CIMA Professional Gateway Assessment (CPGA) 20 May 2009 - Wednesday Afternoon Session
CIMA Professional Gateway Assessment (CPGA) 20 May 2009 - Wednesday Afternoon Session
You are strongly advised to carefully read ALL the question requirements
before attempting the question concerned (that is all parts and/or sub-
questions). The question requirements for ALL questions are highlighted in a
dotted box.
ALL answers must be written in the answer book. Answers written on the
question paper will not be submitted for marking.
Maths Tables are provided on pages 13 to 15. These are detachable for ease
of reference.
The list of verbs as published in the syllabus is given for reference on the
inside back cover of this question paper.
Write your candidate number, the paper number and examination subject title
in the spaces provided on the front of the answer book. Also write your
contact ID and name in the space provided in the right hand margin and seal
to close.
Tick the appropriate boxes on the front of the answer book to indicate which
questions you have answered.
TURN OVER
Question One
OPQ is a manufacturing company. It is currently considering its pricing policy for next year. It
has completed market research into the expected levels of demand at various selling prices,
for one of its key products.
The product is manufactured in batches of 100 units. Analysis has shown that the total
production cost depends on the number of units as well as the number of batches produced
each year. This analysis has produced the following formula for total cost.
Required
(a) Prepare calculations to identify which ONE of the six selling prices per unit will
provide the highest annual profit for this product.
(7 marks)
(b) Explain why your chosen selling price might not result in the highest possible
annual profit from this product.
(3 marks)
OPQ is due to launch a new manufactured product to market. This product will improve
efficiency in the servicing of motor vehicles at garages. It is also considering its pricing
strategy for this new product. At present the product is unique as nothing similar is currently
available on the market. However, this unique position is likely to remain for only a maximum
of six months. Within this time one of OPQ’s competitors will develop and launch a similar
product.
The product prototype took a long time to develop. Research and development costs for the
product prototype were also substantial. OPQ is keen to recover these costs as soon as
possible.
Required
(c) Explain the alternative pricing strategies that could be adopted when a company
launches a new product.
(6 marks)
(d) Recommend a pricing strategy to OPQ for its new product. Explain how
adopting your chosen strategy would affect the sales revenue, costs and profits
of this product over its life cycle.
(9 marks)
TURN OVER
May 2009 3 CPGA
Question Two
Mr P has recently returned to his regular job in the Finance Department of RST Company,
after having spent the last six months as a member of a project team working on a key
initiative for RST.
Mr P’s overall impression of his project work experience is negative. Thinking about his
experiences while working on the project, Mr P feels, on reflection, that most of his time was
wasted in pointless, time-consuming meetings. He also feels that the final stages of the
project were not dealt with effectively. Project members simply went back to their regular jobs
without any discussion or feedback on the performance or outcomes of the project.
Mr P has now been asked to take on the role of Project Manager for a new project within RST
Company. He is determined to manage his project team in the most effective way and in
particular to ensure that members of this new team come away from the project with a
positive experience.
Required
(a) Discuss the problems that may be associated with project meetings and
recommend methods Mr P could use to ensure that meetings Mr P arranges,
as Project Manager, are effective.
(15 marks)
(b) Evaluate the contribution of the various activities that should be carried out as
part of project closure, post completion review and audit of a completed project.
(10 marks)
TURN OVER
TT holds investments in three other entities. The draft income statements for TT and BB, CC
and DD, the three other entities for the year ended 31 March 2009, are shown below:
TT BB CC DD
$000 $000 $000 $000
Revenue 2,450 1,200 675 840
Cost of sales (1,862) (870) (432) (580)
Distribution costs (94) (22) (77) (18)
Administrative expenses (280) (165) (120) (126)
Interest received - 2 - -
Finance costs (26) - - -
Profit before tax 188 145 46 116
Income tax (40) (50) (12) (37)
Profit for the period 148 95 34 79
NOTES
Note 3:
The policy of the group is to adopt proportional consolidation wherever permitted by
International Financial Reporting Standards.
Note 4:
Revenue and profits accrue evenly throughout the year, unless otherwise stated.
Required:
Prepare the consolidated income statement for the TT group for the financial year
ended 31 March 2009. Show full workings.
(Total for Question Three = 25 marks)
Notes: 8 marks are available for the adjustments in respect of notes 5 and 6.
Work to the nearest $100. For the purposes of this question it is not necessary to
make any adjustments to income tax.
End of Section A
TURN OVER
Your answers should be clearly numbered with the sub-question number and then
ruled off, so that the markers know which sub-question you are answering. For
multiple choice questions, you need only write the sub-question number and
the letter of the answer option you have chosen. You do not need to start a new
page for each sub-question.
Question Four
4.1 The table below summarises data extracted from the cost accounting records of MM.
The data show the cost and the inflation index for the period in which the costs were
incurred.
The uninflated variable cost per unit of output, to be used when predicting future costs, is
closest to
A $2·30
B $2·59
C $2·80
D $2·97
(2 marks)
None of the investments are divisible. All of the investments can only be undertaken
once within each year.
Company PPP has only $350,000 available to invest in the year to 30 June 2010.
4.3 A pastry shop produces fruit tarts in three different sizes. The fruit tarts all use the
same basic ingredients.
Details of the selling prices and the unit costs of the various sizes of fruit tarts, are as
follows:
The fruit used in the tarts is imported. The pastry shop has been told that it can buy no
more than 300kgs of fruit next week. The pastry shop has established its reputation by
producing its tarts using only fresh fruit. It is therefore not possible to buy the fruit
required for the tarts in advance.
Calculate the mix of tart sizes that should be made and sold in order to maximise the pastry
shop’s contribution for next week.
(2 marks)
TURN OVER
Which of the following information is required in order to decide whether or not any of the
products should be further processed?
(2 marks)
4.5 At which stage of group formation and development does establishing standards and
agreeing ways of working occur?
A Forming
B Norming
C Performing
D Storming
(2 marks)
4.6 Which ONE of the following types of flexibility is described as the ability to redeploy
employees to different tasks through multi-skilling?
A Functional flexibility
B Numerical flexibility
C Organisational flexibility
D Temporal flexibility
(2 marks)
A Coercive power
B Expert power
C Referent power
D Reward power
(2 marks)
4.8 Strategy, Style, Structure and Systems are four of the Ss in the McKinsey 7 S
Framework.
4.10 The current cost accounting (CCA) method of accounting for changing price levels
requires a series of adjustments to historical cost operating profit.
Describe the purpose and nature of the cost of sales adjustment (CoSA).
(2 marks)
4.11 KAT made an issue of 5% cumulative preference shares during the financial year
ended 31 January 2009. The shares have no fixed redemption date.
Note:
Under the terms of the issue KAT does not have to pay the 5% distribution in a given
year, but if it fails to do so in one year the obligation is carried forward to a future year.
Categorise the financial instrument as either equity or liability, and state the reason for your
categorisation.
(2 marks)
TURN OVER
C Value to the business is the higher of replacement cost and recoverable amount.
D Value to the business is the lower of value in use and realisable value.
(2 marks)
Reminder
1⎡ 1 ⎤
PV = ⎢1 − ⎥
r ⎣⎢ [1 + r ]n ⎦⎥
Perpetuity
Present value of $1 per annum receivable or payable in perpetuity, commencing in one year,
discounted at r% per annum:
1
PV =
r
Growing Perpetuity
Present value of $1 per annum, receivable or payable, commencing in one year, growing in
perpetuity at a constant rate of g% per annum, discounted at r% per annum:
1
PV =
r −g
Time series
Additive model:
Series = Trend + Seasonal + Random
Multiplicative model:
Series = Trend * Seasonal * Random
Regression analysis
The linear regression equation of Y on X is given by:
Y = a + bX or Y – Y = b(X – X ),
where:
Covariance ( XY ) n ∑ XY − ( ∑ X )( ∑ Y )
b= = 2 2
Variance ( X ) n ∑ X − (∑ X )
and a= Y –bX
or solve
∑ Y = na + b ∑ X
∑ XY = a ∑ X + b ∑ X
2
Exponential Y = abx
Geometric Y = aXb
Learning curve
Yx = aXb
where:
Yx = the cumulative average time per unit to produce X units;
a = the time required to produce the first unit of output;
X = the cumulative number of units;
b = the index of learning.
The exponent b is defined as the log of the learning curve improvement rate divided by log 2.
It is important that you answer the question according to the definition of the verb.
LEARNING OBJECTIVE VERBS USED DEFINITION
1 KNOWLEDGE
What you are expected to know. List Make a list of
State Express, fully or clearly, the details of/facts of
Define Give the exact meaning of
2 COMPREHENSION
What you are expected to understand. Describe Communicate the key features
Distinguish Highlight the differences between
Explain Make clear or intelligible/State the meaning of
Identify Recognise, establish or select after
consideration
Illustrate Use an example to describe or explain
something
3 APPLICATION
How you are expected to apply your knowledge. Apply To put to practical use
Calculate/compute To ascertain or reckon mathematically
Demonstrate To prove with certainty or to exhibit by
practical means
Prepare To make or get ready for use
Reconcile To make or prove consistent/compatible
Solve Find an answer to
Tabulate Arrange in a table
4 ANALYSIS
How are you expected to analyse the detail of Analyse Examine in detail the structure of
what you have learned. Categorise Place into a defined class or division
Compare and contrast Show the similarities and/or differences
between
Construct To build up or compile
Discuss To examine in detail by argument
Interpret To translate into intelligible or familiar terms
Produce To create or bring into existence
5 EVALUATION
How are you expected to use your learning to Advise To counsel, inform or notify
evaluate, make decisions or recommendations. Evaluate To appraise or assess the value of
Recommend To advise on a course of action
SECTION A
Workings:
(W1) Revenue
$000
TT 2,450
BB 1,200
CC (⅓ x 675) 225
3,875
Less: Intra-group sales and inventories (80)
Less: Intra-group sales of admin. services (12)
3,783