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CIMA P2 Exam Questions
Advanced Management Accounting (Page 16 )

Updated On: 17-Apr-2026
Page 8 of 42
PDF with 202 Questions

DRAG DROP (Drag and Drop is not supported)

The performance of an investment centre manager is assessed by return on investment (ROI) alone. At present, his expected ROI for next year is 15%. The manager must now decide whether to invest in a new project that is expected to yield an ROI of 14%. The cost of capital is 12%.

Indicate whether each of the following statements is true or false.

  1. See Explanation section for answer.

Answer(s): A

Explanation:



Which of the following is a valid objective of a transfer pricing system?

  1. To achieve divisional autonomy
  2. To maintain head office control
  3. To establish centralised decision making
  4. To develop a top-down culture

Answer(s): A



CORRECT TEXT
A company comprises several divisions.

One of these divisions was originally expected to earn an operating profit next year of $800,000 on net assets of $4 million.
However, the divisional manager is considering investing in a project that would generate a project return on investment (ROI) of 38% on additional net assets of $500,000.

What would be the divisional ROI next year if the project was implemented?

Give your answer to the nearest percentage.

  1. 22 %

Answer(s): A



How does beyond budgeting NOT help to resolve the weaknesses of traditional budgeting? Select ALL that apply.

  1. Managers are set goals and targets to achieve rather than abiding by strict budgets and variances.
  2. Managers have a much larger scope of business goals that when achieved, will increase shareholder value.
  3. Managers are given more freedom and control over their business units under Beyond budgeting.
  4. Managers focus on keeping costs low in the short term to ensure maximised profits.
  5. Managers are given incentives to meet or undercut budgets.
  6. Managers are encouraged to designate responsibility to others to lessen their workload so they may concentrate on important tasks.

Answer(s): D,E,F



GHY has two subsidiaries. GHY-Motor manufactures car engines and GHY-Build designs and assembles cars. In the car industry it is common for manufacturers to buy parts, including engines, from other manufacturers.

GHY has granted GHY-Motor and GHY-Build full autonomy. GHY-Build is considering using an engine from another company for a new model that it is designing. GYY-Motor has a suitable engine, but it charges more than GHY-Build's preferred supplier.
Which of the following statements is correct? Select ALL that apply.

  1. GHY should consider permitting GHY-Motor to charge part of the selling price on engines sold to GHY-Build to head office.
  2. Forcing GHY-Motor to grant a discount to GHY-Build could lead to dysfunctional behavior.
  3. There could be significant non-financial issues associated with GHY-Build's decision to buy another engine.
  4. Parent companies should never grant subsidiaries full autonomy on matters such as intra-group sales.
  5. The threat of dysfunctional behavior is largely theoretical and managers can be trusted to maximise shareholder wealth.

Answer(s): A,B,C



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