Oct 02, 2021 Step by Step Guide to Prepare for P2 Exam BrainDumps
CIMA Management P2 Real Exam Questions and Answers FREE Updated on 2021
NEW QUESTION 101
An organization has the right to mine for gold on its land. The price of gold and the cost of extraction are such that mining is not currently financially viable. However, the organization has the right to commence mining at any time in the future if the price of gold increases and makes mining financially viable.
This right to commence mining in the future is an option to:
- A. abandon
- B. delay
- C. expand
- D. redeploy
Answer: B
NEW QUESTION 102
A supermarket group has experienced operational problems during recent years, including a shortage of warehousing space due to increasing turnover and poor inventory management. The product portfolio has expanded considerably. Although this has led to increased sales volume, marketing and logistics costs have increased disproportionately. Non product-specific costs have also increased significantly.
Management is now considering using Direct Product Profitability (DPP).
Which of the following statements are valid in respect of the possible implementation of DPP within the supermarket group?
Select ALL that apply.
- A. DPP should result in improved management of storage space.
- B. DPP should result in improved pricing decisions.
- C. DPP should result in improved supplier relationships.
- D. DPP provides summary information on the profitability of each customer group.
- E. DPP requires non product-specific costs to be apportioned rather than allocated.
Answer: A,B,C
NEW QUESTION 103
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 104
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 105
Which of the following is a correct description of the key features of net present value?
- A. It adjusts the relevant cash flows of a project after the deduction of depreciation charges to reflect the time value of money. The discount rate used is always the company's weighted average cost of capital.
- B. It adjusts the relevant cash flows of a project to reflect the time value of money. The discount rate used is always the company's weighted average cost of capital.
- C. It adjusts the relevant profits of a project to reflect the time value of money. The discount rate used reflects the risk of the project.
- D. It adjusts the relevant cash flows of a project to reflect the time value of money. The discount rate used reflects the risk of the project.
Answer: D
NEW QUESTION 106
Which of the following statements regarding multinational transfer pricing is INCORRECT?
- A. If transfer prices are inflated, this will increase profits of buying division.
- B. Companies have incentives to set transfer price to increase costs in high-tax countries.
- C. Transfer prices affect tax liabilities and royalties because of different laws in countries.
- D. Companies have incentives to set transfer price to increase revenues in low-tax countries.
Answer: A
NEW QUESTION 107
A company has a cost of capital of 12% and a maximum of $20 million to invest. It has identified three possible investment projects, none of which is divisible, as follows.
Which project(s) should the company invest in?
- A. Project 3 only
- B. Project 2 only
- C. Project 1 only
- D. Projects 1 and 3 only
Answer: D
NEW QUESTION 108
An investment centre is appraising a potential project that is expected to yield a Return on Investment (ROI) of 12%.
Without the project the investment centre expects to earn an ROI of 14%. The cost of capital is 10%.
What would be the impact on the investment centre's performance measures if the project is accepted?
- A. Residual Income would increase and ROI would increase.
- B. Residual Income would increase and ROI would decrease.
- C. Residual Income would decrease and ROI would decrease.
- D. Residual Income would decrease and ROI would increase.
Answer: B
NEW QUESTION 109
Which of the following statements are correct with regard to responsibility centres?
Select ALL that apply.
- A. Managers of profit centres have authority over the level of investment in working capital but managers of cost centres do not.
- 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. Revenue centre managers have a lower level of decision-making authority than profit centre managers.
Answer: C,D,E
NEW QUESTION 110
The directors of a company wish to evaluate two mutually exclusive capital investment projects. Both projects have conventional cash flows: an initial outflow followed by a series of annual cash inflows.
The directors are aware of the following three investment appraisal methods: internal rate of return (IRR), net present value (NPV) and accounting rate of return (ARR).
The directors have asked for your advice about which method should be used to evaluate these two projects.
Which of the following is valid advice to give to the directors?
- A. NPV should be used because it focuses on wealth creation whereas IRR and ARR are both relative measures.
- B. ARR should be used because it is based on profit whereas both IRR and NPV are based on cash flows.
- C. IRR should NOT be used because it could result in multiple IRRs.
- D. IRR should be used because both NPV and ARR could lead to an incorrect investment decision.
Answer: A
NEW QUESTION 111
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 112
For a complex and repetitive task, which of the following correctly describes a steep learning curve?
- A. There will be a long period before there is a reduction in the time taken to complete the task.
- B. Repeated training may be required but this will not necessarily result in a reduction in the time taken to complete the task.
- C. After the initial learning period there will be a rapid reduction in the time taken to complete the task.
- D. After the initial learning period there will be a slow reduction in the time taken to complete the task.
Answer: C
NEW QUESTION 113
A machine requires an initial investment of $500,000. The net present value (NPV) of the investment in the machine is $36,500.
Which of the following statements is correct in relation to the sensitivity of the investment?
- A. The NPV can decrease by no more than 13.7% before the project is not viable.
- B. The initial investment can increase by no more than 13.7% before the project is not viable.
- C. The initial investment can increase by no more than 7.3% before the project is not viable.
- D. The NPV can decrease by no more than 7.3% before the project is not viable.
Answer: C
NEW QUESTION 114
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 115
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 116
To which technique for dealing with risk and uncertainty do ALL of the following statements apply?
* It requires that only one factor is considered at a time.
* It identifies areas which are crucial to a project, which can then be monitored if the project is chosen.
* It does not provide an indication of the likelihood of any change in the factors.
* Following the calculation, it requires the exercising of judgement to decide whether to accept or reject a project.
- A. Scenario analysis
- B. Adjusting the discount rate to reflect risk.
- C. Probability analysis
- D. Sensitivity analysis
Answer: D
NEW QUESTION 117
An organization produces only two products. Each month it produces 1,000 units of product A and
10,000 units of product B.
Using traditional absorption costing the products have very similar unit costs. However when costs are calculated using activity-based costing (ABC), product A's unit cost is significantly higher than that of product B.
Which of the following factors has the potential to cause this difference?
Select ALL that apply.
- A. ABC considers only direct costs.
- B. ABC considers only marginal costs.
- C. ABC costs are driven only by the volume of output.
- D. ABC uses multiple cost drivers to trace overhead costs to products.
- E. ABC cost calculations are not simply volume-related.
Answer: D,E
NEW QUESTION 118
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
Answer: A
NEW QUESTION 119
An airline company has operated passenger flights with low ticket prices to various airports from a busy airport for several years. It now faces increased competition on a number of its routes and has decided to use the balanced scorecard to monitor its performance.
Which of the following statements are correct?
Select ALL that apply.
- A. Customer satisfaction measures will not be needed because the company pursues a low price strategy for competitive advantage.
- B. The number of new flights to different destinations could be a suitable measure for the learning and growth perspective.
- C. A survey of passengers could be a suitable measure for the customer perspective.
- D. Non-financial objectives will be met as a result of financial objectives being achieved.
- E. The proportion of seats that are occupied on flights could be a suitable measure for the internal business process perspective.
- F. The number of on time take-offs could be a suitable measure for the internal business process perspective.
Answer: B,E,F
NEW QUESTION 120
A very large organization is financed by both debt and equity. It evaluates all projects on the basis of their net present value (NPV) using an organization wide weighted average cost of capital as the discount rate.
For a small project, which TWO of the following would affect the project's cash flows AND the discount rate?
- A. Taxation rates
- B. Depreciation rates
- C. The project's terminal value
- D. Inflation rates
- E. Changes in working capital
Answer: A,D
NEW QUESTION 121
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 122
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 123
Kaizen costing is being used by an organization to gradually reduce the unit cost of one of its products in order to achieve a 20% mark up on the product's cost.
The selling price of the product must be $72 per unit and this selling price has been maintained for two years.
Two years ago the product's cost was $3 per unit more than its selling price. Kaizen costing has achieved an 8% reduction from the previous period's unit cost in each of the past two years. The organization expects to continue to achieve the same rate of cost reduction next year.
Which of the following statements provides an accurate analysis of the extent to which Kaizen costing has been successful in achieving the required unit cost for the product?
- A. Kaizen costing has not yet achieved the required unit cost of $57.60 because a greater rate of reduction in costs was needed.
- B. The current cost is $63.48 per unit and the required unit cost will be achieved next year.
- C. The current cost is $63.00 per unit and the required unit cost will be achieved next year.
- D. Kaizen costing has successfully achieved the necessary cost reduction.
Answer: B
NEW QUESTION 124
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