Management Accounting (CIMAPRO19-P01-1) Free Practice Test

Question 1

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.

Correct Answer:

$95800

Question 2

A company is preparing its annual budget and is estimating the number of units of Product W that it will sell in each quarter of year 2. Past experience has shown that the trend for sales of the product is represented by the following relationship:

Calculate the expected unit sales of Product W for each quarter of year 2, after adjusting for seasonal variations using the multiplicative model.

A. The sales forecast for year 2 Quarter 4 = 35,100 units

B. The sales forecast for year 2 Quarter 4 = 22,600 units

C. The sales forecast for year 2 Quarter 4 = 25,100 units

D. The sales forecast for year 2 Quarter 4 = 38,100 units

Correct Answer: A

Question 3

The budgeted production of product G for the period was 300 units. At the end of the period it was discovered that the standard hourly rate for labour should have been higher than that originally planned. Actual production was 450 units.
The labour rate planning variance would be calculated as:

A. The revised standard cost of 450 units compared with the original standard cost of 300 units

B. The revised standard cost of 300 units compared with the orginal standard cost of 300 units

C. The revised standard cost of 450 units compared with the original standard cost of 450 units

D. The revised standard cost of 300 units compared with the original standard cost of 450 units

Correct Answer: C

Question 4

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?

A. 6,000

B. 16,000

C. 14,000

D. 8,000

Correct Answer: B

Question 5

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

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. 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.

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

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

Correct Answer: A,C,D

Question 6

Which THREE of the following are never relevant costs for short-term decision making?

A. Committed costs

B. Variable overhead costs

C. Sunk costs

D. Depreciation costs

E. Incremental costs

Correct Answer: A,C,D

Question 7

Company M is preparing its budgeted profit statement for the next year.
The initial budget for Product A is as follows with some changes proposed by the sales director to increase the quality of the product.
What would the budgeted profit of Product A be if the proposed changes are made?

Give your answer as a whole number.

Correct Answer:

$129500

Question 8

PL currently earns an annual contribution of $2,880,000 from the sale of 90,000 units of product B. Fixed costs are $800,000 per annum.
The management of PL is considering reducing the selling price per unit to $48. The estimated levels of demand at the revised selling price and the probabilities of them occurring are as follows:

Calculate the probability that the profit will increase from its current level if the selling price is reduced to $48.

A. The probability therefore that the contribution will exceed $2,880,000 is 70%.

B. The probability therefore that the contribution will exceed $2,880,000 is 40%.

C. The probability therefore that the contribution will exceed $2,880,000 is 50%.

D. The probability therefore that the contribution will exceed $2,880,000 is 90%.

Correct Answer: D

Question 9

The breakeven point in units, in a multiple product context, is calculated using which of the following formulae?

A. Fixed costs / weighted average contribution per unit

B. Fixed costs / weighted average revenue per unit

C. Fixed costs / weighted average profit per unit

D. Fixed costs / weighted average contribution to sales ratio

Correct Answer: A

Question 10

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.

A. 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.

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

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

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

Correct Answer: A,C,D,E,F

Question 11

A company uses limiting factor analysis to identify its optimal production plan. All of the company's products are manufactured in house and cannot be bought in.
What objective is assumed with limited factor analysis?

A. Ensuring customer demand is met

B. Cost minimisation

C. Revenue maximisation

D. Profit maximisation

Correct Answer: D

Question 12

A company produces and sells two products, product A and product B.
What are the total fixed costs when the weighted average contribution per unit is $5 and the breakeven points for product A and product B are 10,000 units and 5,000 units respectively?
Give your answer as a whole number (in 000's).

Correct Answer:

$75000

Question 13

MBM is considering introducing a new product and has to decide if the sales price should be $80, $90,
$100 or $120.
There is a 30% chance that demand could be high, a 50% chance that demand will be at a medium level and a 20% chance that demand will be low.
A payoff table below shows the profits based on the sales price and the level of demand.

MBM has decided, using an expected value approach, that the sales price should be set at $80 as this gives the highest expected profit of $860,000.
A market research company has since approached MBM offering to provide perfect information on the demand level.
What is the maximum amount that should be paid for the perfect information?
Give your answer as a whole number (in '000s).

Correct Answer:

$60000

Question 14

Which of the following statements is true?

A. Standard costing is focused on achieving zero defects.

B. Standard costing embraces the philosophy of continual improvement.

C. Standard costing is best suited to a stable environment.

D. Standard costing is focused on delivering quality products to customers.

Correct Answer: C

Question 15

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?

A. $125 000

B. $145 000

C. $140 000

D. $135 000

Correct Answer: C

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CIMA Management Accounting (CIMAPRO19-P01-1) Free Practice Test