CIMA P1 - Management Accounting Question Tutorial Sample Questions:

1. RT produces two products from different quantities of the same resources using a just-in-time (JIT) production system. The selling price and resource requirements of each of the products are shown below:

Market research shows that the maximum demand for products R and T during June 2010 is 500 units and 800 units respectively. This does not include an order that RT has agreed with a commercial customer for the supply of 250 units of R and 350 units of T at selling prices of $100 and $135 per unit respectively. Although the customer will accept part of the order, failure by RT to deliver the order in full by the end of June will cause RT to incur a $10,000 financial penalty. At a recent meeting of the purchasing and production managers to discuss the production plans of RT for June, the following resource restrictions for June were identified:
Direct labour hours 7,500 hours
Material A 8,500 kgs
Material B 3,000 litres
Machine hours 7,500 hours
Assuming that RT completes the order with the commercial customer, prepare calculations to show, from a financial perspective, the optimum production plan for June 2010 and the contribution that would result from adopting this plan.
The optimum production plan will be:

A) Contract: R = 250, T = 360 and Market: R = 500 T = 700
B) Contract: R = 250, T = 360 and Market: R = 600 T = 710
C) Contract: R = 250, T = 360 and Market: R = 650 T = 710
D) Contract: R = 250, T = 360 and Market: R = 500 T = 710
E) Contract: R = 250, T = 360 and Market: R = 660 T = 720

2. 'A zero-based budgeting system involves establishing decision packages that are then ranked in order of their relative importance in meeting the organization's objectives'.
Which of the following is true regarding he difficulties that a not-for-profit organization may experience when trying to rank decision packages.
Select ALL true statements.

A) Management may decide to reject packages even though the activity was done last year. In this way the organization is said to be starting from a zero base with each package given due consideration.
B) In a public sector body, for example, decision packages will relate to very disparate activities.
C) In a public sector body, for example, decision packages will relate profit making activities.
D) Some of these packages will be mutually inclusive and will require management to select the best solution to the issue involved.
E) Management may decide to accept packages even though the activity was done last year. In this way the organization is said to be starting from a 100% cost base with each package given due consideration.
F) Each decision package is evaluated. Its costs are compared to its benefits and net present values or other measures calculated.
G) The activities that are being proposed in a budget are described in variable packages. There will often be more less than one decision package proposed for an activity.
H) Some of these packages will be inclusive and will require operations to select the best solution to the issue involved.
I) The activities that are being proposed in a budget are described in decision packages. There will often be more than one decision package proposed for an activity.

3. The term 'budgetary slack' refers to the:

A) Intentional over estimation of costs and/or under estimation of revenue in a budget
B) Lead time between the preparation of the functional budgets and the approval of the master budget by senior management
C) Difference between the budgeted output and the actual output
D) Difference between budgeted capacity utilization and full capacity

4. Assume that you have made profit calculations based on standard profit calculation methods and activity based costing methods.
In which ways will this information be beneficial to the management team?
Select all the true statements.

A) Operational analysis will provide information to management on how costs can be incurred and managed.
B) Under an activity based costing system the various support activities that are involved in the process of making products or providing services are identified.
C) The identification of cost drivers provides information to management to enable them to take actions to improve the overall profitability of the company.
D) The cost drivers that cause a change to the cost of activities are also identified and used as the basis to attach activity costs to a particular product or service.
E) Through the tracing of costs to product in this way ABC establishes less accurate costs for the product or service.

5. A company produces three products D, E and F. The statement below shows the selling price and product costs per unit for each product, based on a traditional absorption costing system.

Each of the products is produced using Process A which has a maximum capacity of 2,500 hours per period.
If a traditional contribution approach is used, the ranking of products, in order of priority, for the profit maximizing product mix will be:

A) F, D, F
B) D, E, F
C) E, D, F
D) D, E, F

Solutions: