cima cimapro19 p02 1 practice test

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

Which TWO of the following are examples of management information made possible by the
availability of big data?

• A. Customer profitability analysis to identify key strategic customers
• B. Customer information harvested from social media to target products
• C. Production cycle time analysis to improve production efficiency
• D. Real-time inventory management information shared with producers to influence their production plans
• E. A five year history of a company's aged debtor list to assess the long-run effectiveness of credit control

A very large organization is financed by both debt and equity. It evaluates all projects on the basis of
their net present value (NPV) using an organization wide weighted average cost of capital as the
discount rate.
For a small project, which TWO of the following would affect the project's cash flows AND the
discount rate?

• A. Taxation rates
• B. Inflation rates
• C. Depreciation rates
• D. Changes in working capital
• E. The project's terminal value

Division A is an investment centre with assets of $7.3 million. The following is an extract from the
annual budget for division A:

The cost of capital is 14%.
Calculate the residual income for division A.

• A. $808,000
• B. $1,727,800
• C. $358,000
• D. $2,008,000

One aspect of life cycle costing is the recognition of the fact that during the design or development
stage a large proportion of many products' life cycle costs are:

• A. determined
• B. wasted
• C. under absorbed
• D. amortised

A project with a 6 year life generates a positive net present value of $1,100. The discount rate is 8%.
To the nearest $, the equivalent annual benefit is:

• A. $5,085
• B. $238
• C. $177
• D. $693

The following data are available for a division for the latest period.

What is the division's residual income for the period?

• A. 12.50%
• B. 31.25%
• C. $36,000
• D. $3,000

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 $.

Which of the following investment appraisal methods provides an absolute monetary value on which
to base decisions?

• A. Accounting rate of return
• B. Net present value
• C. Internal rate of return
• D. Profitability index

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.

Which investment would be selected using the maximin criterion?

• A. Investment A
• B. Investment B
• C. Investment C
• D. Investment D