PM Pre-June 2026 Mock Debrief - Sec B

Added: 2026-05-16

[00:00:00]Welcome to this section B debrief of the PM MO. My name is Joe Tuffleel and I am an expert tutor for the ACCA.

[00:00:11]In this debrief, I'm going to be looking at all three section B questions in the PM mock.

[00:00:19]One of the questions is on life cycle costing which is in the advanced costing area of the syllabus. The second question is on throughput accounting which is also in the advanced costing area of the syllabus.

[00:00:35]And the third question is on divisional performance and transfer pricing which is in section E which is performance evaluation and control area of the syllabus.

[00:00:49]Now, it's no coincidence that there are two section B questions on advanced costing and that is because advanced costing is only tested in the MCQ areas.

[00:01:02]So, you're very likely to get two questions from that area of the syllabus. So, here's our first case study. This is on life cycle costing.

[00:01:12]The first question here is question 16 says based on the cost estimates made what is the life cycle cost per unit. So the life cycle cost per unit is what's being asked for. So when we're looking at life cycle costs we take all costs into account over the years that the product is in development in maturity and in decline.

[00:01:40]And we take the whole sales units at that time as well and we divide the total costs being the variable and the fixed costs by the total number of units made. So if we read the scenario, FIT specializes in manufacturing a small range of high-tech products for the fitness market.

[00:02:02]It's currently developing a new type of fitness monitor which would be the first of its kind in the market. It would take one year to develop and then sales will commence at the beginning of the second year. So sales are commencing here. The first year is development. The product is expected to have a commercial life of 2 years being years 2 and three before it's replaced.

[00:02:29]So don't start adding up those costs because we've already got a total column.

[00:02:35]And if you just check that the variable costs are total variable costs, which they are, and you've got fixed costs in as a total, then basically we're taking year 1, year 2, and year three. So therefore, we need that total figure and it's over the total number of units manufactured and sold. So this is quite a straightforward question. So the unit cost the life cycle cost is going to be 24690.

[00:03:13]Now that is in round thousands.

[00:03:17]So you need to therefore add more zeros because the total number of units is 300,000.

[00:03:25]So one divided by the other gives 82.3.

[00:03:30]So there's our answer.

[00:03:33]The distractors will be because you may have taken years two and three only or you haven't taken the year 1 cost perhaps. So well done if you got the correct answer straight away. Now the next question is going to take some time and this is where you have to have a game plan. There's about 18 minutes to complete this question. Now, this question two of five questions is going to take you some time. And you can tell it's going to take you some time because you've got some analysis here to do some learning curve. Got to find the 100th unit. And then you've got to then find the total revised labor production cost.

[00:04:18]This is something you can do probably quite simply, but it's going to take some time. So, the best thing to do is to move on and maybe scoop up some easier or quicker marks for the rest of the three questions and then come back at the end of the time. Maybe you've got 10 minutes spare to now spend time doing this question in order to get it correct.

[00:04:45]I'm not going to do that obviously now, but I am just telling you that that would be something that I would do in terms of exam technique. So let's read the question. What is the revised variable labor production cost for the new products life cycle?

[00:05:02]Okay, so they've given us some cost estimates have been made have not taken into account the learning effect and it's been assumed that labor production's time per unit is 0.5 hours.

[00:05:14]It's now been estimated that the first unit will take 0.5 hours, but a learning curve of se 95% is expected to occur at the 100th unit being completed.

[00:05:27]The labor cost per hour is 25 and the value of learning is given to us as minus0.074005.

[00:05:39]So we've got to use the learning curve formula to find the average time for the 100th unit times by 100 to get the total time.

[00:05:50]And then we have to find the average time for the 99th unit to get the total time for the 99. And therefore the 100th total time minus the 99 total time gives us the 100th unit for the steady state. We've not finished there though because it's not going to be simply taking that steady state hundreds unit and timesing it by the 300 units produced.

[00:06:18]We then have to times it by the $25.

[00:06:21]But that would get you the incorrect answer. Unfortunately, you have to see the problem as being the first 100 units take longer than the next to get to 300,000.

[00:06:36]Let me show you how that is done. So, here is the learning curve formula that you required. You find it in the help and formula sheet area of this practice platform.

[00:06:50]And so the average time to produce a unit is going to be the time taken for the first unit times by the batch number or the number of units in this case would be 100 to the index of learning. So we're going to be using that formula.

[00:07:12]So we need the total time for 100 batches or units and the total time for 99. so that we can get the hundth unit time. So it's going to be 100 199 * y = a x to the minus b or to the b. And so basically it's going to therefore be 0.5 which is the a which is the first unit and 100 is going to be x for the 100 and 99 for the 99 and then both will go to 0.074005.

[00:07:55]I'm just going to put minus b otherwise we're just going to be doing the same thing. And if we pop those in the calculator, that comes out as 35 98 and that comes out as 35.

[00:08:15]23. Now you must times them by this 100.

[00:08:19]Okay? You're not just doing the y= axus b. It's the 100 times to get the total time.

[00:08:28]And therefore then the difference gives us the 100th unit time which is 0.33.

[00:08:37]If you want to see how I do that in the calculator, we do 100 with 100 units.

[00:08:44]And now we're going to do the average time for 100 units which is the first unit times by 100 units to the B which we have to put to the minus 0.74 0 5.

[00:09:13]And therefore you see it's 35.559.

[00:09:17]So 35.56.

[00:09:20]So that is the 100th unit time that we're going to be using to cost up these 300,000 units. Now don't forget the first 100 units, okay, took 35.56.

[00:09:43]The remaining units to make up 300,000 are going to be at the steady state. So that'll be 299 0 units and therefore they are going to be times by the steady state of 0.33 and that will come out as 98967.

[00:10:11]So we're going to round that up to 993.

[00:10:16]That is the time though. So we need to times that by the cost and we finally get our answer which is 2475 075.

[00:10:33]Now notice there's one here that's a distractor and that'll be because if you used 300,000 times it by the steady state and then times it by 25.

[00:10:46]So the answer was there if you didn't understand the fact that the first 100 units still needed to be costed up with the learning rate happening at 95%.

[00:10:56]That is a difficult question, time consuming, lots of tricks and just a difficult concept to be honest for most students. So that's why I recommend leaving it to the end of that 18 minutes and getting on with the rest of the question. We now come on to question 18.

[00:11:15]It says which two of the following statements regarding life cycle costing are true.

[00:11:22]It includes forecast costs that may turn out to be incorrect.

[00:11:27]Absolutely. When you start your life cycle costing, you've no idea what the future costs are going to be. You're budgeting. It ignores postabandment costs relating to a product. No, absolutely. Postabandonment costs are included because that's part of the life cycle.

[00:11:47]They're not ignored. It is not generally used in service industries.

[00:11:54]Now, that is also incorrect. Banks use it to find the life cycle cost of their customers, for instance.

[00:12:04]And so, number four is correct. It allows managers to make better decisions about launching and discontinuing products as it shows the costs and revenues associated with the product over its life.

[00:12:18]So two had to be correct to get those two marks. If you only got one of those correct, it's zero.

[00:12:27]Question 19.

[00:12:29]One of the directors have commented that the cost estimates are incomplete and they do not include costs that would be incurred during the service and abandonment phase of the new fitness monitor. Which of the following costs are typically incurred during the service and abandonment phase?

[00:12:47]Well, absolutely decommissioning of the factories would be included.

[00:12:52]Design updating would not be included because we're abandoning the product.

[00:12:57]That would happen probably during maturity or growth or to extend the life of the product.

[00:13:09]Design updating could be used at the end of life of two but not in the abandonment phase.

[00:13:18]Servicing and warranty costs.

[00:13:20]Absolutely. Having to follow through with your after sales service and disposing of products as required by the local environmental laws. That all makes pretty much sense to me. And so it's 1, three, and four.

[00:13:37]Then we come to the final question for this case study. Question 20. It is now the start of the year. Unexpectedly, a competitor has launched a product similar to fitness monitor. Fit company will now have to launch the fitness monitor at a lower price than expected.

[00:13:56]The marketing department believes that a price of $75, it will be able to sell 100,000 units in year 2 and 2,000 units in year three as planned. Cost for the years two and three would remain unchanged. There would be no cost during the abandonment phase. So, what you've got to see are there some decisions here that we've got to decide on. But think about first of all, we're at the beginning of year two.

[00:14:26]It's now sunk those costs in year 1. The 2.3 million is now sunk. They've gone.

[00:14:33]We've already spent them. So, decisions going forward should now be based on incrementals.

[00:14:42]So are we going to make money going forward based on the costs going forward if we sell at 75?

[00:14:52]That's what you should be thinking. So first sentence says the product should be abandoned since the life cycle revenue of 22.5 million is less than the life cycle costs of 24.69 million.

[00:15:06]No, because we're discounting those year 1 costs.

[00:15:12]We're only looking at things going forward. The product should be continued since the life cycle revenue of 22.5 million is more than the remaining life cycle costs of 22.33 million. Well, let's add it up. Let's see if that statement is correct.

[00:15:31]So, I've added up the revenue. 300,000 * $75 does come to 22.5 million and the totals for year 2 and three is 22.33 million on the costs. So that statement I think is correct but we should go through the rest of them. The product should be abandoned since 75 million revenue in year 2 is less than the year 2 cost of 75.5.

[00:16:02]No, we've got to go forward and look at year three. We shouldn't abandon it just because year two doesn't pay. The product should not be sold in year two as a loss would be made. But launched in year three when the expected revenue of 15 million would exceed the cost of 14.78 million. That's not wise because the whole point of the growth of the product is that when you launch it, it will grow to your year three units.

[00:16:33]You can't just launch it in year three and expect to get 200,000.

[00:16:38]So, that's the end of that case study.

[00:16:41]Hopefully, you saw what I was talking about at the beginning. The final three questions were very quick.

[00:16:48]Question two took a long time and question one was quite quick. So the order you should have done them in was 1 3 4 five and then gone back to do number two. That would be good exam technique.

[00:17:04]Now we come to the case study on throughput accounting. This is a tricky topic. So let's take this carefully. The case on the left tells us it's all about the real pie company, which makes three types of pie, beef, chicken, and vegetable. And we've been given some costs and revenues and demands for each of the three pies as follows. We've got selling price and material cost and the labor cost. And we've got batch sizes and maximum daily demand. The pies are then made in batches using three sequential processes. weighing and chopping, mixing and finishing, and then finally baking.

[00:17:44]The products must be produced in their batch sizes, but are sold as individual units.

[00:17:51]So, we've been given times per batch.

[00:17:54]So, we've been given times per batch for each of the three pies. The baking stage of the process is done in three ovens which can be used for 8 hours a day and a total of 24 hours a day is available.

[00:18:10]Ovens have the capacity of one batch per bake regardless of product type. The availability of the other two processes vary each day.

[00:18:21]Real PI company uses throughput accounting and considers all costs other than materials to be factory costs which do not vary with production.

[00:18:35]So if we're doing throughput accounting, you should therefore be striking through straight away anything to do with labor because that is not considered a variable cost in throughput accounting.

[00:18:48]It's considered a factory cost.

[00:18:51]Let's now have a look at the requirements. It says on Monday, the real pie company has the following process resources available.

[00:18:59]It's always got 24 hours in the baking because of those three ovens 8 hours a day. But weighing and chopping is 2 hours and mixing and finishing is 5 hours. It says which of the three processes is a bottleneck activity?

[00:19:17]Well, we need to find out if we do all the maximum daily demand, how much time that's going to take for beef, chicken, and vegetable in weighing and chopping.

[00:19:31]In order to do that, first of all though, we need to find out how many batches we need to make. So if the maximum daily demand is 120 for beef and the batch size is 30 then we would make four batches.

[00:19:47]The same would be for chicken four. But for vegetables we need three batches.

[00:19:55]And so we need to times the number of batches by the time per batch. And so therefore four batches times by 0.25 equals 1 hour. 0.25 25 of an hour.

[00:20:09]Chicken would also be 1 hour and vegetables would be tsing it by three and therefore it would be 1.2 hours. So the total time required for weighing and chopping is 3.2 hours.

[00:20:33]Let's now do it for the mixing and finishing. Four batches times by 0.4 is 1.6.

[00:20:43]4 * 0.5 is 2. And 3 * 0.3 is 0.9.

[00:20:51]And the total therefore is 4.5 hours.

[00:20:57]Now let's check baking.

[00:20:59]That would be 8 hours.

[00:21:02]That again would be 8 hours and that would be 6 hours.

[00:21:08]And therefore 8 + 8 + 6 is 22 hours.

[00:21:14]So let's now look at the available time.

[00:21:17]And so there's only 2 hours available for weighing and chopping. So that therefore is a bottleneck.

[00:21:26]4.5 hours versus five available for mixing and finishing. That's okay. And 22 hours versus 24 is also okay. So it's weighing and chopping which is the bottleneck activity because we require 3.2 hours versus the 2 hours available.

[00:21:47]We now come to question 22 and it says on Wednesday due to urgent maintenance the mixing and finishing process is identified as the bottleneck. On this day only 3 hours in the process are available.

[00:22:03]Assuming that the real pie company wants to maximize profit match the optimal production plan for the Wednesday in batches.

[00:22:12]Well, this is a limiting factor analysis within throughput accounting.

[00:22:18]We need to maximize the throughput per mixing and finishing hour.

[00:22:26]And so therefore, we need to order the pies in order of production based on that, ranking them one to three. We then allocate them. the mixing and finishing process three hours in that order and then see what's left for the final one in the rank. This is going to take some time. So again, question two seems to be the question that you might want to leave till last. They're all independent questions. That's why it's telling us the bottleneck process is mixing and finishing. Now in question two because we shouldn't have to find out its bottleneck and then do this question.

[00:23:10]They have to be independent otherwise you can't get these two marks because you didn't get the first one right. So just be wary of that understanding.

[00:23:20]So the process is we first of all have to find the throughput per unit. We take the labor cost out the equation. So the throughput is going to be 4.5 selling price minus material cost and that is 3.25.

[00:23:39]That one is going to be 2.95 and the next one is going to be 2.75.

[00:23:50]So that's the throughput for beef, chicken and vegetable. We need to find the throughput per batch because we've got the mixing and finishing per batch.

[00:24:01]So, we're going to times that by 30 because that's the batch size. And therefore, the throughput is going to be 97.5 for that one, 88.5 for that one, and 82.5 for that one.

[00:24:22]We then need to divide it by the mixing and finishing time to find the throughput return per bottleneck hour.

[00:24:32]So that's going to be divided by 0.4 / 0.5 and divided by 0.3.

[00:24:40]And the outcomes are 2 44 just rounding them up 177 and 275.

[00:24:52]So then we rank them and we obviously rank vegetables first, beef second, and chicken third. We then need to allocate the resources.

[00:25:04]So vegetables, we're going to make three batches.

[00:25:09]So, I'm going to allocate three to the vegetables cuz they're number one.

[00:25:16]And three batches is going to take 0.3 per batch, which is 0.9.

[00:25:24]Secondly, we're going to allocate beef, which again, we need four batches for beef at 0.4, which will be 1.6.

[00:25:37]We've got 3 hours.

[00:25:41]So the balance left is 0.5.

[00:25:45]Well, chicken takes 0.5 per batch. So therefore, for chicken, we can only make one batch, which is our third option. So beef is therefore four and chicken is one.

[00:26:06]Three, four, and one is your answer.

[00:26:10]Now onto the next question. The real PI company has done a detailed review of its products and costs and processes and has identified potential actions to improve its throughput accounting ratio.

[00:26:23]Which two of the following statements would improve the throughput accounting ratio? So let's remind ourselves first of all what the throughput accounting ratio is. The throughput accounting ratio is the throughput return per bottleneck hour over the factory cost per bottleneck hour.

[00:26:51]Okay, so that's what it is the throughput return over the factory cost.

[00:26:58]So a bulk discount on flour and butter is available from suppliers that would improve the throughput accounting ratio because that would reduce material costs and hence increase the throughput return. So that is correct.

[00:27:18]A restaurant custer Mr. will be given a loyalty discount that would reduce the throughput return because sales price would be going down.

[00:27:31]So that is not correct.

[00:27:33]There's an additional demand for vegetable pies in the market. That has no effect because demand for veg pies can increase but it will not impact the TPA as demand is not the restriction. So that will not affect it.

[00:27:50]The rent of premises has been reduced for the year. Yet that will reduce the factory cost which will increase the throughput return.

[00:28:00]So the answers are the first one and the fourth one.

[00:28:05]Come to the next question. In a previous week, the weighing and chopping process was the bottleneck and the resulting throughput accounting ratio for the real pie company was 1.45. 45. Which of the following statements about the throughput accounting ratio for the previous week is are true? Number one, the PI company's operating costs exceeded the total throughput contribution generated from its three products. No, that would mean the throughput accounting ratio is less than one and so it's not a viable product.

[00:28:46]So as it's greater than one, the throughput must be higher than the costs. So that's not correct.

[00:28:56]Less time in the mixing and finishing department would have improved the throughput accounting ratio. That's not correct because mixing and finishing is not the bottleneck.

[00:29:08]It's the weighing and chopping process which is the bottleneck. Improved efficiency during the weighing and chopping process would have improved the TPA. Absolutely because that is the bottleneck and so statement three is correct. So the answer is three only.

[00:29:27]Now becomes the final question. On Friday due to a local food festival at the weekend the real pie company is considering increasing its production of beef pies. These beef pies can be sold at the festival at the existing selling price. So, we're looking at beef pies.

[00:29:46]The company has unlimited capacity for weighing and mixing processes on Friday, but existing three ovens are already fully utilized.

[00:29:55]So, the ovens are now the bottleneck.

[00:29:58]Therefore, in order to supply these pies to the festival, the real pie company will need to hire another identical oven at a cost of 150 for the day, which will be utilized for the full 8hour day.

[00:30:17]So, how much profit increase profit if the company hires the new oven and produces as many beef pies as possible?

[00:30:29]Well, if we have a new oven 8 hours, then we can make four more batches because it takes 2 hours per batch. So two hours per batch remember for beef and therefore we can make four batches. And so the throughput return for beef is 450 - 125. So 450 - 125 which is 325 per unit. We need to times that by the number of units in a batch which is 30. and then times by the number of batchets that will give us 390.

[00:31:17]Now notice that is there that is a distractor.

[00:31:23]They want the profit not the throughput return.

[00:31:27]And so we need to take account of the 150. So we take off the 150 because of paying for the oven and it equals 240.

[00:31:38]Need to watch out for those distractors.

[00:31:40]The other distractors will be if you've used contribution and not throughput return, taking into account those labor costs. Well done if you've managed to complete that throughput accounting question. It's a very difficult area of the syllabus. So hopefully this is the hardest question that you can come across and if you get it in your exam, you'll be able to do it quickly and efficiently.

[00:32:05]So here we are on the last case study question in section B and it's the Pelaton group and this is all about divisional performance and so let's first of all look at the scenario.

[00:32:21]It has the bikes division and the treads division and both divisions operate in similar markets but they operate as separately as investment centers. Each month operating statements must be prepared as a basis for performance measurement.

[00:32:39]In the past, ROI has been calculated using controllable profit.

[00:32:46]But last month, senior management decided to include all fixed costs and recharge head office costs.

[00:32:52]Consequently, each division is now required to deduct all fixed costs and the share of operating costs and the share of head office costs in arriving at net profit. This is now used for return on investment. Oh, okay. So we used to have controllable profit. We now have to use net profit which includes things that we don't control.

[00:33:18]The ROI target is 25%.

[00:33:23]And for each of the last three months using the previous controllable profit basis divisions B and T have been above this resulting in healthy bonuses.

[00:33:32]Brilliant. The company's cost of capital is 10%.

[00:33:38]We'll be using that for calculating residual income. So we've got this budgeted operating statement and clearly labeled our controllable costs and uncontrollable costs and then we've got these head office costs. So let's have a look at what we're asked to do. Oh, we've also got our divisional assets beneath.

[00:34:04]says, "Which of the following options is the correct expected return on investment using the old method?" So, we've got to use the old method, not the new method. Okay? So, reading it clearly, the old method.

[00:34:19]So, return on investment is basically controllable profit therefore over divisional assets.

[00:34:28]Well, controllable profit will be contribution less controllable fixed costs.

[00:34:35]and divisional assets hasn't got any uncontrollable assets in it. They haven't given us any information for that. So, we can't change that.

[00:34:46]Bringing up the calculator, then we're going to do it for bikes first. So, it's going to be 960us 120.

[00:35:01]So, it's 840 divided by the 3,000. Checking that everything is in the same money. Yeah, that's 28%.

[00:35:15]So, 28% is option four. Okay. Well, let's just check, okay, that we've done it on the right basis. So, option four is 28%.

[00:35:26]And if we do it for treads, then it's 600.

[00:35:32]minus 60 and then we divide that by 1600 and that gives us a percentage for ROI of 33.75.

[00:35:48]So the answer is option four. So the other options are distractors.

[00:35:55]The first one, option one is if you use net profit.

[00:35:59]Option two will be if you use net profit and only add back uncontrollable fixed costs and option three just uses operating profit.

[00:36:09]So all distractors it's option four that you needed controllable profit.

[00:36:16]Now we come to the next question and it says the divisional managing directors have heard that a performance measure called residual income which may provide more information and be a better measure for bonuses.

[00:36:29]Calculate the residual income for each of the divisions based on the new method of net profit figures as calculated in the table. So now we've got to not use the controllable profit. We've now got to use the new measure of net profit.

[00:36:45]And so residual income is profit minus imputed interest. And you calculate computed interest by using the 10% cost of capital and tsing it by the divisional assets.

[00:37:03]We need to make sure we put our answer to the nearest round thousands. Okay, nearest round thousands. So, let's pull up the calculator again.

[00:37:16]And we're going to start with bikes this time, and it's 480.

[00:37:22]If we're doing it to the nearest round thousands, use the 480.

[00:37:26]And then we're going to minus 10% of the assets. So 0.1 times by the 3,000 which is really 3 million but let's do it like this. And that's 180. So we need to put in 180 there cuz that's in the correct basis round thousands.

[00:37:51]Clear. Let's now do treads which is 240 minus 10% of the 16 100 and therefore that is 80. So we need to put 80 in there.

[00:38:11]That was a very simple calculation for two marks, but it was just making sure you read it carefully what you're using where and that you're putting it in in the right format.

[00:38:24]Now we come to question 28.

[00:38:27]Two of the divisional managers in Pelaton group disagree on the performance measure which should be used to determine their bonus for the year.

[00:38:36]Manager one is the manager of the larger division which is bikes while manager two is the manager of the smaller division which is treads. Manager one prefers to use residual income as given the following examples of the limitations of ROI to support this decision.

[00:38:54]So which of the following is a valid reason for Pelaton choosing ROI over ROI?

[00:39:04]Number one, ROI requires an estimate of the cost of capital, a figure which can be difficult to calculate. Well, that's not correct. ROI doesn't require an estimate of the cost of capital. ROI requires an estimate of the cost of capital. ROI can overemphasize short-term performance at the expense of long-term performance. Yes, that is a correct statement, but it's not a valid reason for it to choose RARI over ROI because that is also a problem of residual income. So, that's not the correct answer. If assets are valued at netbook value, ROI figures generally improve as assets get older. This can encourage managers to retain outdated planting machinery. Again, that is a correct statement, but it's not a valid reason for RO I over ROI. And that's because RO I also suffers from and that's because RAR would also be improving as assets get older. So, it's the final one. ROI is a relative measure. Therefore, small investments with high rate of return may appear preferable to a larger investment with a lower ROI. However, the large investment may be worth more in absolute terms.

[00:40:23]Absolutely. That is a valid reason for using R I over ROI.

[00:40:30]Division T has now been offered an immediate opportunity to invest in a new machinery at a cost of 2 million. The machinery would be expected to expand division T's production capacity resulting in increase in profit of 450,000 perom.

[00:40:47]Which of the two of the following is a true statement about this opportunity and management behavior? So we've got four statements here and it's looking that we need to know what the ROI and the ROI is in able to understand what's going on. So let's calculate the ROI of this investment.

[00:41:06]So ROI is going to be 450 over the 2 million and that will give us 22.5%.

[00:41:24]RAR I is going to be the 450 minus the 10% times the 2 million.

[00:41:39]And if you put that into your calculator that comes out as 250.

[00:41:46]So, RAR I is lower than the company's 25% target.

[00:41:54]It's lower than the target.

[00:42:00]But R I is positive.

[00:42:07]So, let's now go and have a look at the statements. Based on ROI, this opportunity will be rejected by the division and accepted by the group. No, it will be rejected by both because it's lower than the target of 25%.

[00:42:24]And don't forget healthy bonuses come being above 25%.

[00:42:29]So both the division and the group would reject it.

[00:42:34]The division will reject based on ROI but accept based on ROI. Yet the division will reject based on ROI and it will accept based on RORI because it is is positive. So that is a correct statement.

[00:42:48]Both the division and the company will accept based on RI.

[00:42:54]Absolutely. Both the group and the division will accept based on RAR.

[00:43:01]So the final one is not correct. Based on RAR, this opportunity will be rejected by the division accepted by the group. No.

[00:43:10]So, we're going to accept based on ROI and we're going to reject based on ROI.

[00:43:14]It's just making sure you get the correct statements.

[00:43:18]Then we come to the final one. It says, which of the following could lead to an increase in management bonus without benefiting the organization?

[00:43:28]First statement says, a manager holds on to heavily depreciated assets in order to avoid heavy investment in the period.

[00:43:36]Absolutely.

[00:43:38]that would increase their ROI and their RAI and therefore having heavily depreciated assets is benefiting the manager in terms of getting his bonus but of course that is not benefiting the organization.

[00:43:52]Don't you need investment to improve profits going forward?

[00:43:57]Number two, a sales manager changes their fixed target to a relative target based on market share.

[00:44:05]No, that is the opposite, isn't it? So that would benefit the organization.

[00:44:11]A sales manager changing their fixed target to a relative target based on market share would benefit the organization because as market size increases, so will that manager's target and as the market size falls, so will that manager's target. So that is that would benefit the organization because it would add controllability.

[00:44:37]They can't be expected to be responsible for the overall market but they can be responsible for their share of it. So number two is not cor to select because that does benefit the organization.

[00:44:53]Then number three, a divisional manager of a buying division buys internally from another division at a slightly cheaper price than they can get from an external supplier.

[00:45:04]The selling division is at full capacity and cannot sell all of its external customers as it would like losing contribution on these sales. This loss contribution is higher than the increased cost from the external supplier.

[00:45:18]Yet that is a problem. we should be buying from that external supplier because the loss contribution is higher than the increase in the cost.

[00:45:31]So therefore, that could lead to an increase in the management's bonus, couldn't it? because they're getting a cheaper product internally, but it's not benefiting the organization because the organization is losing more contribution from those external sales than it would if the manager bought in from the external supplier as a whole.

[00:45:56]That is part of transfer pricing.

[00:46:00]So the answer is one and three.

[00:46:04]So that's the end of the section B debriefs for the PM mock. I hope you found them useful.