CIMA CIMA Certifications CIMAPRO19-P02-1 Questions & Answers

• Question 41:

  Risk management can be represented as a four step process. The four steps, shown randomly, are:

  1.

  Establish appropriate risk management policies.

  2.

  Risks are identified by key stakeholders.

  3.

  Risks are monitored on an ongoing basis.

  4.

  Risks are evaluated according to the likelihood of occurrence and impact on the organization.

  Which of the following is the correct order for the four steps?

  A. 1, 2, 3, 4

  B. 2, 1, 4, 3

  C. 1, 2, 4, 3

  D. 2, 4, 1, 3

  Correct Answer: D

• Question 42:

  One of an investment centre's products is sold on an external market. Output is limited because the specialist machine that manufactures the product is operating at full capacity. Current data for the product are as follows.

  

  Investigations have identified that more rigorous maintenance of the machine at an annual cost of $5,000 would reduce the number of breakdowns and increase its capacity to 1,300 units per year. There would be no change in the selling price if more units were sold. Any additional labor hours would be paid a premium of 25%. A discount of 2% of the cost of all materials purchased is available if the company increases its purchases to 3,700 kg or more per year. What would be the increase in the investment centre's annual controllable profit if more rigorous maintenance is undertaken?

  A. $21,400

  B. $17,800

  C. $23,900

  D. $26,160

  Correct Answer: A

• Question 43:

  The following cash flows are forecast for a potential investment project.

  

  The cost of capital for the project is 12% per year and the company uses a straight line depreciation policy.

  What is the modified internal rate of return (MIRR) of the project? Give your answer to the nearest whole percentage.

  A. 19 %

  Correct Answer: A

• Question 44:

  Company S has two divisions, X and Y. Division X transfers 50,000 component units to Division Y each quarter. The market price of the component is $20. Division X's variable cost is $10 per unit and its fixed cost is $150,000 each quarter.

  What price would be credited to Division X for each component that it transfers to Division Y under:

  two-part tariff pricing (where the two divisions have agreed that the fixed fee will be $100,000); and dual pricing (based on market price and marginal cost).

  A. Two-part tariff pricing = $10 Dual pricing = $22

  B. Two-part tariff pricing = $12 Dual pricing = $18

  C. Two-part tariff pricing = $10 Dual pricing = $20

  D. Two-part tariff pricing = $13 Dual pricing = $22

  Correct Answer: C

• Question 45:

  A project is viable because it has a positive net present value (NPV). Details of four of the input variables, together with the sensitivity of the viability of the project to a change in each one in isolation, are given below.

  

  Which of the following statements is correct?

  A. A 1% change in the initial investment will result in a change of 3% in the NPV.

  B. The resale value at the end of the project is the most sensitive of the four variables.

  C. If the incremental annual cash contributions reduce by more than 8% then the project will no longer be viable.

  D. If the rate of taxation on profits increases to 40% then the project will no longer be viable.

  Correct Answer: C

• Question 46:

  A manufacturing company sells a large range of products. Forecast data for the next period for one of these products are as follows.

  

  After manufacture, each complete batch must be stored in a local warehouse until it is subsequently sent to the company's main national warehouse. The company does not own a local warehouse. A local warehouse with a maximum

  capacity of 500 units could be rented for $2,450 for the next period.

  Alternatively a larger local warehouse with a maximum capacity of 700 units could be rented for $3,430 for the next period.The company will not begin the manufacture of any new batch until the previous batch has been sent to its main

  national warehouse. What would be the change in the total cost of set up and storage if the batch size was changed to 600 units?

  Give your answer to the nearest whole $.

  A. $3770

  Correct Answer: A

• Question 47:

  The performance report for the production manager of a company for the last month included the following.

  1,000 direct labor hours were worked at a basic rate of pay of $10 per hour. 200 of these hours were worked during overtime for which a 30% overtime premium was paid. 80 of these overtime hours were to fulfill a customer order that had

  originally been planned for manufacture next month. The sales manager had agreed to bring forward the delivery of this order at the request of the customer. The remaining overtime hours were due to unexpected inefficiency of the workforce;

  this has been traced to poor supervision by a junior manager.

  Material costs included the following:

  $5,300 of material A. Material A is a commodity and, due to changes on the global market, the actual unit cost of this material for last month was 6% higher than had been expected $5,250 of material B. The usage of material B last month

  was 5% higher than it should have been due to faulty workmanship on the production line.

  What is the total value of the above costs that was controllable by the production manager?

  A. $20,610

  B. $19,810

  C. $20,910

  D. $20,360

  Correct Answer: A

• Question 48:

  The Chief Executive of a large manufacturing company has made the following comment. "All of our competitors are using both just-in-time(JIT) and Total Quality Management (TQM) whereas we have never used either. Consequently we are

  lagging behind our competitors because their levels of inventory and quality costs are significantly below ours. I want to see JIT fully implemented, both for purchasing and for production, in 4 weeks' time and TQM fully implemented 4 weeks

  after that."

  Which of the following provide appropriate advice to the Chief Executive? Select ALL that apply.

  A. Full implementation of JIT is unlikely to be successful unless a TQM environment has first been established.

  B. Implementing TQM from scratch within 8 weeks should be feasible for a large manufacturing company, but implementing JIT within 4 weeks is unlikely to be feasible.

  C. Total quality costs are likely to begin declining immediately once the process of implementing TQM has commenced.

  D. JIT offers the long run prospect of significantly reducing inventory.

  E. It would be possible to implement TQM without implementing JIT.

  F. It is not possible to implement JIT for production without first implementing JIT for purchasing.

  Correct Answer: ADE

• Question 49:

  Which of the following statements is true?

  A. Risk transfer means the management of a portfolio of different risks.

  B. Insuring risks means that businesses will not need to take any measures to reduce those risks.

  C. High frequency, high severity risks are always strategic risks.

  D. Risk hedging is taking action to offset one risk by incurring a new risk in the opposite direction.

  Correct Answer: D

• Question 50:

  Beyond Budgeting is essentially an approach that places modern management practices within a cultural framework. Analyze the following statements:

  1.

  The organization structure should have clear principles and boundaries.

  2.

  Managers should be given a high degree of freedom to make decisions.

  3.

  Frontline managers should be made responsible for relationships with customers.

  4.

  Information system should be transparent and ethical.

  Which of the above statements relate to Beyond Budgeting?

  A. 1, 2 and 4 only

  B. 2, 3 and 4 only

  C. 1, 2 and 3 only

  D. All the statements

  Correct Answer: D