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

You have just assessed an investment proposal, involving an immediate cash outflow followed by a series of cash inflows over the next 7years, by deducing the NPV and the IRR. You have now discovered that you have

underestimated the discount rate.

Correcting the underestimation will have the following effect, relative to your original deductions:

A large manufacturing company sells a range of products. Details of one of these products are as follows.

Each completed batch is delivered immediately in full to the one customer that purchases this product. The delivery vehicle is currently only 50% full when it makes these deliveries. The customer will accept deliveries of any size.

Managers are considering changing the production batch size to 150 units.

Increased material storage would be needed; this can be rented nearby at a cost of $1,500 per month.

The additional storage facility would enable an increase in the reorder quantity for the materials. As a result a 5% discount would be received on all materials purchased.

Using direct product profitability (DPP), what will be the monthly profit attributable to the product if the production batch size is changed to 150 units?

Give your answer to the nearest whole $.

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?

Which of the following statements is NOT correct?

Transfer prices between responsibility centers should be set at a level that:

It is often claimed that a two-part transfer pricing system offers a number of advantages to organizations which use it.

Which of the following statements is NOT an advantage of using a two-part transfer pricing system?

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).

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.