Page 275 - Microsoft Word - 00 CIMA F1 Prelims STUDENT 2018.docx

Exam style questions and answers

Which of the following are true? (select all that apply)

A As Chronologic are new internal controls are not that important

B Controls will provide the management of Chronologic with absolute
assurance and eliminate all risk

C All controls have inherent limitations

D All employees at Chronologic should have some responsibility for internal
controls

E As Chronologic continue to grow the risks will change so regular review of
internal controls is important.

F Once Chronologic has set up an internal control department the
management will no longer need to worry about risks.

G The first 8 months have not resulted in any issues so there is no need to
change any of the current processes.

44 Timings Ltd is a divisionalised business, with two divisions, Tick and Tock.

Tick makes a single product called the Ding which it can sell externally at $20
per unit or it can sell it to Tock. The variable cost of producing a Ding is $10.50
per unit & the fixed costs in Tick are $250,000. Tick can produce up to a
capacity of 100,000 Dings per month; the external demand for the Ding is well
over 200,000 units per month.

Tock would like to buy 10,000 Dings from Tick, they will process it further
costing $10 per unit, turning it into a Dong, which they believe they can sell for
$50 per unit.

If Tick sells internally it saves $2 per ding on packaging and distribution costs.

Which of the following statements are correct? Select all that apply

A Timings do not want the Ding to be sold internally.

B If the transfer price was $20 Tock may not proceed with the transfer.

C If the transfer price was $17.50 Tick may not proceed with the transfer.

D At a price of $18.50 Tick should only sell 5,000 units to Tock.

E As long as the Ding makes at least the same contribution from an internal
sale as an external sale Tick would be happy for the transfer to take place.

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