CIMAPRO19-P02-1 Exam - Topic 3 Question 8 Discussion

Actual exam question for CIMA's CIMAPRO19-P02-1 exam

Question #: 8
Topic #: 3

Under the absorption costing system, which simply allocates our entire amount of production overheads based on machine hours, we have found that out of our 4 products, 2 are profitable, 1 breaks even and 1 is making a loss.

Model D the most recent addition to the range is making a large loss after the price of a major component rose dramatically. Model A is only just breaking now too as costs have risen. The only two products making profit

are Models B and C. These two require the least about of machine hours so this makes sense.

However, the management have a few reservations. They cannot understand how B is so profitable. It requires several more stages of production than the other models and a whole day longer to be customised by an expert.

Select the correct answer from the list below that can help to explain this situation.

AABC would show that only a small amount of our overheads are based on machine hours.

BABC could have shown that some products are selling poorly and should be discontinued.

CABC would show that if overheads are shared equally that model B would be less profitable.

Show Suggested Answer

Suggested Answer: A

by Matthew at May 06, 2022, 07:48 PM

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5 months ago

Okay, I've read through the options a few times now. I think D is the best answer, as it aligns with the idea of taking a holistic approach and considering all aspects of the improvement initiative.

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