning curve effect on the labour time required to manufacture each unit and it has been decided to allow for this in
XX is aware that there is a learning effect for the production of one of its new products, but is unsure about the degree of learning. The following data relate to this product.Time taken to produce the first unit 28 direct labour hours Production to date 15 units Cumulative time taken to date 104
BL is planning to produce product A. Development tests suggest that 60% of the variable manufacturing cost of product A will be affected by a learning and experience curve. This learning effect will apply to each unit produced and continue at a constant rate of learning until cumulative production
The value of b when a 90% learning curve applies is –0.0458. True or false?
Fill in the blanks.Functional analysis is an analysis of the relationships between …………………………., their………………………….. and their …………………………..?
Fill in the action to take at each step in a value analysis.
Match the terms to the correct definitions.Terms Cost value Exchange value Use value Esteem value Definitions(a) The prestige the customer attaches to the product(b) The market value of the product(c) What the product does(d) The cost of producing and selling the product
Choose the correct words from those highlighted.Value engineering/analysis is cost avoidance or cost prevention before production whereas value engineering/analysis is cost reduction during production.
Put the three terms below in the correct order to represent (a) the target costing process and (b)traditional costing process. Selling price Cost Profit
BPR can be likened to continuous budgeting. True or false?
Fill in the right hand side of the table below, which looks at the differences between throughput accounting and traditional product costing.
Continuous improvement organisations never engage in radical change. True or false?
Put a tick in the boxes of those statements that relate to Kaizen costing, and a cross for statements about standard costing. Employees are often viewed as the cause of problems. Costs are reduced by implementing continuous improvement. The aim is to meet cost performance targets. The aim is to
Fill in the blanks in the statements below, using the words in the box. Some words may be used twice.(a) The theory of constraints is an approach to production management which aims to maximise(1)…………. less (2)…….. . It focuses on factors such as (3)……………. which act
Choose the appropriate words from those highlighted.JIT purchasing requires small, frequent/large, infrequent deliveries well in advance of/as near as possible to the time the raw materials and parts are needed.In a JIT environment, the responsibility for the quality of goods lies with the
Match the cost to the correct cost category.Costs(a) Administration of quality control(b) Product liability costs(c) Acceptance testing(d) Losses due to lower selling prices for sub-quality goods Cost categories Prevention costs Appraisal costs Internal failure costs External failure
Which of the following is/are correct?(a) Cost of conformance = cost of prevention + cost of internal failure(b) Cost of conformance = cost of internal failure + cost of external failure(c) Cost of non-conformance = cost of internal failure + cost of external failure(d) Cost of conformance = cost
The cost of inspecting a product for quality is a value-added cost. True or false?
What four key words/phrases describe modern manufacturing philosophy?
Growler manufactures computer components. Health and safety regulations mean that one of its processes can only be operated 8 hours a day. The hourly capacity of this process is 500 units per hour.The selling price of each component is $100 and the unit material cost is $40. The daily total of all
Batch sizes within a JIT manufacturing environment may well be smaller than those associated with traditional manufacturing systems.What costs might be associated with this feature of JIT?1 Increased set-up costs 2 Opportunity cost of lost production capacity as machinery and the workforce
At the end of the Second World War, Toyota was making losses and was prevented from increasing prices by the weak Japanese car market. It also suffered from major strike action in 1950.The individual credited with devising JIT in Toyota from the 1940s was Taiichi Ohno, and JIT techniques were
Learning outcome A1(b)Which of the following is a value-added activity?A Setting up a machine so that it drills holes of a certain size B Repairing faulty production work C Painting a car, if the organisation manufactures cars D Storing materials
Solo produces one product, the P. Parts for the product are quality inspected on arrival and stored in a warehouse until needed. They are then moved from the warehouse to the machine room where they are machined to the product specification. This work is then inspected and, if satisfactory, the
LL designs and makes a single product, the X4, used in the telecommunications industry. The organisation has a goods received store, which employs staff who carry out random checks to ensure materials are of the correct specification. In addition to the random checks, a standard allowance is made
Read the following extract from an article in the Financial Times, then list the features and methods of a quality information system that Lloyds Bank might have devised to collect information on the impact of the 'service challenge' described here.'If you phone a branch of Lloyds Bank and it rings
Seth supplies shoes to Narayan and Kipling. Each pair of shoes has a list price of $50 and costs Seth$25. As Kipling buys in bulk, it receives a 10% trade discount for every order for 100 pairs of shoes or more. Narayan receives a 15% discount irrespective of order size, because that company
BB manufactures components for the heavy goods vehicle industry. The following annual information regarding three of its key customers is available.The company uses an activity based costing system and the analysis of customer-related costs is as follows.Using customer profitability analysis, in
A food processing company operates an ABC system. Which of the following would be classified as a facility sustaining activity?(a) General staff administration(b) Plant management(c) Technical support for individual products and services(d) Updating of product specification database(e) Property

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Cima Study Text Management Paper P2 Advanced Management Accounting Study Text For Exams In 2015 1st Edition Bpp Learning Media - Solutions

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