# CIMA P1 Management Accounting Exam Practice Test

Demo: 39 questions
Total 180 questions

## Management Accounting Questions and Answers

Question 1

An analysis of past sales data shows that the underlying trend in a company's sales volume can be represented by:

Y = 50X + 625

Where Y is the trend sales units for a quarter and X is the quarterly period number.

The seasonal variation index values have been identified as follows:

The forecast sales volume in units for quarter 4 next year, which is period 14, is:

#### Options:

A.

1,378

B.

1,325

C.

1,329

D.

1,274

Question 2

LM operates a parcel delivery service. Last year its employees delivered 15,120 parcels and travelled 120,960 kilometers. Total costs were \$194,400.

LM has estimated that 70% of its total costs are variable with activity and that 60% of these costs vary with the number of parcels and the remainder vary with the distance travelled.

LM is preparing its budget for the forthcoming year using an incremental budgeting approach and has produced the following estimates:

• All costs will be 3% higher than the previous year due to inflation

• Efficiency will remain unchanged

• A total of 18,360 parcels will be delivered and 128,800 kilometers will be travelled.

Calculate the following costs to be included in the forthcoming year’s budget:

(i) the total variable costs related to the number of parcels delivered.

(ii) the total variable costs related to the distance travelled.

#### Options:

A.

Parcel related cost for next year = \$112,308; Distance related costs for next year = \$79,590

B.

Parcel related cost for next year = \$109,118; Distance related costs for next year = \$89,699

C.

Parcel related cost for next year = \$112,118; Distance related costs for next year = \$59,699

D.

Parcel related cost for next year = \$105,306; Distance related costs for next year = \$30,590

E.

Parcel related cost for next year = \$115,306; Distance related costs for next year = \$31,590

Question 3

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 4

Company NBO is providing a quote to manufacture 500 passenger seats for a bus company.

Relevant cost is being used as the basis for the quote.

Which THREE of the following should be included as relevant costs or savings in the production of the 500 passenger seats?

#### Options:

A.

Equipment depreciation of \$2,000 for the time the passenger seats are in production.

B.

Electricity charges of \$1,500 for the completion of the order.

C.

Administration overheads of \$3,200 apportioned on the basis of labour hours in production.

D.

Seat cover material, to be bought for \$6,000, which cannot be used on other products.

E.

Idle time pay of \$1,000 which would be paid to workers if the quote is not accepted

F.

\$750 paid for a consultant's advice on quoting for the order.

Question 5

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 6

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 7

An agricultural company uses activity based costing to charge overheads to its three products. One of the main activities is purchasing, budgeted details of which are as follows:

What is the budgeted purchasing overhead cost per kg of Product S?

#### Options:

Question 8

Company LGF seeks to maximize profits and has a 'risk seeker' attitude when making decisions. The company has to choose between mutually exclusive projects. A range of possible profit outcomes has been estimated for each project along with their associated probabilities.

Company LGF would choose the project with the:

#### Options:

A.

Best possible outcome irrespective of the standard deviation.

B.

Highest expected value irrespective of the standard deviation.

C.

Highest standard deviation irrespective of the best possible outcome.

D.

Highest standard deviation irrespective of the expected value.

Question 9

Select the benefits to a company of using sensitivity analysis in investment appraisal.

(Select all the true statements.)

#### Options:

A.

Sensitivity analysis enables a company to determine the effect of changes to variables on the planned outcome.

B.

Sensitivity analysis enables a company to assess the risk associated with a project.

C.

Sensitivity analysis enables identification of fixed costs that are of special significance.

D.

Sensitivity analysis enables risk management strategies to be put in place to focus on those variables of special significance.

Question 10

Place the components of the time series next to the example about the impact on sales that they best represent.

#### Options:

Question 11

A company currently uses a rate of \$32 per machine hour to absorb its total production overheads of \$960,000.

Using this system the production overhead cost per unit of product X is \$160.

An activity based costing exercise has revealed that only \$345,000 of the production overhead is driven by machine hours. The remainder is driven by the number of machine set ups, at a rate of \$9.60 per set up.

Product X requires 3 set ups per unit.

Calculate the total production overhead cost per unit of product X using an activity based costing system.

#### Options:

Question 12

A company sells and services photocopying machines. Its sales department sells the machines and consumables, including ink and paper, and its service department provides an after sales service to its customers. The after sales service includes planned maintenance of the machine and repairs in the event of a machine breakdown. Service department customers are charged an amount per copy that differs depending on the size of the machine.

The company’s existing costing system uses a single overhead rate, based on total sales revenue from copy charges, to charge the cost of the Service Department’s support activities to each size of machine. The Service Manager has suggested that the copy charge should more accurately reflect the costs involved. The company’s accountant has decided to implement an activity-based costing system and has obtained the following information about the support activities of the service department:

Calculate the annual profit per machine for each of the three sizes of machine, using the current basis for charging the costs of support activities to machines.

#### Options:

A.

The profit per machine for the medium machine was: \$1276

B.

The profit per machine for the medium machine was: \$1376

C.

The profit per machine for the medium machine was: \$1350

D.

The profit per machine for the medium machine was: \$1250

Question 13

A project has five possible outcomes as follows:

The probability of a contribution of \$68,000 is equal to the probability of a contribution of \$75,000. Fixed costs are \$70,000.

What is the probability of the project making a profit?

#### Options:

Question 14

A company manufactures a machine. The machine is made from two types of raw material and is assembled in a factory using skilled labour. The engine for the machine is purchased from an outside supplier.

The following costs relate to the manufacture of one machine:

What is the finished goods inventory valuation for one machine using throughput costing?

#### Options:

A.

\$24.00

B.

\$38.00

C.

\$6.00

D.

\$48.00

Question 15

Place the type of budget or cost against its definition.

#### Options:

Question 16

A special contract requires 640 units of component T.

The inventory of 280 units of component T cost \$0.20 per unit but the component is not currently used by the company.

The current market price of component T is \$0.24 per unit but the inventory could be sold for \$0.15 per unit.

The relevant cost of the units of component T required for the special contract is:

#### Options:

A.

\$100.40

B.

\$128.40

C.

\$142.40

D.

\$153.60

Question 17

A decision tree is being evaluated back to a decision point.

There are two alternatives at this point:

1. To abandon the project and generate a return of \$435,000;

2. To continue with the project and generate the following possible returns:

What value should be included at the decision point?

#### Options:

A.

\$435,000

B.

\$451,000

C.

\$443,000

D.

\$720,000

Question 18

The following information is available about direct material T for the last period.

A JIT purchasing system is in operation.

Calculate the actual price paid per kg of material T.

#### Options:

Question 19

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 maximax criterion the project chosen would be:

#### Options:

A.

Project A

B.

Project B

C.

Project C

D.

Project D

Question 20

A company manufactures a single product. The company absorbs fixed production overhead using a pre-determined rate per unit.

The following data applies for month 7:

During month 7 fixed production overhead was over absorbed by \$40,000.

What was the actual number of units produced during month 7?

#### Options:

A.

16,000

B.

14,000

C.

8,000

D.

6,000

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

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 23

A company manufactures a single product and absorbs fixed production overheads at a predetermined rate based on budgeted expenditure and budgeted units.

Which TWO of the following would definitely lead to an over absorption of fixed production overheads?

#### Options:

A.

The actual number of units produced are greater than budgeted and the actual fixed production overhead expenditure is as budgeted.

B.

The actual number of units produced are less than budgeted and the actual fixed production overhead expenditure is higher than budgeted.

C.

Actual number of units produced are greater than actual units sold and the actual fixed production overhead expenditure is as budgeted.

D.

Actual fixed production overhead expenditure is higher than budgeted and production units are as budgeted.

E.

Actual fixed production overhead expenditure is less than budgeted and production units are as budgeted.

Question 24

Sales volumes reported for the latest period are used by managers as the basis to forecast sales for the forthcoming period. The forecasts are compared with the budgeted sales and plans are adjusted to ensure that the budgeted sales are achieved.

This is an example of:

#### Options:

A.

Incremental budgeting

B.

Flexed budgets

C.

Feedforward control

D.

Feedback control

Question 25

TDM edits, prints and publishes three magazines, Mag A, Mag B and Mag C. The company operates an activity-based costing system.

The following information has been obtained.

What is the overhead cost attributable for each Mag A publication?

#### Options:

Question 26

A healthcare company specializes in hip, knee and shoulder replacement operations, known as surgical procedures. As well as providing these surgical procedures the company offers pre operation and post operation in-patient care, in a fully equipped hospital, for those patients who will be undergoing the surgical procedures.

Surgeons are paid a fixed fee for each surgical procedure they perform and an additional amount for any follow-up consultations. Post procedure follow-up consultations are only undertaken if there are any complications in relation to the surgical procedure. There is no additional fee charged to patients for any follow up consultations. All other staff are paid annual salaries.

The company’s existing costing system uses a single overhead rate, based on revenue, to charge the costs of support activities to the procedures. Concern has been raised about the inaccuracy of procedure costs and the company’s accountant has initiated a project to implement an activity-based costing (ABC) system. The project team has collected the following data on each of the procedures.

Calculate the profit per procedure for each of the three procedures using activity-based costing.

What was the profit for the knee procedure, using ABC costing?

#### Options:

A.

\$2466

B.

\$781

C.

\$1808

D.

\$2305

Question 27

N prepares budgets on an annual basis by using the budget from the previous year, and then adjusting it for growth and inflation.

This is an example of:

#### Options:

A.

An incremental budget

B.

A rolling budget

C.

A flexed budget

D.

Zero based budgeting

Question 28

The simplex method has been used to determine the optimum output of products P, Q, R and S with constraints on resources J, K and L.

In the final simplex tableau, the figure in the product R row and the column for slack variable K is 80.

Which of the following statements is correct?

#### Options:

A.

For each additional unit of resource K available, the contribution would increase by \$80.

B.

For each additional unit of resource K available, the output of product R would increase by 80 units.

C.

For each additional unit of product R produced, 80 additional units of resource K would be required.

D.

In the optimum solution, 80 units of resource K are unused.

Question 29

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.

#### 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 30

The maximum availability of a material is 8,000 kg.

Product A requires 5 kg of this material and Product B requires 7 kg of this material which is in short supply.

The correct constraint to include for the material when formulating the linear programming problem is:

#### Options:

A.

5B + 7A ≤ 8,000

B.

5A + 7B ≤ 8,000

C.

5A + 7B = 8,000

D.

5B + 7A ≥ 8,000

Question 31

A company has budgeted to produce 5,000 units of Product B per month. The opening and closing inventories of Product B for next month are budgeted to be 400 units and 900 units respectively. The budgeted selling price and variable production costs per unit for Product B are as follows:

Total budgeted fixed production overheads are \$29,500 per month.

The company absorbs fixed production overheads on the basis of the budgeted number of units produced. The budgeted profit for Product B for next month, using absorption costing, is \$20,700.

Prepare a marginal costing statement which shows the budgeted profit for Product B for next month.

What was the marginal costing profit for the next month?

#### Options:

A.

\$17 750

B.

\$18 600

C.

\$17 890

D.

\$18 750

Question 32

Since there is no likelihood of them receiving a pay rise in the foreseeable future, your colleagues are considering leaving their current employment and starting their own business.

When preparing the data to evaluate their decision, their current salaries would be:

#### Options:

A.

Incremental costs

B.

Opportunity costs

C.

Sunk costs

D.

Past costs

Question 33

When preparing data for a short term decision, which THREE of the following are relevant costs?

#### Options:

A.

Differential costs

B.

Incremental cost

C.

Unavoidable costs

D.

Opportunity costs

E.

Committed costs

Question 34

The standard output from a joint process is 4,000 litres of Product K, 6,000 litres of Product L and 3,000 litres of Product M.

The total cost of the joint process is \$147,000.

The company is now deciding if it should further process Product L.

In the further processing decision the best way to apportion the joint costs to the products is:

#### Options:

A.

in the ratio of 4:6:3.

B.

in the ratio of the sales value at the split-off point.

C.

in the ratio of the sales value after further processing.

D.

it is not necessary to allocate joint costs in a further processing decision.

Question 35

Which THREE of the following are advantages of activity-based costing (ABC), in a multi-product environment, when compared with traditional absorption costing?

#### Options:

A.

ABC provides a better understanding of overhead costs.

B.

ABC provides more accurate product costs in a complex business environment.

C.

ABC is cheaper to operate.

D.

ABC results in increased unit profit for each product.

E.

ABC leads to better product pricing decisions.

Question 36

Changing to a just-in-time, from a traditional, manufacturing environment can affect cost accounting systems.

Which of the following statements is correct?

#### Options:

A.

Larger volumes of inventory must be recorded

B.

A greater number of individual supplier records must be maintained

C.

More frequent, smaller deliveries from suppliers must be recorded

D.

Less frequent, larger deliveries from suppliers must be recorded

Question 37

PQR is preparing the production budget for one of its products, the DX1, for the forthcoming year.

The following information is available:

How many units of the DX1 will need to be produced in the forthcoming year?

#### Options:

A.

28,775

B.

30,000

C.

31,225

D.

38,225

Question 38

EFG is a small business making raspberry jam to sell at local markets. It has recently been approached by a major supermarket to produce a special order for the supply of lemon curd.

Two of the ingredients required are sugar and preservatives, both of which are in inventory.

The sugar has a historic cost of \$4 per kg and a replacement cost of \$5. It is in regular use for the production of the raspberry jam.

The factory has switched to organic processes and the preservatives are no longer required.

The historic cost of the preservatives was \$3 per kg and the replacement cost is \$2.50 per kg.

The preservatives can be re-sold to a local competitor for \$1 per kg if they are not used in this order.

Which TWO of the following should be included in determining the relevant cost of the special order?

#### Options:

A.

Sugar at \$4 per kg

B.

Sugar at \$5 per kg

C.

Preservatives at \$3 per kg

D.

Preservatives at \$1 per kg

E.

Preservatives at \$2.50 per kg

Question 39

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

Demo: 39 questions
Total 180 questions