CIMA CIMAPRO19-P02-1 Exam Practice Test Instant Access

Question 1

If transfer prices are set at variable costs, the supplying division does not cover its fixed costs.

Which of the following does NOT resolve this problem?

AEach division can be given a share of the overall contribution earned by the organization.

BA system of dual pricing can be adopted.

CReduce the level of fixed costs.

DCentral management can impose a range within which the transfer price should fall.

Answer : C

Question 2

Which TWO of the following are reasons why cost-based approaches to transfer pricing are often used in practice?

AThe buying division will want to maximize its profits.

BThe transferring division will want to maximize its profits.

CBecause the external market is imperfect.

DBecause there is often no external market for the product that is being transferred.

EThe approach allows the organization to cover all the costs.

Answer : C, D

Question 3

Which TWO of the following expressions are correct?

A1 + money rate = (1 + real rate) x (1 + inflation rate)

B1 + real rate = (1 + money rate) / (1 + inflation rate)

C1 + real rate = (1 + inflation rate) / (1 + money rate)

D1 + money rate = (1 + inflation rate) / (1 + real rate)

E1 + inflation rate = (1 + money rate) x (1 + real rate)

Answer : A, B

Question 4

A company has a 31 December year end and pays corporation tax at a rate of 30%. Corporation tax is payable 12 months after the end of the year to which the cash flows relate. The company can claim tax allowable depreciation at a rate of 25% reducing balance. It pays $1 million for a machine on 31 December 20X4. The company's cost of capital is 10%.

What is the present value of the benefit of the first portion of tax allowable depreciation?

A$250,000

B$227,500

C$75,000

D$68,175

Answer : D

Question 5

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.

AEquivalent annual cost = 92,825
Present value of cost in perpetuity = 9,283

BEquivalent annual cost = 9,283
Present value of cost in perpetuity = 92,825

CEquivalent annual cost = 2,000
Present value of cost in perpetuity = 20,000

DEquivalent annual cost = 20,000
Present value of cost in perpetuity = 2,000

Answer : C

Question 6

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 $.

See Below Explanation:

Answer : A

Question 7

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?

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

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

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

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

Answer : C

CIMAPRO19-P02-1 P2 Advanced Management Accounting Exam Practice Test