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Management Accounting Questions and Answers

Question 1

Explain THREE benefits that organizations gain from using budgetary planning and control systems.

Select ALL the true statements.

Options:

A.

The budget acts as a variable mechanism, with actual results being compared with budget.

B.

Budgeting forces an organization’s management to look ahead and set performance targets.

C.

The budget provides an external benchmark against which performance against which performance can be evaluated.

D.

The budget ensures actions of different parts of the organization are coordinated are reconciled otherwise managers take actions for the benefit of their own part of organization that may not benefit the organization as a whole.

E.

Another benefit of budgeting is to set targets to motivate managers and optimize their performance.

F.

The budget is a useful device of influencing an operator’s thoughts and motivating operators to perform in line with the organization’s marketing budget.

G.

It provides a standard which managers may be motivated to achieve. It can also encourage inefficiency and conflict between managers particularly if the budget is imposed from above, whereby it may act as a threat rather than as a challenge.

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Question 2

A company produces trays of pre-prepared meals that are sold to restaurants and food retailers. Three varieties of meals are sold: economy, premium and deluxe. 

Discuss the benefits of flexible budgeting for planning and control purposes.

Select all the true statements.

Options:

A.

A fixed budget will provide meaningful control information when actual activity differs from budget and variable costs are significant.

B.

If actual sales revenue is compared to a fixed budget it is possible to tell whether a favourable sales variance is due to an increase in units sold or an increase in sales price.

C.

If sales volumes were well above budget, adverse variable cost variances will probably be reported, against the fixed budget, since more variable costs have to be incurred to support the higher level of activity.

D.

Reporting against a fixed budget tells management nothing about the efficiency of operations.

E.

If a flexible budget is prepared then the budget variances calculated will provide a better indication of performance since actual results will be compared against an appropriate benchmark.

F.

The fixed budget however provides more insight into actual performance.

Question 3

Demand for two products, A and B is 1,000 units and 2,000 units respectively. Each unit of Product A requires 8 kg of material and each unit of Product B requires 5 kg of material. The maximum availability of material is 17,200 kg. Contribution per unit of A is $10 and per unit of B is $9.

Place the production volumes of Product A and Product B, that will maximize contribution, in the table.

Options:

Question 4

XY can choose from four mutually exclusive projects. The projects will each last for one year and their net cash inflows will be determined by market conditions. The forecast net cash inflows for each of the possible outcomes are shown below.

If the company applies the maximin criterion the project chosen would be:

Options:

A.

Project A

B.

Project B

C.

Project C

D.

Project D

Question 5

A company has identified the trend in its sales figures through the regression equation Y = 65.9 + 3.86X, where Y is the sales revenue in thousands of dollars and X is the month number. The average seasonal variation for October is 87%

Calculate the forecast sales revenue for October of Year 6.

Give your answer to the nearest $000.

Options:

Question 6

A master budget comprises which of the following?

Options:

A.

The budgeted income statement and the budgeted cash flow statement only.

B.

The budgeted income statement and the budgeted statement of financial position only.

C.

The budgeted income statement and budgeted capital expenditure only.

D.

The budgeted income statement, the budgeted statement of financial position and the budgeted cash flow statement only.

Question 7

Place the type of budget or cost against its definition.

Options:

Question 8

A company's product range includes Product N. The costs relating to Product N are shown below:

The direct labour costs relate to specialists employed to work wholly and exclusively with Product N.

If the company stopped making Product N, the insurance overhead cost would cease, but overhead cost J would be unaffected. Both overheads are absorbed in direct proportion to material costs.

Which of the following costs should be used in the decision whether to stop making Product N?

Options:

A.

$910,100

B.

$850,000

C.

$944,100

D.

$884,000

Question 9

A company makes two products, product X with a contribution per unit of $10 and product Y with a contribution per unit of $4.

These products are sold in the mix 3:2 by volume and fixed costs are $38,000 per period.

The breakeven point for product Y, based on the expected sales mix is:

Options:

Question 10

Which of the following managers is most likely to be responsible for an favourable labour efficiency variance?

Options:

A.

Production Manager

B.

Purchasing Manager

C.

Human Resources Manager

D.

Marketing Manager

Question 11

A flexible budget is a budget that is:

Options:

A.

set prior to the control period and not subsequently changed in response to changes in activity period has expired

B.

continuously updated by adding a further accounting period when the earliest accounting period has expired

C.

changed in response to changes in the level of activity

D.

changed in response to changes in costs

Question 12

Find the weighted average contribution per unit using the following information:

Options:

A.

£10

B.

£8

C.

£5.50

D.

£2.50

Question 13

A company manufactures a single product. The following budgeted data applies to month 6:

What was the budgeted fixed production overhead for month 6?

Give your answer to the nearest whole $ (in '000s).

Options:

Question 14

The manager of a recently opened cafe is deciding how many sandwiches to make each day.

The sandwiches are made in the morning before the cafe opens.

If demand exceeds the number of sandwiches made in the morning no extra sandwiches can be made during the day. Any unsold sandwiches are thrown away at the end of each day.

Daily demand is uncertain but is predicted to be 10, 20, 30 or 40 sandwiches.

The following regret matrix has been prepared:

If the minimax regret criterion is used to make the decision, the manager will choose to make:

Options:

Question 15

A company manufactures a single product. The cost card for a unit of this product is as follows:

During month 6, finished goods inventory increased by 350 units.

By how much would the profit differ in month 6 if finished goods inventory was valued at standard marginal cost rather than standard absorption cost?

Options:

A.

$1,050 lower

B.

$1,050 higher

C.

$2,450 lower

D.

$2,450 higher

Question 16

A company develops computer software programs to meet each client's specific requirements. The management accountant is considering introducing a standard costing system.

Which THREE of the following are reasons that support the case for the company's introduction of a standard costing system?

Options:

A.

It will enable the company to make a direct comparison of costs for each program developed.

B.

It will enable the company to better focus on the quality of its service.

C.

It will provide a system of control.

D.

It will aid the budget setting process.

E.

It will simplify the work-in-progress valuation.

Question 17

A snowboard manufacturer is considering investing in technology that will give a good indication of how heavy snowfall will be in the future. The predictions tend to be reasonably accurate.

The current budgeted profit for the year is £2,560,000 but if they invest in this technology and it works, the expected profit will be £2,640,000. The manufacturer is willing to invest a maximum of £40,000 into the venture.

What is the expected profit if the investment is NOT made?

Options:

A.

£2,560,000

B.

£2,640,000

C.

£2,520,000

D.

£2,600,000

Question 18

QR uses an activity based budgeting (ABB) system to budget product costs. It manufactures two products, product Q and product R. The budget details for these two products for the forthcoming period are as follows:

The total budgeted cost of setting up the machines is $74,400.

Select TWO potential benefits of using an activity based budgeting system.

Options:

A.

Activity based budgeting allows the ranking of activities and the determination of how limited resources should be allocated across competing activities.

B.

Activity based budgeting provides a clear framework for understanding the link between turnover and the level of activity.

C.

Activity based budgeting is useful for the review of quality systems utilization.

D.

Activity based budgeting allows the identification of value added and non-value added activity and ensures that any budget cuts are made to non-value added activities.

Question 19

Which THREE of the following statements relating to fixed overhead variances are correct?

Options:

A.

The total fixed overhead cost variance in an absorption costing system is the amount of fixed overhead that has been under- or over-absorbed in the period.

B.

The total fixed overhead variance is made up of the fixed overhead expenditure variance, the fixed overhead efficiency variance and the fixed overhead capacity variance.

C.

The fixed overhead volume variance can be split into the fixed overhead efficiency variance and the fixed overhead capacity variance.

D.

The total fixed overhead cost variance in an absorption costing system is the difference between budgeted fixed overhead and actual fixed overhead incurred.

E.

In a marginal costing operating statement reconciling budgeted contribution to actual profit only the fixed overhead expenditure variance and the fixed overhead volume variance are shown.

Question 20

What type of budget is prepared on an annual basis taking current year operating results and adjusting them for expected growth and inflation?

Options:

A.

Rolling budget

B.

Incremental budget

C.

Flexed budget

D.

Zero-based budget

Question 21

MDS is facing a temporary shortage of Material H which is used to produce all three of its products.

In order to maximise its profitability, which product should be manufactured first?

Options:

A.

The product using the least amount of Material H per unit.

B.

The product with the highest contribution per kg of Material H.

C.

The product with the highest contribution per unit.

D.

The product with the highest profit per unit.

Question 22

XY, a not-for-profit charity organization which is funded by public donations, is concerned that it is not making the best use of its available funds. It has carried out a review of its budgeting system and is considering replacing the current system with a zero-based budgeting system.

Select ALL the potential advantages AND disadvantages for the charity of a zero-based budgeting system.

Options:

A.

It avoids the complacency inherent in the traditional incremental approach where it is assumed that future activities will be very similar to current ones.

B.

It discourages a questioning approach by focusing attention not only on the cost of the activity but on the benefits it provides. The charity managers will not articulate the benefits encouraging them to think clearly about the activities.

C.

Preparation of the decision packages will normally require the environment of many employees. This environment may produce useful ideas and promote job satisfaction.

D.

The creation of decision packages and their subsequent ranking by top management is very time consuming and costly. The charity will need to assess whether the benefits of the system outweigh the costs involved.

E.

In an organization like a charity, the decision packages are not very disparate and difficult t compare.

F.

In applying traditional budgeting, ‘activities’ may result in functional departments rather than cross functional activities and thus distract attention from the real cost-reduction issues.

Question 23

A company is launching a new product.

The company accountant has constructed a payoff table to show the estimated profit at different levels of production and demand.

How many units should the company produce if the minimax regret criterion is applied?

Options:

A.

100,000

B.

150,000

C.

180,000

D.

200,000

Question 24

For a company that does not have any production resource limitations, what would be the correct sequence for budget preparation?

Options:

Question 25

EF manufactures and sells three products, X, Y and Z. The following production overhead costs are budgeted for next year:

Required:

Calculate the total budgeted production overhead cost for each product using activity based budgeting.

Options:

A.

The total budgeted production overhead cost was $ 1 285 000

B.

The total budgeted production overhead cost was $ 1 305 000

C.

The total budgeted production overhead cost was $ 2 195 000

D.

The total budgeted production overhead cost was $ 1 188 000

E.

The total budgeted production overhead cost was $ 1 258 000

Question 26

A company uses a standard costing system.

The company’s sales budget for the latest period includes 1,500 units of a product with a selling price of $400 per unit.

The product has a budgeted contribution to sales ratio of 30%.

Actual sales for the period were 1,630 units at a selling price of $390 per unit.

The actual contribution to sales ratio was 28%.

The sales volume contribution variance for the product for the latest period is:

Options:

A.

$15, 600 F

B.

$17, 800 F

C.

$55, 600 F

D.

$32, 900 F

Question 27

A company sells two products, X and Y, which are always sold in the same ratio.

No inventories are held.

The following budgeted data relate to month 10:

What is the budgeted margin of safety in month 10?

Options:

A.

600 units

B.

5,400 units

C.

1,000 units

D.

5,000 units

Question 28

Explain the advantages of management participation in budget setting and the potential problems that may arise in the use of the resulting budget as a control mechanism.

Select all the correct answers.

Options:

A.

A purposes of budgeting is to act as a control mechanism, with actual results being compared against budget.

B.

Another purpose of a budget is to set targets to motivate managers and optimize their performance.

C.

The participation of managers in the budget setting process has several advantages. Managers are more likely to be motivated to achieve the target if they have participated in setting process has several advantages. managers are more likely to be motivated to achieve the target if they have participated in setting the target.

D.

Participation in budget setting can reduce the information asymmetry gap that can arise when targets are imposed by senior management. Imposed targets are likely to make managers feel demotivated and alienated and result in poor performance.

E.

Participation in budget setting can cause problems; in particular, managers may attempt to negotiate budgets that they feel are easy to achieve which gives rise to “budget padding” or budgetary slack.

F.

Managers will not ‘empire build’ because they don’t believe that the size of their budget reflects their importance within the organization.

Question 29

JKI is planning a golfing holiday for a group of wealthy lawyers.

The lawyers will fly to the local airport at their own expense. JKI will then pay for transport, accommodation and the use of the golf course (green fees).

JKI's costings are as follows, based on 28 participants:

JKI received 46 applications from potential participants.

What would the profit be if JKI accepted all of these bookings?

Give your answer to the nearest whole number.

Options:

Question 30

Your company want to know how many units they'd have to sell this season to break even. However, you have some reservations over whether or not breakeven analysis is suitable for the company.

Which of these assumptions over product range limit the accuracy of break even analysis? Select ALL that apply.

Options:

A.

The company only sells one product

B.

The company has a consistent selling ratio across all products

C.

The company sells multiple products

D.

Variable costs remain consistent at any level of production

E.

Fixed costs remain the same regardless of activity

F.

The company has a variable selling ratio across all products

G.

Prices and demand of products will remain steady

Question 31

A company has to choose between three mutually exclusive projects. Market research has shown that customers could react to the projects in three different ways depending on their preferences. There is a 30% chance that customers will exhibit preferences 1, a 20% chance they will exhibit preferences 2 and a 50% chance they will exhibit preferences 3. The company uses expected value to make this type of decision.

The net present value of each of the possible outcomes is as follows:

A market research company believes it can provide perfect information about the preferences of customers in this market.

What is the maximum amount that should be paid for the information from the market research company?

Options:

A.

$145 000

B.

$140 000

C.

$125 000

D.

$135 000

Question 32

TP makes wedding cakes that are sold to specialist retail outlets which decorate the cakes according to the customers’ specific requirements. The standard cost per unit of its most popular cake is as follows:

The general market prices at the time of purchase for Ingredient A and Ingredient B were $23 per kg and $20 per kg respectively. TP operates a JIT purchasing system for ingredients and a JIT production system; therefore, there was no inventory during the period.

What was the material price planning variance for ingredient B?

Options:

A.

The material price planning variance – Ingredient B was $54 000 F

B.

The material price planning variance – Ingredient B was $64 000 F

C.

The material price planning variance – Ingredient B was $57 000 F

D.

The material price planning variance – Ingredient B was $59 000 F

Question 33

A tennis club is considering running an open day to encourage new members and thus increase membership fees. The cost of the open day will be $1,000. Attendance is dependent on the weather. There is a 60% chance of good weather and a 40% chance of poor weather on the open day.

The expected new membership fees are:

What is the expected value of running the open day?

Give your answer as a whole number.

Options:

Question 34

A company is basing its budget on predicted sales of one of its products. They have tasked you with forecasting the sales in year 2. The company has found that a fairly accurate prediction can be found when the trend

is calculated like so:

a = 10,000

b = 2,000

The sales of year 1 were affected by seasonal variation and were as follows:

Q1:12,500

Q2:14,200

Q3:15,400

Q4:19,650

You use a multiplicative model and round percentages to the nearest whole percent.

Select ALL the correct quarterly forecasts of year 2 from the list.

Options:

A.

Year 2 Q1 = 20,800

B.

Year 2 Q2 = 22,220

C.

Year 2 Q3 = 24,960

D.

Year 2 Q4 = 27,340

Question 35

A bakery manager is deciding how many batches of birthday cakes to decorate each day.

Demand for the birthday cakes varies from 12 to 15 batches per day. Each batch decorated and sold earns a contribution of $40 but each batch unsold leads to loss of contribution of $15.

The payoff table below shows the total $ contribution from each of the possibilities:

Based on expected values, the number of batches of birthday cakes the bakery manager should decorate each day is:

Options:

Question 36

Two products being produced by a company require the same material which is limited to 2,600 kgs.

What is the optimal production plan?

Options:

A.

500 units of S & 100 units of T

B.

50 units of S & 400 units of T

C.

400 units of S & 167 units of T

D.

500 units of S & 400 units of T

Question 37

In a manufacturing company, breakeven occurs at which TWO of the following?

Options:

A.

When contribution is equal to zero

B.

When profit is equal to zero

C.

When revenue is equal to contribution

D.

When revenue is equal to fixed costs

E.

When fixed costs are equal to contribution

Question 38

Which THREE of the following are purposes of all budgets?

Options:

A.

Co-ordination

B.

Communication

C.

Profit maximisation

D.

Diversification

E.

Authorization

F.

Consolidation

Question 39

You are a management accounting working for a car manufacturer. The company is publicly listed and has been around for many years.

The company produces 2 products. Car 1 and Car 2. Car 1 sells for £20,000 and Car 2 for £27,000.

Car 1 can be upgraded post production to the 1ZC model for £5,000 and Car 2 to the 2ZC model for £3,500.

Post production upgrade the 1ZC sells for £25,500 and the 2ZCfor £30,000.

The company sources all of its supplies for the same supplier and has access to a large workforce. As a result there are no bottlenecks or limiting factors to production.

Based on the information above the company should...

Options:

A.

Upgrade both models

B.

Upgrade Car 1 but not Car 2

C.

Upgrade Car 2 but not Car 1

D.

Keep both Cars as base models

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Total 180 questions