Question 1

Which TWO of the following actions taken during the budgetary planning process will result in the creation of budgetary slack?

Options :

A : Overestimating costs

B : Underestimating costs

C : Underestimating revenues

D : Overestimating revenues

E : Overestimating profit

Answer: A,C

Question 2

Which of the following statements is TRUE about the activity based costing system when compared to absorption costing method?

Options :

A : ABC is easier to administer than an absorption costing system

B : ABC will be less detailed than an absorption costing system

C : ABC will provide more accurate overhead allocation than absorption costing

D : ABC will cost less to administer than an absorption costing system

Answer: C

Question 3

Company D is about to launch an innovative and unique product which may face direct competition within three years. The company needs to achieve a rapid payback on all investments because it has limited access to external finance.
Which is the most appropriate pricing strategy for company D's new product, and for what reason?

Options :

A : Market skimming because it exploits areas of the market which are sensitive to price.

B : Penetration pricing because it can be used to rapidly build sales volume in mature markets.

C : Market skimming because it enables high prices to be charged to buyers who want the product as soon as possible.

D : Penetration pricing because it can be used to rapidly build sales volume in high growth markets.

Answer: C

Question 4

Which of the following statements is correct in respect of the key feature of dual pricing?

Options :

A : The selling price recorded by the selling division is higher than the cost recorded by the receiving division.

B : Internal customers are offered trade discounts depending on the number of units they purchase.

C : Internal transfers are priced at marginal cost and a lump sum payment is made subsequently to contribute to fixed costs.

D : Internal customers are charged a lower price than external customers to reflect savings in distribution costs.

Answer: A

Question 5

The following summarised financial statements have been prepared by JNM's North subsidiary for the year just ended:

Calculate the North subsidiary's Residual Income, assuming that JNM's cost of capital is 10%.
Give your answer to the nearest $ million.

Options :

A : A

Answer: A

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