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CIMA P2 Exam
Advanced Management Accounting (Page 2 )

Updated On: 1-Feb-2026
Page 2 of 42
PDF with 202 Questions

A supermarket group has experienced operational problems during recent years, including a shortage of warehousing space due to increasing turnover and poor inventory management. The product portfolio has expanded considerably. Although this has led to increased sales volume, marketing and logistics costs have increased disproportionately. Non product-specific costs have also increased significantly.

Management is now considering using Direct Product Profitability (DPP).

Which of the following statements are valid in respect of the possible implementation of DPP within the supermarket group?

Select ALL that apply.

  1. DPP should result in improved management of storage space.
  2. DPP should result in improved supplier relationships.
  3. DPP should result in improved pricing decisions.
  4. DPP requires non product-specific costs to be apportioned rather than allocated.
  5. DPP provides summary information on the profitability of each customer group.

Answer(s): A,B,C



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.

  1. ABC would show that only a small amount of our overheads are based on machine hours.
  2. ABC could have shown that some products are selling poorly and should be discontinued.
  3. ABC would show that if overheads are shared equally that model B would be less profitable.

Answer(s): A



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?

  1. 1, 2, 3, 4
  2. 2, 1, 4, 3
  3. 1, 2, 4, 3
  4. 2, 4, 1, 3

Answer(s): D



A company expects to sell 3,600 units of Product A at a selling price of $750 per unit during the forthcoming year. The currently expected variable cost per unit is $860 per unit. The company requires a return of 15% during the forthcoming year on its investment of $2.4 million in Product A. Absorbed general overheads are expected to amount to $40 per unit.

What is the target cost for each unit of product A in the forthcoming year?

  1. $650
  2. $250
  3. $900
  4. $850

Answer(s): A



A division of a company transfers all its output to other divisions in the same company.

For this division, which of the following measures is NOT affected by the transfer price that the division uses?

  1. Operating profit
  2. Return on investment
  3. Cost of components purchased
  4. Sales revenue

Answer(s): C



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