CIMA E1 Finance interacting with the organisation: practice questions with answers

Question 1

Grenfell Components is moving to just-in-time (JIT) purchasing, with suppliers delivering small batches daily directly to the production line. Which financial consequence is the finance team most likely to report?

1. A No change in working capital, because JIT affects only the physical layout of the factory and not inventory levels
2. B Higher raw material inventory holding costs, but lower ordering and delivery costs because fewer deliveries are made
3. C Lower supplier prices in all cases, because suppliers always offer discounts to customers that order in small batches
4. D Less working capital tied up in raw material inventory, but greater exposure to production stoppages if a supplier fails to deliver

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Answer: D. Just-in-time aims to receive materials only as they are needed. Benefits include lower inventory holding costs, less working capital and less waste. The costs and risks are more frequent deliveries, dependence on reliable suppliers and quality, and greater exposure to supply disruption. Finance helps evaluate these trade-offs and monitor supplier performance.

Question 2

Kirkby Engineering is filling a senior engineer vacancy. Having attracted 60 applicants through job adverts and an agency, it now uses ability tests, structured interviews and reference checks to choose the most suitable candidate. Which stage of the human resource process do these activities form?

1. A Selection
2. B Performance appraisal
3. C Recruitment
4. D Induction

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Answer: A. Recruitment attracts suitable candidates (job analysis, job description, person specification and advertising). Selection chooses between them (application screening, interviews, tests, assessment centres and references). Finance interacts with HR at each stage, for example by budgeting for the cost of the post and evaluating the cost of recruitment methods.

Question 3

Fernleigh Day Surgery carries out minor operations. Patients arrive in the morning, are operated on by surgeons and nurses in two fully equipped operating theatres, and go home the same day. Using the input-transformation-output model of operations, which classification of the unit's resources is correct?

1. A Transformed resources: the patients and the surgeons. Transforming resources: the theatres and equipment
2. B Transformed resources: the theatres and equipment. Transforming resources: the patients, surgeons and nurses
3. C Transformed resources: none, as services do not process inputs. Transforming resources: the staff and theatres
4. D Transformed resources: the patients. Transforming resources: the surgeons, nurses, theatres and equipment

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Answer: D. The input-transformation-output model splits operational inputs into:

- Transformed resources: materials, information and customers that are changed by the operation; and
- Transforming resources: the facilities (buildings, equipment) and staff that carry out the transformation.

In a day surgery unit the patients are processed (their physical condition is changed), so they are transformed resources. The surgeons, nurses, theatres and equipment are transforming resources.

Question 4

Penrose Logistics is reviewing its pay structure. An HR panel compares every job in the company systematically, scoring each one on factors such as skill, responsibility, effort and working conditions, and uses the scores to place jobs into pay grades. Which HR activity is this?

1. A Performance appraisal
2. B Succession planning
3. C Job evaluation
4. D Recruitment

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Answer: C. Job evaluation is part of HR's reward management activity. It compares jobs systematically (for example, by scoring factors such as skill, responsibility, effort and working conditions) to establish their relative value and place them in pay grades. It evaluates the job, not the jobholder; individual performance is assessed separately through performance appraisal.

Question 5

Each Monday morning, Brightwater Housing's ERP system automatically produces a report for each regional maintenance manager. It summarises the previous week's repair jobs from the operational records, compares spending with budget for each estate and highlights only the estates where spending is more than 10% over budget. What type of information system produces this report?

1. A A management information system
2. B A transaction processing system
3. C An executive information system
4. D A decision support system

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Answer: A. Information systems are often classified by the level of management and type of decision they support:

- Transaction processing systems record routine transactions (each repair job).
- Management information systems summarise that data into regular, pre-defined reports, including exception reports, for middle managers to control performance.
- Decision support systems help managers analyse semi-structured problems using models and what-if analysis.
- Executive information systems give senior managers summarised internal and external information for strategic decisions.

A scheduled weekly budget-versus-actual exception report for regional managers is a classic MIS output.

Question 6

Hollin Bank's new appraisal system collects structured feedback on each manager from the manager's line manager, peers, direct reports and some internal customers. What is this approach called?

1. A Management by objectives
2. B Self-appraisal
3. C Forced ranking
4. D 360-degree appraisal

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Answer: D. Performance appraisal reviews an employee's performance and development needs. In 360-degree appraisal, feedback comes from several sources (manager, peers, direct reports, customers), giving a rounded view of behaviours such as leadership and teamwork. It can be time-consuming and needs careful handling to remain constructive. Finance often works with HR when appraisal results are linked to pay.