Question 1

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

Accepted Answer

B

Explanation: The learning curve theory, also known as the experience curve, describes the systematic relationship between cumulative output and the time required to produce a unit. An 80% learning curve specifically means that every time the cumulative quantity of production doubles, the cumulative average time per unit will be 80% of the previous cumulative average time. Therefore, the cumulative average time per unit reduces by 20% (100% - 80%) with each doubling of output. This principle applies to the cumulative average time, not the time taken to produce each individual, successive unit.

Question 2

Under the absorption costing system, which simply allocates our entire amount of production
overheads based on machine hours, we have found that out of our 4 products, 2 are profitable, 1
breaks even and 1 is making a loss.
Model D the most recent addition to the range is making a large loss after the price of a major
component rose dramatically. Model A is only just breaking now too as costs have risen. The only two
products
making
profit
are Models B and C. These two require the least about of machine hours so this makes sense.
However, the management have a few reservations. They cannot understand how B is so profitable.
It requires several more stages of production than the other models and a whole day longer to be
customised by an expert.
Select the correct answer from the list below that can help to explain this situation.

Accepted Answer

A

Explanation: The company's current absorption costing system uses a single, volume-related cost driver (machine hours). This method inaccurately allocates overheads, especially when products have different complexities. Model B, despite low machine hours, is complex, requiring more production stages and expert customization. These activities generate significant overheads (e.g., setup, quality control, material handling) that are not driven by machine hours. Activity-Based Costing (ABC) would identify these activities and their true cost drivers. It would likely show that a large portion of overheads is unrelated to machine hours, and would reallocate these costs to Model B, revealing its true, and likely lower, profitability.

Question 3

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

Accepted Answer

B

Explanation: In the context of management accounting and operations, a "steep" learning curve represents a high rate of learning and rapid improvement. When a task is complex and repetitive, a steep curve indicates that after an initial period of familiarization, the time required to complete the task decreases significantly and quickly with each subsequent repetition. The steepness of the curve on a graph (with cumulative units on the x-axis and time per unit on the y-axis) visually depicts this rapid decline in time or cost, signifying that proficiency is gained quickly.

Question 4

A public sector service organization is considering whether to use a balanced scorecard or a value for
money approach based on the three Es to assess its performance.
Which of the following are correct comparisons of the balanced scorecard and value for money
based on the three Es as performance measurement frameworks?
Select ALL that apply.

Accepted Answer

C, E

Explanation: The Value for Money (VFM) framework, based on the three Es (Economy, Efficiency, Effectiveness), is a cornerstone of public sector performance measurement. The Balanced Scorecard (BSC) is also widely adapted for this context. Public satisfaction is a crucial measure of 'Effectiveness' in the VFM framework, as it indicates whether the service is achieving its intended outcomes. Similarly, in a public sector BSC, public satisfaction is a primary metric within the 'Customer' (or 'Citizen/Stakeholder') perspective. The three Es approach was indeed designed for and is central to public sector auditing and management. The BSC, while originating in the private sector, has proven to be a flexible tool that public sector organizations use to translate their unique strategic objectives into a comprehensive set of performance measures.

Question 5

Which of the following is a key objective when agreeing a basis for setting transfer prices?

Accepted Answer

A

Explanation: The primary objective of establishing a transfer pricing system is to promote goal congruence. This ensures that the decisions made by divisional managers, who are motivated to maximize their own division's profits, also align with the overall objectives and maximize the profits of the company as a whole. A well-designed system prevents sub-optimal decisions where a division might reject an internal transfer that would have been beneficial for the entire organization. The transfer price should guide managers to make the correct decision from a corporate viewpoint.

Question 6

Which of the following is the ideal basis to use for a transfer price when there is a perfect external market?

Accepted Answer

B

Explanation: When a perfect external market exists for an intermediate product, the ideal transfer price is the market price. This is because the market price represents the opportunity cost for the supplying division (the revenue it forgoes by not selling externally) and the cost the receiving division would incur if it purchased from an external supplier. Setting the transfer price at the market price ensures that divisional performance is measured accurately and that decisions made by divisional managers to maximize their own profit also maximize the profit for the company as a whole, thus achieving goal congruence.

Question 7

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.
CIMAPRO19-P02-1 practice exam questions

Which of the following statements is correct?

Accepted Answer

D

Explanation: The unit manufacturing margin is $30 ( $50 – $20 ). Delivery adds $3 per unit for A, $4 for B and $6 for C, so unit contribution becomes $27, $26 and $24 respectively. General overheads ($60 000) are not volume-related; with only three customers they are most reasonably apportioned equally ($20 000 each). Customer B’s very large volume means that the fixed $20 000 charge is spread over far more units than for A or C, so its profit after overheads represents the highest proportion of its sales revenue. Hence Customer B has the highest profit-to-sales (profit : sales) ratio.

Question 8

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.

Accepted Answer

A, B, C

Explanation: Direct Product Profitability (DPP) is a management accounting technique used, particularly in the retail sector, to calculate the profitability of individual products by tracing all attributable direct costs to them. This goes beyond the simple gross margin calculation. The detailed cost analysis enables better decision-making. By identifying the true costs of warehousing and handling for each product, DPP directly facilitates improved management of storage space (A). This information also strengthens the company's position when negotiating with suppliers on terms, delivery methods, and packaging, thus improving relationships (B). Furthermore, by providing a more accurate picture of a product's net profitability, DPP allows for more informed and strategic pricing decisions (C).

Question 9

A company has invested $500,000 in developing a new product and requires a return of 12% on this
investment.
The company has researched the market and has set the selling price for the new product at $300
per unit. At this price, sales volume for next year is forecast to be 500 units. The forecast unit cost is
$210.
What is the target cost gap per unit for the coming year?
Give your answer to the nearest whole $.

Accepted Answer

30

Explanation: The target cost gap is the difference between the forecast cost and the target cost. 1. Calculate Total Required Profit: The required return on the $500,000 investment is 12%, which equals $60,000 ($500,000 0.12). 2. Calculate Required Profit per Unit: This total profit is spread across the forecast sales volume of 500 units, resulting in a required profit of $120 per unit ($60,000 / 500). 3. Calculate Target Cost per Unit: The target cost is the selling price minus the required profit per unit: $300 - $120 = $180. 4. Calculate Target Cost Gap: The gap is the forecast unit cost minus the target cost: $210 - $180 = $30.

Question 10

$30.328 million is to be invested in a project that will yield annual net cash inflows of $8 million for 5
years.
What is the project's internal rate of return (IRR)?
Give your answer to the nearest whole percentage.

Accepted Answer

10%

Explanation: The Internal Rate of Return (IRR) is the discount rate at which the Net Present Value (NPV) of a project's cash flows equals zero. For this project, the initial investment of $30.328 million must equal the present value of the 5-year annuity of $8 million. The present value annuity factor is calculated as the initial investment divided by the annual cash inflow: $30.328m / $8m = 3.791. By referencing present value annuity tables or using a financial calculator, a 5-year annuity factor of 3.791 for a 5-year period corresponds to a discount rate of 10%. Therefore, the project's IRR is 10%.

Question 11

A firm of accountants uses an activity-based costing system. The firm's costing system permits staff to
indicate specific tasks undertaken for clients, such as requesting missing information. The amount
charged for a request for missing information is based on the following analysis.
Each request takes an average of 15 minutes of professional staff time. Professional staff are charged
out at $100 per hour.
Administrators then process the information request and prepare a standard letter. The average time
administration staff spend on each information request is 20 minutes. The cost of administration staff
at the firm is $75,600 per year. Administration staff work for a total of 6,000 hours per year. The cost
of printing and posting a letter is $1.
Calculate the cost of an information request.
Give your answer to 2 decimal places.

Accepted Answer

30.20

Explanation: The total cost of an information request is calculated by summing the costs of the resources consumed by the activity. 1. Professional Staff Cost: The time per request is 15 minutes (0.25 hours). At a rate of $100 per hour, the cost is 0.25 $100 = $25.00. 2. Administration Staff Cost: First, the hourly rate for administration staff is calculated: $75,600 / 6,000 hours = $12.60 per hour. The time per request is 20 minutes (1/3 hour). The cost is (1/3) $12.60 = $4.20. 3. Printing and Posting Cost: This is a direct cost of $1.00 per request. The total cost is the sum of these components: $25.00 + $4.20 + $1.00 = $30.20.

Question 12

The following data are available for an investment centre for the latest period. Where appropriate the data have been adjusted to reflect economic values. What cost of capital has been used to calculate the EVA? https://kxbjsyuhceggsyvxdkof.supabase.co/storage/v1/object/public/file-images/CIMA_CIMAPRO19-P02-1/page_19_img_1.jpg Give your answer to the nearest percentage.

Accepted Answer

10 %

Explanation: Economic value added is defined as NOPAT – (WACC × capital employed). Re-arranging gives WACC = (NOPAT – EVA) ÷ capital employed. Substituting the figures supplied for the investment centre (NOPAT 36 m; EVA 6 m; capital employed 300 m) yields WACC = (36 – 6) / 300 = 0.10 ⇒ 10 % (nearest whole percent).

Question 13

A new product is being manufactured for the first time. The first unit required 600 minutes of labor to
manufacture. It is expected that there will be a 90% learning curve for the first 20 units.
The learning index for a 90% learning curve is - 0.152.
Calculate the expected labor time to manufacture the 10th unit.
Your answer should be given to the nearest whole minute.

Accepted Answer

Answer available on page.

Question 14

SQ has the opportunity to invest in project X. The net present value for project X is $12,600. Cash
inflows occur in years 1, 2 and 3. The company's cost of capital is 14%.
Calculate the annualized equivalent annuity of project X.
Give your answer to the nearest whole $.
.

Accepted Answer

5427

Explanation: The annualized equivalent annuity (AE) or equivalent annual annuity (EAA) method converts a project's net present value (NPV) into a series of equal annual cash flows over its lifespan. This is particularly useful for comparing projects with different lives. The formula is AE = NPV / Annuity Factor. First, calculate the annuity factor for 3 years at a 14% cost of capital: Annuity Factor = [1 - (1 + r)^-n] / r Annuity Factor = [1 - (1.14)^-3] / 0.14 ≈ 2.321632 Next, calculate the AE: AE = $12,600 / 2.321632 ≈ $5,427.15 Rounding to the nearest whole dollar gives $5,427.

Question 15

A manufacturing company sells a large range of products. Forecast data for the next period for one of
these products are as follows.
CIMAPRO19-P02-1 practice exam questions

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 $.

Accepted Answer

Answer available on page.

Free CIMA CIMAPRO19-P02-1 Actual Actual Exam Questions