CIMA Advanced Management Accounting - P2 Exam Questions [2026]

QUESTION NO: 1
Division A and Division B are divisions of the same group. Division A transfers all of its output to Division B.
Which THREE of these alternative transfer pricing bases will prevent any cost inefficiencies in Division A being passed on to Division B?

A. Standard variable cost B. Actual variable cost C. Actual full cost D. Standard variable cost plus a profit margin E. Actual prime cost F. Market price

Correct Answer: A,D,F

QUESTION NO: 2
Which of the following statements about modified internal rate of return (MIRR) and internal rate of return (IRR) is correct?

A. MIRR favours projects with long payback periods whereas IRR does not. B. MIRR uses a more realistic reinvestment assumption than IRR. C. A project's MIRR will always be higher than its IRR. D. MIRR and IRR will always rank competing projects in the same order.

Correct Answer: B

QUESTION NO: 3
Which of the following is a correct description of the key features of net present value?

A. It adjusts the relevant cash flows of a project to reflect the time value of money. The discount rate used is always the company's weighted average cost of capital. B. It adjusts the relevant profits of a project to reflect the time value of money. The discount rate used reflects the risk of the project. C. It adjusts the relevant cash flows of a project after the deduction of depreciation charges to reflect the time value of money. The discount rate used is always the company's weighted average cost of capital. D. It adjusts the relevant cash flows of a project to reflect the time value of money. The discount rate used reflects the risk of the project.

Correct Answer: D

QUESTION NO: 4
A project requires an initial investment of $50,000. It will generate positive cash flows for two years as follows.

The cost of capital is 12% per year.
What is the equivalent annual net present value of the project?
Give your answer to the nearest $10.

Correct Answer:

$8190, $8191

QUESTION NO: 5
You have just assessed an investment proposal, involving an immediate cash outflow followed by a series of cash inflows over the next 7years, by deducing the NPV and the IRR. You have now discovered that you have underestimated the discount rate.
Correcting the underestimation will have the following effect, relative to your original deductions:

A. Not enough information given for an answer B. NPV will increase, IRR will reduce C. NPV and IRR will not change D. NPV and IRR will both increase E. NPV will reduce, IRR will not change

Correct Answer: E

QUESTION NO: 6
A company has just received the latest in a series of annual payments; this payment was $620. The annual payments are expected to continue for three more years with each payment being increased by the expected rate of inflation. The real cost of capital is 8% per year and the expected rate of inflation is
6% per year.
What is the present value of the future payments the company expects to receive?
Give your answer to the nearest $.

Correct Answer:

$1598

QUESTION NO: 7
An 80% learning curve will apply to the production of a new product. The first unit will require 120 labor hours. The labor rate is $11 per hour.
To the nearest $1, the expected total labor cost for the first 4 units is:

A. $5,280 B. $845 C. $4,224 D. $3,379

Correct Answer: D

QUESTION NO: 8
A company is determining the selling price for its new product.
At a selling price of $16 per unit there will be zero demand but for every $1 reduction in the price, demand will increase by 100 units per period.
Production must be in batches of 100 units. The variable cost per unit will be $8 if 400 units are produced in a period. For each additional batch produced in a period the variable cost per unit will increase by $1 per unit for the additional batch only.
No inventories will be held.
Which of the following sales and production volumes will generate the highest contribution per period?

A. 400 units B. 700 units C. 500 units D. 600 units

Correct Answer: C

QUESTION NO: 9
A company produces a single product which is sold to one customer.
Components for the product are stored in a warehouse and when required for production they are inspected. Those passing the quality check are moved to the initial production line. Part-completed items are then inspected and those passing this second quality check are moved to the warehouse until required in the finishing process. After the finishing process the products are inspected, packaged and returned to the warehouse until required by the customer.
The company is considering implementing a full just-in-time (JIT) system for both purchasing and production and has asked your advice about the activities that will be necessary if this system is implemented.
Which THREE of the following activities will definitely be required in the proposed JIT system?

A. Part finished product inspected B. Product manufactured C. Components received D. Finished product despatched to customer E. Components inspected F. Finished product stored

Correct Answer: B,C,D

QUESTION NO: 10
Place each method of analysing risk and uncertainty against the statement that describes it correctly.

Correct Answer:

QUESTION NO: 11
Which of the following statements about the use of traditional budgeting compared with a beyond budgeting approach is correct?

A. If there is a dynamic external environment with fast moving opportunities, beyond budgeting will inhibit the organization's ability to take advantage of these opportunities whereas traditional budgeting will not. B. If the organization has devolved decision making, beyond budgeting is not appropriate because it does not allow the same level of empowerment as traditional budgeting. C. If the organization's products are subject to rapid technological change, beyond budgeting would allow managers to respond more quickly than under traditional budgeting. D. If the organization's culture is such that a top down budgeting system is desired then this is better achieved by adopting beyond budgeting rather than traditional budgeting.

Correct Answer: C

QUESTION NO: 12
Division A is an investment centre with assets of $7.3 million. The following is an extract from the annual budget for division A:

The cost of capital is 14%.
Calculate the residual income for division A.

A. $358,000 B. $808,000 C. $2,008,000 D. $1,727,800

Correct Answer: B

QUESTION NO: 13
Which of the following statements about learning curves is correct?

A. A 90% learning curve indicates a faster rate of learning than an 80% learning curve. B. The learning index will always have a positive value. C. The learning index for an 80% learning curve is calculated as log 2 divided by log 0.8. D. The learning index for an 80% learning curve is calculated as log 0.8 divided by log 2.

Correct Answer: D

QUESTION NO: 14
An organization is competing in the high technology market. It sets a high sales price for its products initially to target the early adopters, and then the price is gradually reduced.
This pricing strategy is known as:

A. Premium pricing B. Market skimming C. Loss leader pricing D. Penetration pricing

Correct Answer: B