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Audit and Assurance Study Videos – 50% OFF – Promo Code : 50FIFTY – Quick Purchase

PPM 5-1

Question 01 (1 to 10)
Question 02 (11 to 20)
Question 03 (21 to 30)
Question 04 (31 to 40)
Question 05 (41 to 50)
Question 06 (51 to 60)
Question 07 (61 to 71)
Question 01 (1 to 10)

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1 / 11

1. The following statements have been made about performance measurements in not-for-profit organisations.

(1) Not-for-profit organisations do not have financial objectives.

(2) The outputs produced by not-for-profit organisations are easier to measure than output of commercial companies.

Which of the above statements is/are true?

2 / 11

2. What effect raising a long-term loan to buy a non-current asset would have on each of the following ratios? Choose the appropriate box for each ratio in the table below.

A. Current ratio

3 / 11

B. Gearing 

4 / 11

3. Why would a company want to encourage the use of non-financial performance indicators?

5 / 11

4. Which of the following figures would be the most suitable for divisional profit for the purpose of performance measurement?

6 / 11

5. The following are types of key performance indicators (KPIs):

(i) Return on capital employed

(ii) Gross profit percentage

(iii) Acid test ratio

(iv) Gearing ratio

Which of the above KPIs would be used to assess the liquidity of a company?

7 / 11

6. Which of the following key performance indicators would be appropriate to assess the customer perspective within a traditional balanced scorecard? Select all that apply.

8 / 11

7. Companies G and H are both involved in retailing. Relevant information for the year ended 30 September 20X1 was as follows:

G                                    H

$000                              $000

Sales revenue                                        50,000                          200,000

Profit                                                       10,000                           10,000

Capital employed                                 50,000                           50,000

Which of the following statements is true?

9 / 11

8. The following statements have been made about a transfer pricing system where Division A transfers output to Division B.

(1) Internal transfers should be preferred when there is an external market for the transferred item, because there will be more control over quality and delivery.

(2) The transfer price will determine how profits will be shared between the two divisions. Which of the above statements is/are true?

10 / 11

9. Which of the following is the best measure of quality to be included within a building block model in a rapidly growing clothing business?

11 / 11

10. Which TWO of the following matters would the manager of an investment centre have the power to make decisions over?

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Question 02 (11 to 20)

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1 / 10

11. Which of the following statements regarding measurement of performance in not-forprofit organisations is/are true?

(1) Output does not usually have a market value, and it is therefore more difficult to measure effectiveness.

(2) Control over the performance can only be satisfactorily achieved by assessments of ‘value for money’.

2 / 10

12. A government is looking at assessing hospitals by reference to a range of both financial and non-financial factors, one of which is survival rates for heart by-pass operations, and another is ‘cost per successfully treated patient’.

Which of the three Es in the ‘Value For Money’ framework is not measured here?

3 / 10

13. In a company with a divisionalised structure, Division A transfers its output to Division B. Division A produces just one item, Component K. Division B makes and sells an end product that requires one unit of Component K.

$ per unit of K

Marginal cost of production in Division A                                                                                    8

Fixed overhead cost of production                                                                                               3

Cost of selling in the external market                                                                                           1

Market price in the external market                                                                                           16

Division B contribution from further processing Component K,

before deducting the transfer cost                                                                                              25

 

Division A is working at full capacity.

What should be the minimum transfer price per unit of Component K in this situation?

$  

4 / 10

14. Organisations may need to develop performance measures to ensure that the needs of stakeholders are met.

Which TWO of the following measures are geared towards customer needs?

5 / 10

15. In a balanced scorecard system of performance measurement, which of the following is most likely to be used as a measure of performance from the customer perspective?

6 / 10

16. Which of the following statements regarding standard setting is correct?

7 / 10

17. A hospital wishes to establish a performance measurement for its ‘quality of care’, and in particular its adherence to appointment times for patients receiving medical checks.

Which of the following performance measurements would be the most suitable for this purpose?

8 / 10

18. Quotations have been sent to clients either late or containing errors. The department concerned has responded that it is understaffed, and a high proportion of current staff has recently joined the firm. The performance of this department is to be carefully monitored.

Which ONE of the following non-financial performance indicators would NOT be an appropriate measure to monitor and improve the department’s performance?

9 / 10

19. QQ plc monitors the percentage of total sales that derives from products developed in the last year.

How would this be classified in the balanced scorecard?

10 / 10

20. A company that uses a balanced scorecard approach to performance measurement has recorded the following data for the previous financial year.

  Products made and sold for at least two years Products introduced to market within the previous two years = ‘new products’ Total
Number of products 16 4  
Annual sales $3.0 million $0.50 million $3.50 million
Cost of sales $2.4 million $0.42 million $2.82 million
Hours worked 27,500 4,500  
Research and development costs     $150,000

Which of the following would be the most suitable measure of performance from the innovation and learning perspective in a balanced scorecard?

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Question 03 (21 to 30)

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No other characters, including commas, are accepted.

Navigating between questions

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1 / 10

21. What are the SIX dimensions of performance contained within the building block model?

2 / 10

22. Which of the following measures of performance for public sector services is a measure of efficiency?

3 / 10

23. The following extracts relate to Company H and Company R for 20X1:

Company H                              Company R

$000                                          $000

Revenue                                                                  20,000                                       26,000

Cost of sales                                                          (15,400)                                    (21,050)

–––––––                                    –––––––

Gross profit                                                              4,600                                         4,950

Expenses                                                                 (2,460)                                      (2,770)

–––––––                                    –––––––

Operating profit                                                      2,140                                         2,180

–––––––                                    –––––––

What is the operating profit margin for both companies for 20X1?

Company H                   Company R

A.                          23%                                19%

B.                           7%                              8.38%

C.                          12%                                 10%

D.                          38%                            10.7%

4 / 10

24. A company has a call centre to handle queries and complaints from customers. The company is concerned about the average length of calls and the time that it takes to deal with customers. As part of its balanced scorecard, it has set a target for reducing the average time per customer call.

A target for reducing the average time per call would relate to which of the four balanced scorecard perspectives?

5 / 10

25. Mary Co has annual sales of $960,000 and a current ratio of 3.2:1. All of its sales are for cash and are priced at a mark-up on cost of 50%. The average cash balance is $40,000 and the inventory turnover period is 90 days.

Assuming 360 days in a year, what is Mary Co’s quick ratio (acid test ratio)?

6 / 10

26. Which of the following would NOT be a performance measure in respect of quality for a railway company?

7 / 10

27. When goods are transferred from one division in a company to another division, and there is an intermediate external market for the transferred item in which the goods could be sold, which of the following states the economic transfer pricing rule for what the maximum transfer price should be?

8 / 10

28. The trading account of Kappa for the year ended 30 June 20X0 is set out below:

$                                   $

430,000

Sales

Opening inventories                                                                            50,000

Purchases                                                                                             312,500

Closing inventories                                                                             (38,000)

–––––––

Cost of sales                                                                                                                             (324,500)

––––––––

Gross profit                                                                                                                               105,500

––––––––

The following amounts have been extracted from the company’s statement of financial position at 30 June 20X0.

$

Trade receivables                                         60,000

Prepayments                                                  4,000

Cash in hand                                                   6,000

Bank overdraft                                               8,000

Trade payables                                             40,000

Accruals                                                           3,000

Declared dividends                                        5,000

 

Which one of the following correctly gives the inventories days (using average inventories) and the current ratio for Kappa Ltd for the period?

Inventory days              Current ratio

A                       49 days                            93:1

B                        33 days                           25:1

C                        33 days                           93:1

D                        49 days                          25:1

9 / 10

29. The following statements have been made about performance measurements in not-forprofit organisations.

(1) Providing value for money (VFM) means providing a service that is cheap, efficient and effective.

(2) For the refuse collection department of a local government authority, the efficiency of operations can be measured by the proportion of collected refuse that is recycled.

Which of the above statements is/are true?

10 / 10

30. A division of a company is capable of making two products – P and Q. They can sell both products externally as follows:

P                               Q

External selling price                                                       100                           130

Variable cost                                                                      80                            100

Contribution per unit                                                       20                              30

Labour hours per unit                                                  5 hours                   10 hours

The company has limited labour hours available, and the other division requires product Q.

What is the minimum transfer price that should be charged by the division in order to achieve goal congruence?

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Question 04 (31 to 40)

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No other characters, including commas, are accepted.

Navigating between questions

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1 / 15

31. Which of the following is a dimension of performance in a service business, as identified by Fitzgerald and Moon?

2 / 15

32. A company has a divisionalised structure in which Division A transfers its output to Division B. There is no external market for the transferred item and cost will be used as the basis for setting a transfer price. Which of the following will be the most appropriate basis for negotiating and agreeing a transfer price?

3 / 15

33. The following statements have been made about divisionalisation and performance measurement systems.

(1) Residual income as a measure of performance enables fair comparisons to be made between the performances of different divisions in the company.

(2) When a transfer price is based on cost because there is no external market for the transferred item, at least one of the divisional managers is likely to consider the transfer price as ‘unfair’.

Which of the above statements is/are true?

4 / 15

34. Jimmy Co has two divisions, A and B. Division A makes a component for air conditioning units which it can only sell to Division B. It has no other outlet for sales.

Current information relating to Division A is as follows:

 

Marginal cost per unit                                                                                                         $100

Transfer price of the component                                                                                      $165

Total production and sales of the component each year                                        2,200 units

Specific fixed costs of Division A per year                                                                     $10,000

Jane Co has offered to sell the component to Division B for $140 per unit. If Division B accepts this offer, Division A will be shut down.

If Division B accepts Jane Co’s offer, what will be the impact on profits per year for the group as a whole?

5 / 15

35. In an investment centre, a divisional manager has autonomy over negotiating all selling prices, has local functions set up for payables, inventory and cash management, and uses a full debt factoring service.

Which of the following should the divisional manager be held accountable and not accountable for?

A. The generation of revenues

6 / 15

B. Transfer prices

7 / 15

C. Management of working capital

8 / 15

D. Apportioned head office costs

9 / 15

36. Cold Co has two divisions, A and B. Each division is currently considering the following separate projects:

Division A                  Division B

Capital required for the project                                                     $32.6 million            $22.2 million

Sales generated by the project                                                      $14.4 million             $8.8 million

Operating profit margin                                                                          30%                           24%

Cost of capital                                                                                           10%                           10%

Current return on investment of division                                            15%                             9%

If residual income is used as the basis for the investment decision, what decision is each division likely to make? Choose the appropriate box for each division in the table below.

A. Division A

10 / 15

B. Division B

11 / 15

37. In the Fitzgerald and Moon model of performance measurement in service businesses, which of the following dimensions of performance reflects past results or achievements, rather than provides a guide or determinant for future performance?

12 / 15

38. LW Ltd is a divisionalised utilization comprising a number of divisions, including divisions A and B. Division A makes a single product, which it sells on the external market at a price of $12 per unit. The variable cost of the product is $8 per unit and the fixed cost is $3 per unit. Market demand for the product considerably exceeds Division A’s maximum production capacity of 10,000 units per month.

Division B would like to obtain 500 units of the product from Division A. If Division A does transfer some of its production internally rather than sell externally, then the saving in packaging costs would be $1.50 per unit.

What transfer price per unit should Division A quote in order to maximise group profit?

$  

13 / 15

39. In a company with a divisionalised structure, Division A transfers its output to Division B. Division A produces just one item, Component C. Division B makes and sells an end product that requires one unit of Component C.

$ per unit of C

Marginal cost of production in Division A                                                                            8

Fixed overhead cost of production                                                                                       3

Market price in the external market                                                                                   16

Division B contribution from further processing Component C,

before deducting the transfer cost                                                                                     25

 

Division A is not working at full capacity, and can meet in full the external market demand and the demand from Division B for internal transfers.

What should be the minimum transfer price per unit and the maximum transfer price per unit for Component C in this situation?

A. Minimum transfer price

$  

14 / 15

B. Maximum transfer price

$  

15 / 15

40. At the beginning of 20X6, a division has capital employed, consisting of non-current assets of $2 million (at net book value) and working capital of $0.2 million. These are expected to earn a profit in 20X6 of $0.5 million, after depreciation of $0.4 million. A new machine will be installed at the beginning of 20X6. It will cost $0.8 million and will require an additional $0.1 million in working capital. It will add $0.35 million to divisional profits before deducting depreciation. This machine will have a four-year life and no residual value: depreciation is by the straight-line method. When calculating ROI, capital employed is taken at its mid-year value.

What is the expected ROI of the division in 20X6?

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Question 05 (41 to 50)

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1 / 16

41. A government is trying to assess schools by using a range of financial and non-financial factors. One of the chosen methods is the percentage of students passing five exams or more.

Which of the three Es in the value for money framework is being measured here?

2 / 16

42. The senior manager is suspicious of a local manager’s accounts and thinks that the profit performance may have been overstated.

Which of the following would be a plausible explanation of an overstatement of profit?

3 / 16

43. A company has two Divisions, A and B. Division A manufactures a component which is transferred to Division B. Division B uses two units of the component from Division A in every item of finished product that it makes and sells. The transfer price is $43 per unit of the component.

$ per unit

Selling price of finished product made in Division B                                                        154

Variable production costs in Division B, excluding the

cost of transfers from Division A                                                                                          32

Variable selling costs, chargeable to the division                                                               1

33

Fixed costs                                                                                                                         $160,000

External sales in units                                                                                                         7,000

Investment in the division                                                                                              $500,000

The company uses 16% as its cost of capital.

What is the residual income of Division B for the period?

$  

4 / 16

44. Which of the following is NOT usually a consequence of divisionalisation?

5 / 16

45. XX is a division of Ko and is an investment centre. The head office controls finance, HR and IT expenditure but all other decisions are devolved to the local centres.

The statement of financial position for XX shows net value of all assets and liabilities to be $4,500m at the start of the year and $4,890m at the end. It carries no debt itself although the group has debt liabilities.

The management accounts for income read as follows:

$m

Revenue                                                                    3,500

Cost of sales                                                             1,800

Local administration                                                 250

IT costs                                                                         50

Distribution                                                                 80

Central administration                                              30

Interest charges                                                         90

Net profit                                                                 1,200

Ignore taxation.

What is the divisional ROI (1 decimal place)?

                                       %

6 / 16

46. Classify the following into quantitative and qualitative aspects of non-financial performance.

A. Volume of customer complaints 

7 / 16

B. Employee revenue

8 / 16

C. Defective products per batch 

9 / 16

D. Customer needs

10 / 16

E. Employee morale 

11 / 16

F. Brand recognition 

12 / 16

G. Customer satisfaction 

13 / 16

H. Repeat business 

14 / 16

47. Summary financial statements are given below for a division of a divisionalised company:

Statement of financial position                                           Statement of profit or loss

$000                                                                                     $000

Non-current assets                                2,400                      Revenue                                              7,300

Current assets                                        1,000                      Operating costs                                (6,800)

–––––                                                                                   –––––

Total assets                                            3,400                      Operating profit                                    500

–––––                      Interest paid                                       (320)

–––––

Divisional equity                                    1,500                      Profit before tax                                  180

Long-term borrowings                            900                                                                                    –––––

Current liabilities                                   1,000

–––––

Total equity and liabilities                   3,400

–––––

The cost of capital for the division is estimated at 11% each year. The annual rate of interest on the long-term loans is 9%. All decisions concerning the division’s capital structure are taken by central management.

What is the divisional return on capital employed (ROCE) for the year ended 31 December (to 1 decimal place)?

                                           %

15 / 16

48. Which of the following items should not be included in the calculation of the controllable profit of a profit centre?

  1. The revenue of the division
  2. An allocation of head office expenses
  3. Depreciation of machines
  4. Wages of employees of the division

16 / 16

50. At the end of 20X1, an investment centre has net assets of $1m and annual operating profits of $190,000. However, the bookkeeper forgot to account for the following:

A machine with a net book value of $40,000 was sold at the start of the year for $50,000, and replaced with a machine costing $250,000. Both the purchase and sale are cash transactions. No depreciation is charged in the year of purchase or disposal. The investment centre calculates return on investment (ROI) based on closing net assets.

Assuming no other changes to profit or net assets, what is the return on investment (ROI) for the year (to 1 decimal place)?

                                           %

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Question 06 (51 to 60)

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  • The only permitted characters for numerical answers are:
    • Numbers
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              For example: -10234.35

No other characters, including commas, are accepted.

Navigating between questions

  • Click Next Button to move to the next question.
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1 / 12

51. An investment centre has prepared the following forecasts for the next financial year.

$

Operating profit before depreciation                                                                               85,000

Depreciation                                                                                                                          20,000

Net current assets at beginning of year                                                                           30,000

Carrying value of non-current assets at beginning of year                                         180,000

 

The centre manager is now considering whether to sell a machine that is included in these forecasts. The machine would add $2,500 to divisional profit next year after depreciation of $500. It has a carrying value of $6,000 and could be sold for this amount. They would use the proceeds from the sale plus additional cash from Head Office to purchase a new machine for $15,000. This new machine would add $5,200 to divisional profit next year after depreciation of $2,000.

What will be the expected return on investment (ROI) for the division next year, assuming that the manager acquires the new machine and that non-current assets are valued at the start of year carrying amount for the purpose of the ROI calculation?

                                           %

2 / 12

52. Division B of a company makes units which are then transferred to other divisions. The division has no spare capacity, and can sell externally.

Which of the following statement(s) regarding the minimum transfer price that will encourage the divisional manager of B to transfer units to other divisions is/are true?

(1) Any price above variable cost will generate a positive contribution, and will therefore be accepted.

(2) The division will need to give up a unit sold externally in order to make a transfer; this is only worthwhile if the income of a transfer is greater than the net income of an external sale.

3 / 12

53. As one of its key performance indicators, a restaurant measures the amount of food that is wasted.

Under which perspective would this appear on a balanced scorecard?

4 / 12

55. WS plc makes components which it sells internally to its subsidiary QR Ltd, as well as to its own external market.

The external market price is $24.00 per unit, which yields a contribution of 40% of sales. For external sales, variable costs include $1.50 per unit for distribution costs, which are not incurred on internal sales.

WS plc has sufficient capacity to meet all of the internal and external sales. The objective is to maximise group profit.

At what unit price should the component be transferred to QR Ltd (to 2 decimal places)?

$  

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54. The 3Es are often used to assess performance in non-profit making organisations, especially in relation to value for money.

Which THREE of the following Es are used?

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56. The following statements have been made about the measurement of ROI and residual income. (1) ROI is usually measured as divisional operating profit before deducting depreciation as a percentage of the division’s capital employed.

(2) Residual income is calculated after deducting both depreciation on non-current assets and notional interest on the division’s capital employed.

Which of the above statements is/are true?

7 / 12

57. Bilal Co has two divisions, A and B.

Division A has limited skilled labour and is operating at full capacity making product Y. It has been asked to supply a different product, X, to division B. Division B currently sources this product externally for $700 per unit.

The same grade of materials and labour is used in both products. The cost cards for each product are shown below:

 

Product                                                                                                  Y                         X

($)/unit              ($)/unit

Selling price                                                                                        600                       –

Direct materials ($50 per kg)                                                          200                     150

Direct labour ($20 per hour)                                                            80                      120

Apportioned fixed overheads ($15 per hour)                               60                       90

Using an opportunity cost approach to transfer pricing, what is the minimum transfer price?

8 / 12

58. If the performance of a local fire service is judged in terms of its inputs rather than its outputs, which one of the following would be a suitable measure of performance?

9 / 12

59. Zed Co provides accounting services to government. On average, each staff member works six chargeable hours per day, with the rest of their working day being spent on non-chargeable administrative work. One of the company’s main objectives is to produce a high level of quality and customer satisfaction.

Zed Co has set its targets for the next year as follows:

(1) Cutting departmental expenditure by 5%.

(2) Increasing the number of chargeable hours handled by advisers to 6.2 per day.

(3) Obtaining a score of 4.7 or above on customer satisfaction surveys.

 

Which of the above targets assesses economy, efficiency and effectiveness at Zed Co? Choose the appropriate box for each target in the table below.

A. Target (1)

10 / 12

B. Target (2)

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C. Target (3)

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60. The following statements have been made about transfer pricing.

(1) Transfer pricing is almost inevitably required when a business is structured as more than one division and some divisions provide goods or services to other divisions.

(2) Where a perfect external market price exists and unit variable costs and unit selling prices are constant, the opportunity cost of transfer will be external market price or external market price less savings in selling costs.

Which of the above statements is/are true?

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Question 07 (61 to 71)

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61. Which of the following statements, regarding the existence of multiple objectives in not-for-profit organisations, is/are correct?

(1) They ensure goal congruence between stakeholders.

(2) Compromise between objectives can be problematic.

2 / 11

62. Which of the following could lead to an increase in management bonus, without benefiting the organisation?

(1) A manager holds on to heavily depreciated assets in order to avoid heavy investment in the period

(2) A manager in a manufacturing division uses absorption costing and builds up high levels of inventory

(3) A sales manager changes their fixed target to a relative target based on market share

3 / 11

63. Which of the following statement(s) about measuring effectiveness in not-for-profit organisations is/are true?

(1) Effectiveness targets cannot usually be expressed financially, and therefore non-financial targets must be used.

(2) The effective level of achievement could be measured by comparing actual performance against target.

4 / 11

64. Which of the following ratios is a measure of profitability?

5 / 11

65. When setting performance measures, external factors should be taken into account.

Which THREE of the following statements regarding external factors is/are true?

6 / 11

66. Which of the following is not a perspective associated with the balanced scorecard?

7 / 11

67. Stakeholders will have different objectives and companies may deal with this by having a range of performance measures to assess the achievement of these objectives.

Which of the following statements is true in relation to stakeholders?

8 / 11

68. Which of the following is NOT a feature of the Return on Investment performance measure?

9 / 11

69. When setting performance measurement targets it should be considered that there is the possibility that managers will take a short-term view of the company and may even be tempted to manipulate results in order to achieve their targets.

Which of the following would assist in overcoming the problems of short-termism and manipulation of results?

10 / 11

70. Cherry has two divisions, A and B. Division A makes a component which it can only sell to Division B. Current information for Division A is as follows:

Marginal cost per unit                                                        $240

Transfer price of the component                                     $396

Total production and sales per year                          4,000 units

Specific fixed costs of Division A                           $24,000 per year

Berry Co has offered to sell the component to Division B for $350 per unit. If Division B accepts this offer, Division A will be closed.

If Division B accepts Berry Co’s offer, what will be the impact on profits per year for the group as a whole?

11 / 11

71. Which of the following performance measures for a state run hospital would be a measure of effectiveness?

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