P2 Advanced Management Accounting Questions and Answers

Which of the following statements are fundamental concepts that underlie the Beyond Budgeting approach?

1. Use traditional budgeting in conjunction with other techniques.

2. Use adaptive management processes rather than the more rigid annual budget.

3. Move towards devolved networks rather than centralized hierarchies.

4. Move towards centralized hierarchies rather than devolved networks.

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?

Which of the following statements regarding multinational transfer pricing is INCORRECT?

A positive net present value (NPV) has been calculated for a project to launch a new product. An additional calculation is required to identify the sensitivity of the NPV to changes in the forecast total sales volume.

The present value of which of the following would be used in the calculation?

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?

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?

$30.328 million is to be invested in a project that will yield annual net cash inflows of $8 million for 5 years.

What is the project's internal rate of return (IRR)?

Give your answer to the nearest whole percentage.

Which of the following statements about learning curves is correct?

An investment appraisal has identified that a project has a positive net present value when discounted at the company's cost of capital. If the cost of capital is now increased, indicate whether each of the following appraisal measures will increase, decrease or stay the same.

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 project requires an initial investment of $50,000. It will generate positive cash flows for two years as follows.

The cost of capital is 12% per year.

What is the equivalent annual net present value of the project?

Give your answer to the nearest $10.

Company TTM has the opportunity to invest $60,000 in a project. The project is anticipated to produce annual returns of $12,500 each year for 8 years. The cost of capital is 12%.

What is the net present value of the project? Give your answer to the nearest whole number.

Company X is considering the launch of a new product. In order to compete in the market the selling price must be $100 per unit. Company X aims to achieve a sales margin of 25 per cent.

Direct materials cost is $75 for each unit. It takes 15 minutes for workers to assemble each unit. Workers are paid $16 per hour. 5 per cent of paid time is idle. Overheads are absorbed at $6.50 per unit.

What is the value of any cost gap between the forecast total cost and the target cost?

Oliver owns a computer repair company. He is looking to close of of his departments as the demand for computer cleaning has dropped dramatically in the last 2 years and is no longer profitable.

The contribution margin of the department is £12,000, and the overheads are £23,000 (out of which £4,000 cannot be eliminated).

How would closing this department impact operating income?

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.

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.

Which of the following activities are included within activity based management (ABM)?

1. Cost reduction

2. Product design decisions

3. Variance analysis

4. Operational control

5. Performance evaluation

An organization uses a balanced scorecard approach to performance measurement, both at the corporate level and to assess the performance of each of its responsibility centre managers.

Which THREE of the following statements are valid in respect of the effect of this approach on the behavior of the responsibility centre managers?

The following cost of quality report has been prepared for the latest period.

What is the difference between the cost of conformance and the cost of non-conformance?

Company B, a video games developer, wants to use data to track the amount of traffic it receives on its social media pages. It specifically wants to find out the demographic it is most popular with on this platform, and

how it can branch out to different demographics through further advertising.

How best could the company use big data to expand its demographic reach?

Select ALL that apply.

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.

Which of the following is a correct description of the key features of net present value?

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

Select ALL that apply.

Which of the following statements about modified internal rate of return (MIRR) and internal rate of return (IRR) is correct?

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 company is comprised of two divisions, each of which manufactures a single product. Division A manufactures a product which can be sold in a perfect external market or transferred as an intermediate product to division B. Division B finishes the intermediate product and sells this in a perfect external market.

Due to company policy, internal transfers are recorded at the external market price. At this transfer price both divisions make a profit from their activities.

Which of the following will NOT be achieved by the company's transfer pricing policy?

A company has just received the latest in a series of annual payments; this payment was $620. The annual payments are expected to continue for three more years with each payment being increased by the expected rate of inflation. The real cost of capital is 8% per year and the expected rate of inflation is 6% per year.

What is the present value of the future payments the company expects to receive?

Give your answer to the nearest $.