CIMA CIMA Certifications CIMAPRO19-P02-1 Questions & Answers

• Question 111:

  A company manufactures and sells a range of products. Relevant data for one unit of a particular product are as follows.

  

  The company is using target costing to ensure that it achieves a contribution of 40% of the market selling price. In order to achieve the target cost, by how much does the company need to reduce the variable cost per unit?

  A. $ 2.10

  B. $ 0.50

  C. $ 1.40

  D. $ 2.60

  Correct Answer: B

• Question 112:

  An 80% learning curve is expected for a repetitive and complex task. Which of the following statements is correct?

  A. The cumulative average time per unit will reduce by 80% every time the output is doubled.

  B. The cumulative average time per unit will reduce by 20% every time the output is doubled.

  C. Each unit produced will take 80% less time to produce than the previous unit.

  D. Each unit produced will take 20% less time to produce than the previous unit.

  Correct Answer: B

• Question 113:

  For a complex and repetitive task, which of the following correctly describes a steep learning curve?

  A. Repeated training may be required but this will not necessarily result in a reduction in the time taken to complete the task.

  B. After the initial learning period there will be a rapid reduction in the time taken to complete the task.

  C. There will be a long period before there is a 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.

  Correct Answer: B

• Question 114:

  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?

  A. The manager will accept the investment because overall the division will earn a ROCE that exceeds the minimum target of 20%.

  B. The manager will reject the investment because it will result in a lower bonus than without the investment.

  C. The manager will accept the investment because it will earn a ROCE that is higher than the company's cost of capital.

  D. The manager will reject the investment because it will result in the receipt of no bonus.

  Correct Answer: B

• Question 115:

  A company is investing $200,000 in a project which will generate a cash flow of $60,000 each year for five years starting immediately. The company's cost of capital is 7%. The net present value of the investment to the nearest $100 is:

  A. $63200

  Correct Answer: A

• Question 116:

  A senior manager is concerned about the dysfunctional consequences of a company's current approach to budget preparation. The senior manager has discovered that budget holders are carrying budgetary slack forward from one period to

  the next without this being identified or challenged.

  Which of the following approaches to budget preparation is the company using?

  A. Incremental budgeting

  B. Zero-based budgeting

  C. Activity-based budgeting

  D. Beyond budgeting

  Correct Answer: A

• Question 117:

  Which of the following statements about the use of traditional budgeting compared with a beyond budgeting approach is correct?

  A. If the organization has devolved decision making, beyond budgeting is not appropriate because it does not allow the same level of empowerment as traditional budgeting.

  B. If the organization's products are subject to rapid technological change, beyond budgeting would allow managers to respond more quickly than under traditional budgeting.

  C. If there is a dynamic external environment with fast moving opportunities, beyond budgeting will inhibit the organization's ability to take advantage of these opportunities whereas traditional budgeting will not.

  D. If the organization's culture is such that a top down budgeting system is desired then this is better achieved by adopting beyond budgeting rather than traditional budgeting.

  Correct Answer: B

• Question 118:

  A long established organization has recognised the need to make urgent changes to the way it operates in order to remain competitive. The organization wishes to dramatically improve its performance through a fundamental rethinking and radical redesign of its existing activities. Which of the following techniques should be used to achieve this?

  A. Functional analysis

  B. Kaizen costing

  C. Business process re-engineering

  D. Process innovation

  Correct Answer: C

• Question 119:

  Which THREE of the following conditions are required for a sustained learning curve to apply?

  A. Labor intensive production

  B. Continuous production

  C. A complex production process

  D. Frequent machine maintenance

  E. Continuous product development

  F. Frequent staff rotation

  Correct Answer: ABC

• Question 120:

  An investment centre manager is considering the purchase of a new machine. If purchased, the new machine would replace an existing one that is used to manufacture one of the investment centre's existing products.

  The new machine would incur $800 per month additional running costs; this includes $300 per month of additional depreciation.

  The new machine would save on direct labor time. This means that the fixed production overhead absorbed by the product on the basis of direct labor hours would reduce by $100 per month.

  What is the total cost of the above that is relevant to the decision to purchase the machine?

  A. $500; only the additional running costs, excluding depreciation, are relevant.

  B. $700; all of the additional running costs and the reduction in absorbed overhead are relevant.

  C. $400; only the reduction in absorbed overhead and the additional running costs, excluding depreciation, are relevant.

  D. $800; all of the additional running costs are relevant, but the reduction in absorbed overhead is not relevant.

  Correct Answer: A