# CIMA BA2 Fundamentals of Management Accounting Exam Practice Test

Demo: 58 questions
Total 382 questions

## Fundamentals of Management Accounting Questions and Answers

Question 1

Fixed costs can best be described as:

#### Options:

A.

Costs which are difficult to budget accurately

B.

Costs which remain constant, within a relevant range, when activity levels change

C.

Costs which never change

D.

Costs which are uncontrollable

Question 2

C Ltd produces a chemical in a single process. Information for this process last month is as follows:

(a) Opening work in progress - 10000 kg valued at £10000 for direct material and £7500 for conversion costs.

(b) Materials input - 25000 kg at £1.10 per kg.

(c) Conversion costs - £17000

(d) Output during the month - 23000 kg.

(e) There were 7500 units of closing work in progress which was complete as to materials and 30% complete as to conversion.

(f) Normal loss for the month was 10% of input and all losses have a scrap value of 80p per kg.

What was the average cost per kg of finished output during the month?

#### Options:

A.

£1.10

B.

£1.78

C.

£1.90

D.

£1.99

Question 3

In order to provide information that is suitable for control purposes, the budget must be:

#### Options:

A.

Computer generated

B.

Fixed

C.

Flexed

D.

Ideal

Question 4

An increase in the variable cost per unit, will cause the point at which the line plotted on a profit/volume (PV) graph intersects the horizontal axis to:

#### Options:

A.

Move to the left

B.

Move to the right

C.

Double

D.

Stay where it is

Question 5

FL uses an absorption costing system. The overhead absorption rate for production overheads is \$8.60 per direct labour hour.

Budgeted production overhead costs for the year were \$473,000 and actual costs incurred were \$468,000. 56,000 labour hours were used.

Which ONE of the following statements is correct?

#### Options:

A.

B.

C.

D.

Question 6

Refer to the Exhibit.

CM has produced the following budget information for next year:

The opening receivables balance represents 2 months sales. It is expected that the same level of sales will continue at an even rate throughout the year.

In an effort to improve receivables collection periods it is proposed to offer a discount of 5% for payment by cash. It is expected that 20% of customers will pay by cash. Of the remaining 80% credit sales, 40% will be settled within 1 month and 60% are expected to settle within 2 months.

What are the budgeted cash receipts from cash and credit sales in the year?

#### Options:

A.

\$206,400

B.

\$190,800

C.

\$184,400

D.

\$188,000

Question 7

It is company policy that the closing inventory of finished goods must be equal to 10% of the following month's budgeted sales. The budget sales for November and December are 8,000 and 9,000 units respectively.

The budgeted production for November will be:

#### Options:

A.

900 units

B.

1,700 units

C.

8,100 units

D.

8,900 units

Question 8

Refer to the exhibit.

An income statement summary for a particular product shows the following:

In which of the following circumstances would it be appropriate to continue to produce the product?

#### Options:

A.

When avoidable fixed costs are at least £400

B.

When net profit is improved to greater than zero.

C.

When contribution is greater than zero.

D.

When avoidable fixed costs are less than £900

Question 9

In an integrated cost and financial accounting system, the accounting entries for the cost of production units completed in the period would be:

#### Options:

A.

Debit: Finished goods control accountCredit: Work in progress control account

B.

Debit: Work in progress control accountCredit: Finished goods control account

C.

Debit: Cost of sales accountCredit: Finished goods control account

D.

Debit: Finished goods control accountCredit: Cost of sales account

Question 10

Refer to the exhibit.

The following data relates to Department A within a business unit.

The overhead absorption rate per direct labour hour for Department A is:

#### Options:

Question 11

If the fixed costs are increased, the point at which the line plotted on a profit/volume (PV) graph cuts the horizontal axis will:

#### Options:

A.

Double

B.

Move to the left

C.

Stay the same

D.

Move to the right

Question 12

Eton Ltd. operates a manufacturing process that produces product A. Information for this process last month is as follows:

(a) Opening work in progress - 2,500 kg valued at £2,000 for direct material and £1,500 for labour and overheads.

(b) Materials input - 25,000 kg at £2.10 per kg.

(c) Labour - £10,000

(e) Output during the month - 20,000 kg.

(f) There were 7,500 units of closing work in progress which was complete as to materials and 30% complete as to conversion.

(g) Normal loss for the month was 3% of input and all losses have a scrap value of £1 per kg.

What was the average cost per kg of finished output during the month?

#### Options:

A.

£1.73

B.

£2.72

C.

£2.78

D.

£2.80

Question 13

Refer to the exhibit.

SL manufactures a single product, the cost and selling price of which are given below:

Fixed overheads per unit are based on a budgeted production volume of 25,000 units.

Budgeted sales are assumed to be 25,000 units.

If all costs increase by 5% but selling price remains the same, by how much must sales change from the budgeted volume to achieve the same budgeted profit?

#### Options:

Question 14

Refer to the exhibit.

The budget for product Sentra for the month of August is given below:

• Each unit of Sentra requires 4kg of raw materials.
• The raw materials purchases budget for the month of August is:

#### Options:

A.

512,000 kg

B.

516,000 kg

C.

496,000 kg

D.

722,000 kg

Question 15

Which one of the following is NOT one of the five stated fundamental principles of CIMA's code of ethics?

#### Options:

A.

Integrity

B.

Objectivity

C.

Punctuality

D.

Confidentiality

Question 16

Refer to the Exhibit.

A company operates a batch costing system.

Production overhead costs are absorbed into the cost of batches using a direct labour hour rate. Other overhead costs are absorbed at a rate of 20% of total production cost. The company adds a mark-up of 10% to total cost in order to derive its selling prices.

Budgeted production overheads for the period are \$44,000 and the budgeted level of activity is 8,800 direct labour hours.

The following data are available for batch number 309:

The required selling price per unit (to two decimal places) is:

#### Options:

Question 17

The variable overhead expenditure variance is:

#### Options:

A.

The over or under absorbed variable overhead

B.

The difference between the actual hours worked and the standard hours produced, multiplied by the variable overhead absorption rate

C.

The actual hours worked multiplied by the variable absorption rate

D.

The difference between the variable overheads incurred and the flexed budget allowance for variable overheads

Question 18

In an integrated cost and financial accounting system, the accounting entries for the payment of net wages to indirect production workers would be:

#### Options:

A.

Debit: Bank accountCredit: Wages control account

B.

Debit: Work in progress control accountCredit: Bank account

C.

Debit: Wages control accountCredit: Bank account

D.

Debit: Production overhead control accountCredit: Bank account

Question 19

A product sells for £10 per unit and has an annual break-even volume of 50,000 units. The annual fixed costs are £100,000.

The variable cost per unit is:

#### Options:

Question 20

Which THREE of the following are characteristics of job costing?

#### Options:

A.

It is appropriate where homogeneous products are manufactured

B.

It is only appropriate in manufacturing environments

C.

Costs are traced to separately identifiable cost units

D.

It cannot be applied in a public sector or not for profit organization

E.

A separate work in progress account is maintained for each cost unit

F.

It is a specific order costing system

Question 21

Refer to the exhibit.

The following costs apply to batch 325, which consists of 10000 units of identical products:

The company charges selling and administration costs at a rate of 20% of production costs and wishes to achieve a profit margin of 20% of sales.

What is the required selling price per unit of product?

#### Options:

Question 22

Refer to the exhibit.

The following standard cost information relates to the production department of BE Ltd.

The actual data for the month of March was as follows:

What is the direct labour efficiency variance (to the nearest whole number)?

#### Options:

A.

£6,250 favourable

B.

C.

£6,406 favourable

D.

Question 23

Refer to the exhibit.

The following extracts are taken from a company’s budgetary planning papers, showing the budgeted costs to be incurred at two activity levels:

Direct material is a wholly variable cost.

Direct labour is a semi-variable cost.

Production overhead is a step cost, with a single step at an output of 450 units.

The total budget cost allowance for an output of 480 units is:

#### Options:

Question 24

Refer to the exhibit.

The profit/volume graph below has been prepared for a product for which the following data are available for a period:

Selling price - \$28 per unit

Variable cost - \$23 per unit

Fixed cost - \$4 per unit

Forecast sales volume is 1,000 units each period.

The value of P in units is:

#### Options:

Question 25

Relevant costs for decision making are.

#### Options:

A.

Past costs incurred

B.

Future costs which will be affected by the decision

C.

Variable costs only

D.

Unavoidable costs

Question 26

Refer to the exhibit.

The budgetary control report for the latest period shows the following. Variances in brackets are adverse.

Which THREE of the following statements can definitely be inferred from this control report?

#### Options:

A.

The sales volume contribution variance is adverse

B.

The total expenditure variance is adverse

C.

The selling price variance is favourable

D.

The direct material price variance is favourable

E.

The direct labour rate variance is adverse

F.

Question 27

CL produces a household detergent in a single process. Information for this process for last month is as follows:

(a) Materials input - 11,000 Litres at £2.00 per litre.

(b) Conversion costs - £23,000

(c) Output during the month - 8,000 litres.

(d) There were 2,000 units of closing work in progress which was complete as to materials and 35% complete as to conversion.

(e) Normal loss for the month was 5% of input and all losses have a scrap value of 50p per litre.

(f) There is no opening work in progress.

The value of finished output during the month (to the nearest £) was:

#### Options:

Question 28

The managing director of a small expanding company has asked you to discuss the positioning of management accounting within his organization.

Which of the following would you suggest is an advantage of the management accountant taking on a business partnering role within the organization?

(i) It is easier for the management accountant to remain objective in decision making situations

(ii) The management accountant is an integral part of the business

(iii) It is easier to build strong relationships between the managers and the management accountant

#### Options:

A.

(i) only

B.

(i) and (ii)

C.

(ii) and (iii)

D.

(i), (ii) and (iii)

Question 29

Refer to the exhibit.

A company manufactures a single product, and relevant data is as follows:

Note. Overheads are assumed to be related to direct labor hours.

The actual results for the period were as follows:

What is the variable overhead efficiency variance?

#### Options:

A.

£7,500 favorable

B.

C.

£6,500 favorable

D.

Question 30

Which THREE of the following statements could explain why an adverse labour efficiency variance has arisen?

#### Options:

A.

B.

Improved machine maintenance

C.

Poor production planning / scheduling

D.

Use of inferior quality material

E.

Improved production methods

F.

Increased quality control standards

Question 31

Refer to the exhibit.

The management accountant has completed the appraisal of a project which is forecast to generate the following cash flows.

It has now been discovered that the cash inflow in year 3 has been overestimated.

What will be the effect on the calculated net present value (NPV) and the payback period?

#### Options:

A.

NPV increase; payback period increase

B.

NPV decrease; payback period increase

C.

NPV decrease; payback period stay the same

D.

NPV decrease; payback period decrease

Question 32

A product has a break-even point of 40,000 units and a margin of safety of 20%. The contribution per unit is £3.

What is the budgeted profit?

#### Options:

A.

£8,000

B.

£24,000

C.

£30,000

D.

£40,000

Question 33

A new range of clothing is very unique and will not appeal everyone. You are aware that if you were to equally distribute all the units there is a chance that they would not all sell.

You decide that the best option would be to select specific stores in which to sell the items, making them rare and desirable. This way they will become highly sought after.

However, whilst this has the potential to be very profitable it also has the lowest probability.

By making this decision you are considered to be_______.

#### Options:

A.

Risk seeking

B.

C.

Risk neutral

Question 34

Refer to the exhibit.

Which of the following journal entries are required to record the wages payable?

The journal entries required to record the wages payable are:

#### Options:

A.

A

B.

B

C.

C

D.

D

Question 35

Budgets are produced:

(a) For planning purposes

(b) For control purposes

(c) To be published with the annual accounts

(d) To comply with international accounting standards

#### Options:

A.

(a) and (b) only

B.

(b) and (c) only

C.

(b) and (d) only

D.

(a), (b), (c) and (d)

Question 36

Refer to the exhibit.

ZAP publishes a monthly magazine aimed at the teenage market. It has drawn up a budget for next year as follows:

What selling price would be required for ZAP to break even?

#### Options:

A.

\$1.65

B.

\$1.20

C.

\$1.25

D.

\$0.80

Question 37

Refer to the exhibit.

Budget information for 'Cast Engineering' is as follows:

The budget cost allowance for an output of 1,300 units is:

#### Options:

Question 38

An abnormal loss in a process occurs when:

#### Options:

A.

Actual losses are greater than the normal loss level

B.

Costs are increased as a result of defective materials

C.

Actual losses are less than the normal loss level

D.

Production levels are below budget

Question 39

Refer to the exhibit.

A company operates a process costing system. The following data relates to Process X for the month of September.

Normal loss is 5% of input and all losses occur at the end of the process.

The number of equivalent units, using an average cost basis of valuation, was:

Materials:

#### Options:

Question 40

Refer to the exhibit.

A company manufactures a single product, and relevant data is as follows:

Note. Overheads are assumed to be related to direct labour hours.

The actual results for the period were as follows:

What is the variable overhead expenditure variance?

#### Options:

A.

B.

£4,000 favourable

C.

D.

£5,000 favourable

Question 41

The following data are available for a delivery company. The table shows the number of tonnes delivered (x) and the associated distribution cist (y) in recent periods.

Further analysis of this data has determined the following:

∑xy = 36,427∑x2 = 1,144

Using least squares regression analysis, calculate the variable cost per tonne delivered. Give your answer to the nearest cent.

#### Options:

Question 42

Which of the following would NOT be an appropriate performance measure for a profit centre manager?

#### Options:

A.

Return on capital employed

B.

Contribution per unit

C.

Sales price variance

D.

Gross margin

Question 43

A new product requires an investment of \$200,000 in machinery and working capital. The total sales volume over the product’s life will be 5,000 units. The forecast costs per unit throughout the product’s life are as follows:

The product is required to earn a return on investment of 35%.

What unit selling price needs to be achieved?

#### Options:

A.

\$54.00

B.

\$50.77

C.

\$47.00

D.

\$44.55

Question 44

The following is an extract from a budgetary control report for the latest period:

The budget variance for prime cost is:

#### Options:

A.

B.

C.

D.

\$3,260 favourable

Question 45

Data for the latest period for a company which makes and sells a single product are as follows:

There were no budgeted or actual changes in inventories during the period.

The sales volume contribution variance for the period was:

#### Options:

A.

B.

C.

D.

Question 46

A company operates an integrated standard cost accounting system. The standard price of raw material A is \$20 per litre. At the start of period 1, the inventory of 500 litres of raw material A was valued at \$20 per litre. During period 1, 100 litres of raw material A were purchased at an actual price of \$21 per litre. During period 2, 550 litres of raw material A were issued to Job 789.

In respect of the above events, which TWO of the following statements are correct? (Choose two.)

#### Options:

A.

The raw material inventory at the end of period 1 should include 100 litres valued at \$21 per litre.

B.

An adverse material price variance should be recorded in the statement of profit or loss for period 1.

C.

The raw material inventory at the end of period 2 should be valued at \$20 per litre.

D.

An adverse material price variance should be recorded in the statement of profit or loss for period 2.

E.

The first 500 litres of raw material A issued should be debited to the Job 789 account at \$20 per litre, and the remaining 50 litres at \$21 per litre.

Question 47

An organisation’s management report contains the following data:

Which division has the highest operating margin percentage?

#### Options:

A.

Division A

B.

Division B

C.

Division C

D.

Division D

Question 48

The concept of the time value of money:

#### Options:

A.

recognises the fact that a cash flow received today will always be worth more than a larger cash flow received in the future.

B.

is used for making short term decisions.

C.

determines the higher interest rates that must be paid on longer term loans.

D.

recognises the fact that earlier cash flows are worth more because they can be reinvested.

Question 49

A company which manufactures and sells one product has fixed costs of \$80,000 per period. The selling price per unit of \$25 generates a contribution/sales ratio of 40%.

How many units would need to be sold in a period to earn a profit of \$10,000?

#### Options:

A.

9,000

B.

8,000

C.

36,000

D.

32,000

Question 50

Which of the following statements regarding variances is valid?

#### Options:

A.

Using higher quality material than standard could explain an adverse labour efficiency variance.

B.

Improved maintenance of production machinery could explain an adverse material usage variance.

C.

An adverse labour rate variance could explain a favourable labour efficiency variance.

D.

Poor supervision could explain a favourable labour rate variance.

Question 51

A small airport’s management accountant has prepared the following management report on the performance of its four retail outlets.

Which retail outlet has the highest contribution per square metre?

#### Options:

A.

Outlet A

B.

Outlet B

C.

Outlet C

D.

Outlet D

Question 52

Based upon extensive historical evidence, a company’s daily sales volume is known to be normally distributed with a mean of 1,728 units and a standard deviation of 273 units.

What is the probability that, on any one day, the sales volume will be at least 1,300 units?

#### Options:

A.

5.82%

B.

73.89%

C.

44.18%

D.

94.18%

Question 53

In a company that manufactures many different products on the same production line, which TWO of the following would NOT be classified as indirect production costs? (Choose two.)

#### Options:

A.

Salary paid to the factory manager.

B.

Factory rent.

C.

Maintenance costs for the company’s only production line.

D.

Commissions paid to the sales team.

E.

Royalties paid to the designers of the products.

Question 54

A company has spent \$5,000 on a report into the viability of using a subcontractor. The report highlighted the following:

A machine purchased six years ago for \$30,000 would become surplus to requirements. It has a written-down value of \$10,000 but would be resold for \$12,000.

A machine operator would be made redundant and would receive a redundancy payment of \$40,000.

The administration of the subcontractor arrangement would cost the company \$25,000 each year.

Which THREE of the following are relevant for the decision? (Choose three.)

#### Options:

A.

A relevant cost of \$5,000 for the viability report.

B.

A relevant cost of \$30,000 for the machine.

C.

A relevant cost of \$40,000 for the redundancy payment.

D.

A relevant cost of \$10,000 for the machine.

E.

A relevant cost of \$25,000 each year for administration.

F.

A relevant revenue of \$12,000 for the machine.

Question 55

A company is appraising two projects. Both projects are for five years. Details of the two projects are as follows.

Based on the above information, which of the following statements is correct?

#### Options:

A.

An annuity could be used to calculate the net present value of the projects.

B.

The annuity factor for project A would be lower than the annuity factor for the project B.

C.

A perpetuity could be used to calculate the net present value of the projects.

D.

The annuity factor for project A would double the annuity factor for project B.

Question 56

A company is considering investing \$57,000 in a machine that will last for five years, after which time it will have no value. The machine will generate additional revenue of \$190,000 each year. Annual running costs, including depreciation of \$11,400 will amount to \$168,400.

Assuming that all cash flows occur evenly, the payback period of the investment in the machine is closest to:

#### Options:

A.

2 years 8 months

B.

1 year 9 months

C.

1 year 7 months

D.

2 years 6 months

Question 57

The possible returns and associated probabilities of two independent projects are as follows:

It has been decided that both projects are to be launched.

Which TWO of the following statements are correct? (Choose two.)

#### Options:

A.

The expected value of the total return is \$41,500 gain.

B.

The probability of the total return being a loss is 0.10.

C.

The probability of making a total return of exactly \$5,000 gain is 0.02.

D.

The probability of the total return being a gain is less than 1.00.

E.

The expected value of the total return is \$40,000 gain.

Question 58

A management accountant has forecast the following cash inflows from four potential projects.

All four projects require the same initial investment and will last for four years. They all result in a positive net present value but only one of the projects can be undertaken.

Which project should be selected?

#### Options:

A.

Project A

B.

Project B

C.

Project C

D.

Project D

Demo: 58 questions
Total 382 questions