ACCA F5 - Performance Management - MCQs

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1. Dust Co has two division, A and B. Each division is currently considering the following separate projects:

                                                                   Division A            Division B
Capital required for the project                   $32·6 million        $22·2 million
Sales generated by project                          $14·4 million         $8·8 million
Operating profit margin                                    30%                       24%
Cost of capital                                                   10%                       10%
Current return on investment of division              15%                        9%

If the residual income is used as the basis for the investment decision, which Division(s) would choose to invest in the project?
A     Division A only
B     Division B only
C     Both Division A and Division B
D     Neither Division A nor Division B


2. The following costs have been arisen in relation to the production of a product:

(i)     Planning and concept design costs
(ii)    Testing costs
(iii)   Production costs
(iv)    Distribution and customer service costs

In calculating the life cycle costs of a product, which of the above items would be included?

A      (iii) only
B      (i), (ii) and (iii) only
C      (i), (ii) and (iv) only
D      All of the above

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