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P2 Exam Dumps - Advanced Management Accounting

Question # 4

A company uses activity based costing. The total production overheads of $16,050 for the next period are for set up costs of $6,450 and quality inspection costs of $9,600. The company produces two products, Product F and Product G. Details relating to the next period are as follows:

A new customer has offered to purchase Product F for $28.00 per unit. The only costs incurred would be those shown above.

What is the profit per unit of Product F that would be gained by accepting the offer? Give your answer to two decimal places.

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Question # 5

An 80% learning curve will apply to the production of a new product. The first unit will require 120 labor hours. The labor rate is $11 per hour.

To the nearest $1, the expected total labor cost for the first 4 units is:

A.

$3,379

B.

$845

C.

$5,280

D.

$4,224

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Question # 6

Which THREE of the following are advantages of changing from a 'top-down' to a 'bottom-up' (participative) style of budgeting?

A.

The budget will be based on information from employees who are familiar with the day to day activities.

B.

Motivation will improve due to a feeling of ownership of the budget.

C.

There will be increased commitment to organizational objectives.

D.

Budget setters will be forced to justify every item on the budget.

E.

There will be reduced likelihood of budgetary slack being built into the budgets for 'selfish' reasons.

F.

It will be less time-consuming for operational managers.

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Question # 7

For a pharmaceutical manufacturer, in which perspective of the Balanced Scorecard should the performance measure 'number of patents granted during the year' be included?

A.

Customer

B.

Internal business processes

C.

Innovation and learning

D.

Financial

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Question # 8

We have 2 divisions with the following information: Profit before depreciation: B1=$800,000, B2=S1,000,000; Assets: B1 =$2,000,000, B2=S3,000,000; Capital employed: B1 = $1,700,000 and B2 = $2,550,000. 20%

straight-line depreciation is used.

Calculate ROI for each division.

A.

ROI for B1 is 47% and ROI for B2 is 39.2%

B.

ROI for B1 is 25.5% and ROI for B2 is 17.7%

C.

ROI for B1 is 23.5% and ROI for B2 is 23.5%

D.

ROI for B1 is 23.5% and ROI for B2 is 15.7%

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Question # 9

Three years ago the large number of faulty products being returned by its customers resulted in a company adopting total quality management (TQM). The company has increased expenditure on staff training and product inspections. This has resulted in a reduction in the number of faulty products returned.

Which of the following statements is correct?

A.

Spending more on conformance costs has resulted in a reduction in internal failure costs.

B.

Spending more on conformance costs has resulted in a reduction in external failure costs.

C.

Spending more on non-conformance costs has resulted in a reduction in conformance costs.

D.

Spending more on prevention costs has resulted in a reduction in appraisal costs.

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Question # 10

Place each method of analysing risk and uncertainty against the statement that describes it correctly.

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Question # 11

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.

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Question # 12

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.

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Question # 13

A company is considering four mutually exclusive projects. There are three possible future demand conditions but the company has no idea of the probability of each of these demand conditions occurring. The forecast net present values (NPVs) of each of the four projects, under each of the three possible future demand conditions, are as follows.

Using the maximax criterion, which investment should be selected?

A.

Investment A

B.

Investment B

C.

Investment C

D.

Investment D

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Question # 14

A company comprises several divisions.

One of these divisions was originally expected to earn an operating profit next year of $800,000 on net assets of $4 million.

However, the divisional manager is considering investing in a project that would generate a project return on investment (ROI) of 38% on additional net assets of $500,000.

What would be the divisional ROI next year if the project was implemented?

Give your answer to the nearest percentage.

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Question # 15

A company has three divisions, each of which is an investment centre. The divisional managers' performance is assessed using return on investment (ROI). A higher ROI will result in a higher bonus for the divisional manager.

The company's cost of capital is 15%.

For the forthcoming year each divisional manager has one investment opportunity available as follows:

The manager(s) of which division(s) will proceed with their respective investment opportunity?

A.

Division 1 and Division 3

B.

Division 2 and Division 3

C.

Division 3 only

D.

Division 1 only

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Question # 16

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.

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Question # 17

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 successfully achieved the necessary cost reduction.

B.

The current cost is $63.00 per unit and the required unit cost will be achieved next year.

C.

Kaizen costing has not yet achieved the required unit cost of $57.60 because a greater rate of reduction in costs was needed.

D.

The current cost is $63.48 per unit and the required unit cost will be achieved next year.

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Question # 18

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

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Question # 19

Residual income is an appropriate performance measure for which type of responsibility centre?

A.

Cost centre

B.

Revenue centre

C.

Investment centre

D.

Profit centre

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Question # 20

One of a company's products is sold to three customers: A, B and C. These customers do not buy anything else from the company. The product costs $20 per unit to manufacture and is sold to the customers for $50 per unit.

The following table shows data for sales and selling costs for the latest period.

Delivery costs of $32,000 and general overheads of $60,000 were incurred during the period.

Deliveries to customers A and B were made by a courier in batches of 100 units; the courier charged $300 for each batch delivered to customer A and $400 for each batch delivered to customer B. Deliveries to customer C were made by mail in batches of 10 units at a cost of $60 per batch.

Which of the following statements is correct?

A.

Customers B and C have the same profit:sales ratio.

B.

Customer A has the highest sales revenue, the highest profit, and the highest profit:sales ratio

C.

Customer B has the lowest sales revenue, the lowest profit, and the lowest profit:sales ratio.

D.

Customer B has the highest profit:sales ratio.

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Question # 21

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

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Question # 22

Four mutually exclusive projects have been appraised as follows using net present value (NPV), internal rate of return (IRR), accounting rate of return (ARR) and payback period (PP).

Recommend which of the projects should be chosen.

A.

Project A

B.

Project B

C.

Project C

D.

Project D

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Question # 23

The manager of Ice Sculpting Co. believes that too much material is being wasted during downtime. She researched, and found throughput accounting to be an adequate alternative. However, she wasn't sure if all that

she read was accurate.

Which of the following statements are TRUE when using Throughput Accounting? Select ALL that apply.

A.

If there is no demand, then there should be no production.

B.

Not all sales equal to profit

C.

Stocking up on inventory is bad for business.

D.

All costs, except materials, are considered fixed.

E.

Departments should be operating at full capacity regardless of bottlenecks

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Question # 24

An organization has carried out a risk assessment for a project.

Which of the following possible outcomes are examples of upside risk?

Select ALL that apply.

A.

The project might be developed more quickly than expected.

B.

The project's costs might be higher than expected.

C.

The project's Economic Value Added might be higher than expected.

D.

The project's environmental damage might be less than expected.

E.

The project's payback period might be greater than expected.

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Question # 25

The net present value of the cost of operating a machine for the next 4 years is £6,340. The discount rate used is 10%.

What is the equivalent annual cost and the present value of the cost in perpetuity of operating this machine?

Use discount factors to 3 decimal places.

A.

Equivalent annual cost = £92,825

Present value of cost in perpetuity = £9,283

B.

Equivalent annual cost = 9,283

Present value of cost in perpetuity = £92,825

C.

Equivalent annual cost = £2,000

Present value of cost in perpetuity = £20,000

D.

Equivalent annual cost = £20,000

Present value of cost in perpetuity = £2,000

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Question # 26

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.

Profit margin

B.

R.O.C.E

C.

Current ratio

D.

Quick ratio

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Question # 27

The management of a leisure company, who are risk averse, have just approved an investment in a new amusement park. The country in which the amusement park will be located has a warm and mostly dry climate throughout the year.

A number of specific risks related to this investment have been identified as follows.

(1) Losses of very small amounts of revenue due to poor weather.

(2) A significant financial liability may arise due to the injury of a member of the public.

(3) Loss of several days of revenue due to rides being unavailable because of poor maintenance routines.

(4) Income fraud as a consequence of the high levels of cash handled by employees.

Using the TARA framework, which is the most appropriate way of managing each of these risks?

A.

Transfer risk 1; accept risk 2; avoid risk 3; reduce risk 4

B.

Accept risk 1; avoid risk 2; transfer risk 3; reduce risk 4

C.

Accept risk 1; transfer risk 2; avoid risk 3; reduce risk 4

D.

Reduce risk 1; transfer risk 2; avoid risk 3; accept risk 4

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Question # 28

A product requires one each of three different components.

Faulty components are identified only at the end of the manufacturing process.

The following average fault rates have been identified:

Component A – 1 in 100

Component B – 1 in 20

Component C – 1 in 10

The probability that a unit of finished product contains no faulty components is:

A.

0.84645

B.

0.00005

C.

0.99231

D.

0.97692

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Question # 29

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 $.

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Question # 30

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.

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