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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Maisy now believes that the daily demand for cakes will have the following probabilities:Demand Probability(units)9 0.2 10 0.2 11 0.3 12 0.3 An independent market research company has agreed to provide Maisy, in advance, with details of the definite daily demand. This means that Maisy will always
Calculate the number of cakes that Maisy should make each day assuming she uses:(i) Maximax decision rule(ii) Maximin decision rule(iii) Minimax regret decision rule (2 marks)
Brain Ltd is considering launching a new product. Expected sales volumes (at a selling price of $5 per unit) and expected unit variable costs are as follows:Sales Variable costs per unit Units Probability $ Probability 1,000 0.9 1.30 0.55 2,000 0.1 1.50 0.45 Fixed costs are expected to be $3,000.
Three sales representatives – J, K and L – rate their (independent) chances of achieving certain levels of sales as follows:Possible sales $10,000 $20,000 $30,000 J Probability 0.3 0.5 0.2 K Probability 0.3 0.4 0.3 L Probability 0.2 0.6 0.2(For example, J rates her chances of selling $20,000
Which of the following methods can be used to help appraise risk in investment appraisal?(i) Payback(ii) Discounted payback(iii) Expected net present value(iv) Increase cost of capital for riskier projects(v) Sensitivity analysis A (i), (ii) and (iv)B (i), (iii), (iv) and (v)C (i), (ii), (iv) and
What is the best way to find the optimal solution in a situation of single period rationing with divisible projects?
What is the best way to find the optimal solution in a situation of single period rationing with indivisible projects? (2 marks)
Give three reasons why hard capital rationing may occur. (2 marks)
What is an indivisible project? (2 marks)
Identify three common types of 'real option' found in relation to capital projects. (2 marks)
SPT Limited is commencing a project with an initial outlay of $50,000 on 1 January 20X0. It is estimated that the company will sell 1,000 items on 31 December 20X0 and at the end of each subsequent year until 31 December 20X2. The contribution per unit on 31 December 20X0 will be $33, and is
A company has 31 March as its accounting year end. On 1 April 20X6 a new machine costing$2,000,000 is purchased. The company expects to sell the machine on 31 March 20X8 for$500,000.The effective rate of corporation tax for the company is 35%. Writing down allowances are obtained at 25% on the
Paisley proposes to purchase a machine costing $13,500. The machine will save labour costs of$7,000 per annum for two years and will then be sold for $5,000.What is the IRR of the project? Ignore tax.A 18.6%B 23.3%C 38.7%D Impossible to determine without a cost of capital (2 marks)
Lee is considering the following two investments that are mutually exclusive:Project 1: Initial outlay = $100,000 Scrap proceeds at end of project = $5,000 Profit receivable = $15,000 p.a. for 8 years Project 2: Initial outlay = $50,000 Scrap proceeds at end of project = $5,000 Cash flows
Harston Ltd is to spend $60,000 on a machine which will have an economic life of 10 years and no residual value. Depreciation is to be charged using the straight line method. Estimated operating cash flows are Year $1 – 2,000 2 + 13,000 3 + 20,000 4 – 6 + 25,000 p.a.7 – 10 + 30,000 p.a.What
Assuming that component D12 is bought from an external supplier for $25.00 per unit, the number of units of product F45 that must be sold to cover its own costs without contributing to T plc's non-avoidable fixed costs is closest to A 188 units B 214 units C 228 units D 261 units
Assuming that the annual demand for component D12 is 5,000 units and that T plc has sufficient capacity to make the component itself, the maximum price that should be paid to an external supplier for 5,000 components per year is A $105,000 B $114,000 C $141,000 D $150,000 (2 marks)
If Division Y buys from the outside supplier, and Division X cannot increase its external sales, the effect on Bailey's total profit will be A An increase of $10,000 B A decrease of $10,000 C A decrease of $30,000 D A decrease of $40,000
If Division X reduces its price to Division Y to $18 in order to keep the business, its total profit will be A $65,000 B $80,000 C $90,000 D $100,000 (2 marks)
If Division X does not match the lower price and cannot increase its outside sales and Division Y buys from the outside supplier, Division X total profit will be A Nil B $60,000 C $80,000 D $90,000 (2 marks)
Division G has reported annual operating profits of $20·2 million. This was after charging $3 million for the full cost of launching a new product that is expected to last three years. Division G has a risk adjusted cost of capital of 11% and is paying interest on a substantial bank loan at 8%.The
Green division is one of many divisions in Colour plc. At its year-end, the fixed assets invested in Green were $30 million, and the net current assets were $5 million. Included in this total was a new item of plant that was delivered three days before the year end. This item cost $4 million and
The following data have been extracted from a company’s year-end accounts:$Turnover 7,100,000 Gross profit 4,850,500 Operating profit 3,630,000 Non-current assets 4,500,000 Cash at bank 2,750,000 Short term borrowings 950,000 Trade receivables 525,000 Trade payables 435,000 Calculate the
Division W of Stoak Ltd produced the following results in the last financial year:Net profit ($000) 200 Gross capital employed ($000) 1,000 For evaluation purposes all divisional assets are valued at original cost.A proposed project will increase the division's net profit by $22,000, but will
Division X of Tina Pease Ltd produced the following results in the last financial year:$’000 Net profit 360 Capital employed: fixed assets 1,500 net current assets 100 For evaluation purposes all divisional assets are valued at original cost. The division is considering a project which will
Which of the following items would be included in the calculation of controllable divisional profit before tax?I Sales to outside customers II Head office costs III Variable divisional expenses IV Controllable divisional fixed costs A IV only B II and III C I, III and IV D III and IV E II only
One of the main reasons for adopting a decentralised rather than a centralised organisation structure is the A Improved goal congruence between divisional manager and the goals of the organisation B Rapid response of management to environmental changes C Availability of less subjective measures of
Which of the following definitions best describes the responsibility of an investment centre in a decentralised organisation?A Responsibility for the level of sales, production costs, collection of debts and payment of suppliers B Responsibility for the level of sales, production costs and treasury
Flexed budgets for the cost of hotel laundry based on occupancy percentages are shown below.Occupancy 82% 94%Laundry cost $410,000 $429,200 During the period, the actual occupancy was 87% and the total laundry cost was $430,000.The variance on laundry was:A $5,000 adverse B $12,000 adverse C $5,000
Which of the following is/are purposes of flexible budgeting?(i) To cope with different activity levels(ii) To reward sales rather than production(iii) To more meaningfully compare actual and budgeted costs(iv) To show different results which may occur between different activity levels A (i) only B
Off-peak travel bargains are an example of differential pricing using which base?A Time B Market segment C Product version D Place
Current demand for Orchards’ product the Russet is 5,000 units each year, its selling price is$175. For every $10 that the selling price is increased demand for the Russet falls by 500 units.Marginal cost for the Russet is $65. What price will Orchard need to set in order to maximise
NRC Ltd makes and sells a single product Z. The selling price and marginal revenue equations for product Z are as follows:Selling price = $60 – $0.001x Marginal revenue = $60 – $0.002x The full cost of Z is $35 per unit. Fixed costs are $150,000 and it was originally budgeted to make 15,000
What price should be set in order to sell 50,000 units?A $125 B $225 C $375 D $500 (2 marks)
What is the demand function?A P = 1,000 – 0.025x B P = 1,000 – 0.0125x C P = 50 – 0.025x D P = 500 – 0.0125x (2 marks)
When are the bulk of a product's life cycle costs normally determined?A At the design/development stage B When the product is introduced to the market C When the product is in its growth stage D On disposal
What are the four stages of the product life cycle?A Introduction, growth, maturity, decline B Growth, maturity, saturation, decline C Introduction, growth, plateau, decline D Growth, plateau, decline, obsolescence (2 marks)
KJ has recently developed a new product. It is usual for the workforce to experience an 80%learning effect as the work is repetitive. It takes 3 kg of material at $4/kg to produce each unit and variable overheads are expected to cost $2.50/hr. Labour is paid $8/hr. (2 marks)If the first unit took
The time taken to produce the first unit of a new product was 12 hours. By the time four units had been made, the average time per unit had dropped to 6 hours. What was the rate of learning experienced? (2 marks)
A company has produced the first batch of a new product which took 40 hours to manufacture.With an 80% learning curve, how long would it take to make the next nine batches? (2 marks)
Indicate whether or not the following aspects of 'value' should be considered in a value analysis exercise A Sales value B Replacement value C Exchange value D Disposal value
A mobile phone manufacturer, C Ltd, is planning to produce a new model. The potential market over the next year is 1,000,000 units.C Ltd has the capacity to produce 400,000 units and could sell 100,000 units at a price of $50.Demand would double for each $5 fall in the selling price.The company has
Indicate which of the following methods can be used to move a currently-attainable cost closer to target cost.A Using standard components wherever possible B Acquiring new, more efficient technology C Making staff redundant D Reducing the quality of the product in question (2 marks)
What are the primary activities of Porter's value chain for a manufacturing company?A Human resource management, information database and structure B Inward movement of materials, manufacture, marketing, distribution and after sales service C R&D, design, production, marketing, distribution and
A company makes and sells three products A, B and C. The products are sold in the proportions A:B:C = 1:1:4.Monthly fixed costs are $55,100 and product details are as follows:Product Selling price$ per unit Variable cost$ per unit A 47 25 B 39 20 C 28 11 The company wishes to earn a profit of
Give three factors that make information valuable.
Complete the mnemonic A C C U R A T E in respect of the qualities of good information.
Fill in the blank.An ........................................ is an organisational and management solution, based on information technology, to any challenge posed by the environment.
Fill in the blank......................................... is data that has been processed in such a way as to be meaningful to the person who receives it.
List five characteristics each of strategic information, tactical information and operational information.
What fundamental principles should be observed by all CIMA members?
Give three examples of factors that may prevent a professional accountant from acting with sufficient expertise.
Fill in the blank. The temptation to manipulate ........................................ information when preparing accounts is potentially a very serious ethical threat.
Which of the following is not a category of threat identified in CIMA’s guidance?A Advocacy B Confidentiality C Familiarity D Self-review
What does an organisation's ethical code usually contain?
AB can choose from five mutually exclusive projects. The projects will each last for one year only and their net cash inflows will be determined by the prevailing market conditions. The forecast net cash inflows and their associated probabilities are shown below.Market conditions Poor Good
Fill in the blanks.Standard deviation, s = .................where x is …………………….., x represents …………………….., p represents ……………………..?
Given the probability distribution shown below, assign ranges of numbers in order to run a simulation model.Probability Numbers assigned Probability Numbers assigned 0.132 …………………….. 0.083 ……………………..0.410 …………………….. 0.060
If the decision maker is trying to maximise the figure, what figure would the decision maker choose at point B in the diagram below? AB 40,000 B 11,800 B 13,900 CD 22,000 0.2 33,000 0.8 14,000 22,000 0.1 40,000 0.9 11,000
A manager is trying to decide which of three mutually exclusive projects to undertake. Each of the projects could lead to varying net costs which the manager calls outcomes I, II and III. The following payoff table or matrix has been constructed.Using the minimax regret decision rule, decide which
A probability can be expressed as any value from –1 to +1. True False
Sensitivity analysis allows for uncertainty in project appraisal by assessing the probability of changes in the decision variables. True False
The value of information lies in the action taken as a result of receiving it. What questions might you ask in order to make an assessment of the value of information?
To demonstrate how controls are an important part of managing risks, we list below a number of the important risks that a business may well face. See if you can suggest some appropriate controls.
Consider the following diagram.If a decision maker wished to maximise the value of the outcome, which options should be selected?A Option 2 and option 7 B Option 3 C Option 1 and option 4 D Option 2, option 6 and option 8
Frame is considering which of two mutually exclusive projects, A or B, to undertake. There is some uncertainty about the running costs with each project, and a probability distribution of the NPV for each project has been estimated, as follows.Required Choose the correct words from those
A manager has to choose between mutually exclusive options A, B, C and D and the probable outcomes of each option are as follows.Option A Option B Option C Option D Probability Cost Probability Cost Probability Cost Probability Cost$ $ $ $0.1 30,000 0.5 21,000 0.29 15,000 0.03 14,000 0.1 60,000 0.5
NU has a cost of capital of 8% and is considering a project with the following 'most-likely' cash flows.Required Fill in the blanks in the sentences below about the sensitivity of the project to changes in the levels of expected costs and savings.(a) Plant costs would need to ................ by a
What sort of risks might an organisation face?
What will be the best NPV attainable (to the nearest $000) assuming that the projects are indivisible (ie cannot be done in part) ?A $210 B $300 C $270 D $320
What will be the best NPV attainable (to the nearest $000) assuming that the projects are divisible?A $312 B $356 C $320 D $270
Equivalent annual cost = PV of costs over n years n year annuity factor Explain briefly what is meant by:(a) PV of costs(b) n year annuity factor Data for questions 4 and 5 Four projects K, L, M and N are available to a company facing a shortage of capital over the next year; the maximum capital
Profitability Index (PI) = (1)(2)What are (1) and (2)?
Hard capital rationing occurs when a restriction on an organisation's ability to invest capital funds is caused by an internal budget ceiling imposed by management.True False
Fill in the blanks.The sensitivity of a project's NPV to changes in volume can be determined using:(…………………./………………….)  100%
Choose the correct words from those highlighted.Capital allowances are used to (1) increase/reduce taxable profits, and the consequent reduction in a tax payment should be treated as a (2) cash saving/cash payment arising from the acceptance of a project.Writing down allowances are generally
A company is appraising an investment that will save electricity costs. Electricity prices are expected to rise at a rate of 15% per annum in future, although the general inflation rate will be 10% per annum. The money cost of capital for the company is 20%. What is the appropriate discount rate to
A company wants a minimum real return of 3% a year on its investments. Inflation is expected to be 8%a year. What is the company's minimum money cost of capital?A 4.9% B 11.24% C 5% D 11%
The money cost of capital is 11%. The expected annual rate of inflation is 5%. What is the real cost of capital?A 16.6% B 6.0% C 16.0% D None of these options
Fill in the gaps.The relationship between the money rate of return, the real rate of return and the rate of inflation is(1 + …………… rate) = (1 + …………… rate) x (1 + …………… rate).
Fill in the blank in the sentence below.The present value of $1,000 in contribution earned each year from years 1 to 10, when the required return on investment is 11%, is $................ .
Fill in the blanks.DPBI = . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . . . . . . .
Choose the correct word from those highlighted.When there are non-conventional cash flow patterns, the IRR/NPV method is not recommended.
At what point on the graph below is the project's IRR?
Tick the correct box to indicate whether or not the following items are included in the cash flows when determining the net present value of a project.Included Not included(a) The disposal value of equipment at the end of its life(b) Depreciation charges for the equipment(c) Research costs incurred
For a certain project, the net present value at a discount rate of 15% is $3,670, and at a rate of 18% the net present value is negative at ($1,390). What is the internal rate of return of the project?A 15.7% B 16.5% C 16.6% D 17.2% E None of these options?
With a cost of capital of 13%, what is the present value of $2,500 received every year in perpetuity?A $2,825 B $17,563 C $2,212 D $28,736 E None of these options
What is the present value of a cash inflow of $3,000 each year from years 1 to 5, when the required return on investment is 12%?A $15,000 B $16,800 C $13,393 D $9,111 E $10,815
In a discounted cash flow exercise, what is the discount factor (to 3 decimal places) for year 4 when the cost of capital is 11.5%?A 0.647 B 0.115 C 3.587 D 1.546 E 0.721
Fill in the blanks.The recommended definition of ARR is: ...............................................  100%
Applied punitively, PCA exercises may lead to managers becoming risk seekers.True False
Fill in the blank.The average net book value of an asset is calculated as ........................................... .
Choose the correct words from those highlighted.(a) The imposition of internal capital budget constraints is known as hard/soft capital rationing(b) Hard/soft capital rationing occurs when external capital budget limits are set.
Which of the following statements about post-completion audit is correct?A Size should not be used as a guide as to which projects should be audited.B Managers should perceive that every capital expenditure project has a chance of being the subject of a detailed audit.C All capital expenditure
The accounting rate of return method of investment appraisal uses accounting profits before depreciation charges.True False
Fill in the blanks in these statements about the advantages of the payback method.(a) Focus on early payback can enhance …………………(b) Investment risk is ……………….. if payback is longer.(c) ……………….. –term forecasts are likely to be more reliable.
Describe the potential major effects of taxation on capital investment decisions.
An organisation is considering the purchase of a machine for $150,000. It would be sold after four years for an estimated realisable value of $50,000. By this time capital allowances of $120,000 would have been claimed. The rate of corporation tax is 30%.The cash flow arising as a result of the tax
An organisation is considering the purchase of an item of equipment, which would earn profits before tax of $25,000 a year. Depreciation charges would be $20,000 a year for six years. Capital allowances would be $30,000 a year for the first four years. Corporation tax is at 30%.Assume that tax
An investment requires an immediate cash outflow of $120,000. It will have zero residual value at the end of four years. The annual cost inflow will be $40,000. The cost of capital is 10% and the annual inflation rate is 3%.What is the maximum monetary cost of capital for this project to remain

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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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