Category Archives: P2

Passing the CIMA P2 Exam First Time!

EditI managed to pass the CIMA P2 Advanced Management Accounting first time this week and must say I am over the moon with finally getting it out of the way!!

I scored a scaled score of 101 out of 150, bearing in mind you need 100 to pass I just edged over line!! Nevertheless, a pass is a pass and I can move on to the MCS now.

I started studying the P2 materials almost 12 months ago, but after taking a break from studying due to other commitments I finally picked up the P2 books a couple of months ago and managed to pass it first time.

Here are my lessons learnt and materials used for the exam.

CIMA P2 Materials

I signed up for the CIMA Study Prime course at the beginning of the year and found the content was a great mixture of interactive and “plain text” content. I did all of my initial studying in the early part of the year with this course and would recommend it to other CIMA students too – I actually wrote a blog article on this earlier this year here.

But when I picked up the pen again after 6 months away from the books, I was in two minds whether to go through the CIMA Study Prime course materials again. I felt it would be a duplication of work, so instead I looked towards the Astranti P2 masterclass video to refresh my knowledge of the syllabus.

Once I had refreshed my knowledge I turned towards the mock exams and used the Kaplan CIMA P2 Exam Practice Kit and the online Practice Tests Academy P2 mock exam question bank of over 500 questions.

Build-up to Exam Day

I gave myself three weeks to concentrate on taking mock exams, doing practice questions and mock exams in real conditions using the practice tests academy materials. I had time to revise the weaker areas of the syllabus based on the mock exam results.

However, I still found myself coming up short of a passing grade of 70% which did lead me to panic somewhat in the final few days.

But I continued revising the materials and practising my weak areas like the demand/pricing equation and standard deviation (which in fact is a doodle when I compare it to the pricing equations and linear programming!).

I stayed calm on exam day as I know I tend to work better under the pressure of a real exam and to be honest I just wanted to get it out of the way to see where I was – also I felt I couldn’t really do any more work than I had already done.

To summarise, here are my lessons learnt:

Use the final days before exam to keep revising

I was even revising the night before. I’m sure the extra theory I read on Transfer Pricing the night before helped me a great deal in the exam the following day.


Don’t neglect the theory

It might seem like a wise idea to skim read the wordy part of the syllabus – especially with P2 and F2 – and jump to the questions and calculations but you need to make sure you have covered all bases.

i.e. Calculating an acceptable transfer in the question is all well and good but can you also explain the difference between a Two Part Tariff and Dual Pricing?

Mock Exams – don’t get too disheartened with poor results

I found that the questions I faced in the mock exams felt tougher than the exam itself, maybe this is down to a combination of things. One of them being I tend to perform better under stress of an exam.

But don’t get down with your mock exam results or question practice. Best to iron out your mistakes before exam day and approach the exam with confidence.

Have an exam strategy

You will be pushed for time in the exam. Be smart – answer the easier short style questions first. Build confidence and move on.

This is nicely explained in the video below.


The CIMA Objective Tests are tough, there is no hiding place as I learnt when tackling my first one with F2 which I failed twice before passing – however, since then I have managed to pass E2 and now P2 first time – so it is possible.

Just keep going!

CIMA P2: Throughput Accounting

Throughput Accounting is a modern management accounting technique that offers an alternative view to the more traditional cost accounting.

It’s all about identifying the constraint or limiting factor in the production process and exploiting it to maximise profit. It allows management to focus efforts to make the best possible use of the limitation.

Theory of Constraints “TOC”

Goldratt’s Theory of Constrains is a methodology that is covered in the CIMA P2 syllabus and can be applied to systems that are unable to fulfil their goals or targets. Goldratt suggests that any process is only as strong as it’s weakest link and all effort should be focused on removing the constraint by following a five step process.

The constraint in a manufacturing environment is also referred to as a “bottleneck”

  1. Identity Constraint
  2. Decide how to exploit the constraint
  3. Sub ordinate other activities/non-constraints
  4. Elevate the constraint
  5. Repeat the process

These five steps ensure the organisation has an ongoing improvement that is based on the identified constraints or weak links.

And it’s measurements are given via Throughput Accounting – which Goldratt describes as key performance measure.

Throughput Accounting

Is also known as the rate at which the system generates money, it is measured in monetary terms and naturally linked to profitability. Therefore, the objective is achieve the maximum possible throughput profit or “flow”.

Throughput Accounting is based around achieving the maximum possible net profit in a limited time frame with limiting conditions. The formulas used and and a scenario based example is the best way to illustrate how Throughput Accounting can be used and the principles behind it.

Formula and Ratios

Throughput $ = Sales Revenue less Direct Material Costs

Throughput Accounting Ratio (TPAR) = Return per factory hour/Cost per factory hour

Return per factory hour = Throughput $ per unit/Time per unit

Cost per factory hour = Total factory cost/Total time available

The two key formulas here are the Throughput $ and the TPAR – the other formulas are required to understand how to calculate the TPAR.

Below is a scenario of limiting factors and how throughput accounting can be applied as how to maximise profit.

Throughput Accounting

Production Plan to Maximise Profit

The TOC Theory of Constraints in this scenario is the fact the total machine hours is just 32,500 yet to fulfill the demand required we would need 35,000 hours  (15,000*2)+(5000*1).

To calculate the production plan to achieve the maximum profit we need to find the Throughput value per machine hour, which we know is the Selling Price less the Materials/the total machine hours per unit.

Product A $175 (275-90)/2 hours = $92.50

Product B $125 (325-165)/1 hour = $160

With this mind, we need to exploit the constraint by maximising the production of Product B as it gives the highest throughput value and filling the rest of the time with Product A to achieve the maximum profit in these conditions.

Proposed Production Plan

Product B: 5000 units x 1 hours = 5,000 machine hours

Product A: 13,750 units x 2 hours = 27,500 machine hours

Below is a summary of the financials based on this production plan.

CIMA P2 Exam Tips

You can see the total throughput profit (which is considering just the direct materials as a variable cost) gives over 2m profit.

However, the factory (or total fixed costs) need to considered and this is based on the number of units in the original demand and not the proposed production plan as the fixed costs will be incurred regardless of any constraint.

The final result would be a total maximum profit of 421,875.

TPAR – Throughput Accounting Ratio

Finally, let’s look at the TPAR based on the above scenario and see what that tells us.

The TPAR ratio is calculated on each product and is done by dividing the Return Per Factory Hour against the Cost Per Factory.

TPAR - CIMA P2 Exam Tips

You can see that both products have a ratio above 1 which means that the product will be profitable – in simple terms in means that the throughput profit is greater than the fixed costs. In fact you can see that Product B gives a TPAR of a whopping 3.15, so making over three times profit in relation to the fixed costs.

CIMA P2: Transfer Pricing

Transfer pricing is a subject that crops up on the CIMA P2 paper and here is my take on the subject.

What is Transfer Pricing?

Transfer pricing is common place among multi national corporations where there are high volumes of “inter-company” activity. Companies tend to use transfer pricing to lower their overall tax bill of the group.

Rather than get bogged down with lengthy theory and explainations, I feel the best way to explain is to illustrate with simple examples.

Company NOT using Transfer Pricing

CIMA Transfer Pricing

  • Here you can see a traditional relationship between different departments within a business.
  • Division A makes purchases of raw materials for 80 and after production in A they add labour costs of 20.
  • Division B finalises the product and incurs costs of 40 and sell the product to the end customer for 200.
  • You can see straight away while the Group as a whole has made a profit of 60 from this production, the manager of Division A will be reporting a loss of 100, while his counterpart in Division will be reporting a mega profit of 160.

Company USING Transfer Pricing

CIMA Exam Tips

  • In this instance, the company has an internal agreement to charge a transfer price between divisions.
  • Division A has charged 150 to Division B, while the selling price to the end customer remains the same at 200.
  • You can see the transfer pricing DOES NOT IMPACT the total profit made by the group when consolidated, but it allows each division within the company to be measured efficiently and effectively
  • Therefore, increasing the motivation of the individual division managers to be more cost effective and improve efficiency within the department, which, in turn, improves the profitability of the division and group as a whole.

In the first example, where transfer pricing is not employed the management of division A have no incentive of meaningful performance measurement as they will always considered to be loss making.

Transfer Pricing and Tax Implications

One of the main reasons why large multi national companies use transfer pricing is to accrue profits in countries that have a lower tax rate.

Using the figures from the above example I have illustrated the tax implications if Division A is based in a country with a tax rate of 5% while Division B is based in a country with a tax rate of 20%

CIMA Transfer Pricing and Tax

  • It’s obvious that the company who has implemented transfer pricing will be paying a much lower tax bill due to the fact most of it’s profits are made in Division A where there is a much lower tax rate.
  • However, transfer pricing must be set within the scope of the law and it can become a complex matter. 

The above examples are very simple in terms of the numbers and structure of the business but the underlying principle of transfer pricing remains the same.

Methods of Transfer Pricing

So now we have established what transfer pricing is and the benefits to be made by accruing profits in countries with lower tax rates (within the scope of the law). Let’s take a look at the different methods on how the Transfer Price itself can be calculated.

Cost Plus Price Model

One of the most simplest and common approaches (especially with high volume producing businesses) to be employed is the cost plus price model. This is where the group agrees that the selling business unit will add a fixed percentage to their costs as a base for the transfer price.

Cost Plus Price Model

  • The agreement is for Division A to adopt a fixed cost plus price model of 20% for their transfer price to Division B.
  • Which is fine at the current levels of costs, as both divisions and the group overall are making profits.
  • However, the manager of Division A has realised he can increase the profits of his division by increasing costs – BUT TO THE DETRIMENT OF THE GROUP AS A WHOLE!

CIMA Transfer Pricing

  • Here we can clearly see the dysfunctional behaviour that can be encouraged by using a cost plus price transfer pricing system.
  • Division A manager is happier as he made double the profit by doubling his costs but Division B has made a big loss on this and lead to an overall loss at group level.

In fact, if any divisions are set to lose money on a deal then they will more than likely refuse to do so, even at the expense of the company. Of course, decisions can be made at a group level which enforces the trade between divisions at any cost but it would be demotivating for the buying manager as they lose autonomy.

Minimum Vs Maximum Transfer Price

A more common sense and goal congruent approach is to ensure that firstly the group can make a profit overall, then deciding on the minimum transfer price that can accepted by the selling division and the maximum transfer price that can be accepted by the buying division and them agree on the price somewhere in the middle of the that range.

In the below example I’ve also thrown in the possibility that Division A can also sell the goods directly to an external party.

Determining Transfer Pricing

  • The selling division (A) determines the minimum price of 200 – as they can sell it externally for this price, so the transfer price must at least match this.
  • The buying division (B) has costs of 100 and selling price of 350, so the maximum they could pay would be 250 as a transfer price.
  • This gives the group a transfer price somewhere between 200 and 250 to be goal congruent and suit all divisions involved.

Finally, you can see the transfer price of 200 has been agreed and both divisions make an equal share of the 100 profit made by the group.

CIMA P2: Learning Curves

It’s taken a while for me to get back on track with my CIMA P2 studies but here I am with an article on Learning Curves which is a feature of the CIMA P2 syllabus.

CIMA P2 Exam Tips

The Learning Curve

The learning curve relates to the observed tendency that workers become adept at a task, the more often they perform it. Hence the task will take less and less time the more often it is performed.

This is quite a simplistic way to look at the learning curve but there are many factors to consider when applying the learning curve and ultimately, understanding when and how to use it.

The official CIMA terminology for the learning curve can be found below:

Learning curve is the mathematical expression of the commonly observed effect that, as complex and labour-intensive procedures are repeated, unit labour times tend to decrease. The equation usually relates the average time taken per unit/batch to the cumulative number of units/batches produced.

– CIMA Terminology

History tells us that the “learning curve” was first observed during the construction of World War 2 aircraft. It was discovered, that, as workers gained more experience building complex aircraft it actually took less time to complete each. And not only that, but the rate at which learning took place was actually predictable.

In reality it was found that the cumulative average time per unit decreased by a fixed percentage each time the cumulative production doubled.

Learning Curve Example

The illustration below is using a learning rate of 80% and gives you a clear overview of the numbers involved.

Cumulative average time learning rate: 80%

Batches Cumulative average time per batch (hours) Cumulative total (hours)
1 100.00 100.00
2 80.00 160.00
4 64.00 256.00
8 51.20 409.60
16 40.96 655.36
32 32.77 1048.58
64 26.21 1677.72
128 20.97 2684.35
256 16.78 4294.97
512 13.42 6871.95

Nevertheless, there is a more scientific way of generating this information above, in the form of an equation, which is expressed as The Learning Curve Formula.

And knowledge of how to use this formula is required for the P2 exam.

The Learning Curve Formula

The learning curve formula is simply expressed as y=ax^b

  • y = cumulative average time taken per unit
  • a = time taken for first unit
  • x = total number of units
  • b = the index of learning
  • where b = the log of learning rate/ the log of 2

It’s a simple equation but perhaps the complex part is using the log tables when calculating the index of learning, as you may not be familiar  with how to apply them on your calculator? I know it was relatively new to me.

While the formula itself gives you the answer for the Cumulative Average Time Taken Per Unit (Y), the CIMA P2 examiner might also ask you to calculate the Index of Learning (b). So it’s important to understand each element of the formula.

P2 Example Question on Learning Curves

CIMA P2 Exam Questions

So to see this formula in action let’s go through it step-by-step.

Q – Company B has a learning rate of 90% and the total time to make the first unit is 8 hours, use the learning curve formula to find out the average time per unit for 16 units

The above question gives us the following information:

a = 8 hours x = 16 units b = ?

  • First of all we need to calculate (b) the index of learning by using log tables.
  • So b = log of 90%/log of 2
  • To calculate this on any scientific calculator you need to press the following:
  • LOG, 0.9/LOG, 2 = -0.152
  • Therefore, the index of learning (b) is -0.152
  • Now we are in a position to complete the question.
  • 8 x 16^-0.152 (8 hours multiply 16 units to the power of -0.152) = 5.25
  • Therefore, the cumulative average time per unit (y) = 5.25 hours
  • Finally, we need to multiply this by 16 units (16 x 5.25) = 84 hours. 

Q – Calculate the index of learning when the learning rate is 80% and it takes 100 hours to produce 1 batch (I’ve used the table in the first illustration as a base for this question).

Here we know the learning curve formula is y=ax^b and b is the index of learning which can be calculated using log tables.

  • b = log of 80%/log of 2
  • Therefore, the index of learning b = -0.32192
  • We can cross check this with the table in my first illustration to prove it’s the correct answer.
  • So let’s use this data to calculate y based on 64 units.
  •  y = 100 (hours taken on first unit) x 64 (number of units) ^-0.321 (the index of learning). Remember the formula y=ax^b.
  • Therefore, based on productions of 64 units, the cumulative time per unit (y) would be = 26.21 hours which is the same figure displayed in my original table.
  • This confirms that the index of learning we calculated is correct.


P2: Useful Links and Resources


The CIMA P2 Advanced Management Accounting syllabus has a well balanced range of subjects that builds on your learning from the P1 paper. Its primary focus is on long term and whereas P1 gave you a handle on costs and their drivers, P2 provides the competencies needed to analyse, plan and manage costs.

While it also shows how to manage and control various units in line with short term budgets and long term strategy. It’s a tough paper so here are some useful links and resources that will get on you on your way.

Useful Links and Resources

CIMA Connect P2 group – if you want to pass the CIMA P2 exam then I would suggest you get familiar with the CIMA connect group for Advance Management Accounting. CIMA provide tons of resources, advice and group discussion.

Astranti Managerial Membership – Free Study Text 2015 – Astranti provide free study texts for ALL of the CIMA  papers and I use them as a base for my exam preparation. They are easy to digest and can be accessed anywhere with an internet connection.

Astranti P2 video series – easy to navigate set of videos that covers and gives you an introduction to the P2 syllabus. You can also find these videos for E2 and F2.

Using BIG DATA to reduce uncertainty in decision making – great article from the CIMA website regarding a relatively new topic in the syllabus.

Acorn Financial Training – Acorn provide class room tuition and home study materials. You can get an extra 10% off ALL of the acorn materials (including P2). Here can find the full the list of materials they offer and to claim the 10% discount please email thecimastudent[at] with the items you wish to order.

If you have any additional resources you would like to share with other students for the P2 CIMA paper then please then a link in the comments box below.