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P2 Advanced Management Accounting

Total Questions: 202

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CIMA CIMAPRO19-P02-1 Questions


Oliver owns a computer repair company. He is looking to close of of his departments as the demand for computer cleaning has dropped dramatically in the last 2 years and is no longer profitable.

The contribution margin of the department is 12,000, and the overheads are 23,000 (out of which 4,000 cannot be eliminated).

How would closing this department impact operating income?


PorkyCo is a leading bread manufacturer in Toyland operating two functional divisions: pulled and roasted. PorkyCo uses IT systems in all of its functions, for example, accounting has one system, manufacturing has its

system, warehousing has another and human resources is the latest to develop a dedicated system to manage training and development

The issue now is that when the CEO, Mr Button, needs information about two or more functions, he has to convene the department heads to get their reports and then study each in turn. As senior management

accountant at PorkyCo, help free up Mr Button's time by suggesting the most efficient way of getting all the information he needs.


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.


A company currently absorbs production overheads based on labor hours. The overheads absorbed by the two products that are made, L and M, are $4 per unit and $10 per unit respectively. These were based on the budgeted overheads of $7,000 and budgeted labor hours of 1,750. The budgeted output was 500 units of each product.

The company is investigating the use of activity based costing (ABC). Analysis has shown that the total production overheads of $7,000 are made up of $4,000 for set up costs and $3,000 for inspection costs. The cost driver for set up costs is the number of set ups and for inspection costs it is the number of inspections.

The cost driver rate for set ups is $160 per set up. Product L would need 5 production runs. Both types of product would need 1 set up for each production run.

Product L would need 2 inspections for each production run. Product M would need 1 inspection per production run.

The products are made in the same department and use the same equipment and staff but they are produced separately.

Which of the following statements are correct?

Select ALL that apply.

See the explanation below.


An organization is considering purchasing a new machine which will cost $600,000. The new machine will generate cost savings of $200,000 each year for five years. The cost of capital is 12%.

The profitability index (PI) for the investment in the new machine is:

Give your answer to one decimal place.

See the explanation below.

Question: 1 Answer: A
Question: 2 Answer: A
Question: 3 Answer: A

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