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CIMA P1 - Management Accounting

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Total 260 questions

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?

A.

$17 750

B.

$18 600

C.

$17 890

D.

$18 750

A company's initial budget for month 3 includes sales of $100,000, a contribution to sales (C/S) ratio of 40% and fixed costs of $20,000.

If the budgeted sales volume in month 3 is reduced by 5% but contribution per unit, total fixed costs and sales mix are unchanged, which of the following statements, about the change to the budgeted profit or contribution in month 3 is true?

A.

The revised budgeted profit would be lower by less than 5%.

B.

The revised budgeted profit would be lower by more than 5%.

C.

The revised budgeted contribution would be lower by less than 5%.

D.

The revised budgeted contribution would be lower by more than 5%.

Company Y absorbs fixed production overheads using a rate per machine hour. Budgeted and actual data for month 8 are as follows:

What is the fixed production overhead efficiency variance?

A.

$400,000 favourable

B.

$400,000 adverse

C.

$1,000,000 favourable

D.

$1,000,000 adverse

A medium-sized manufacturing company, which operates in the electronics industry, has employed a firm of consultants to carry out a review of the company’s planning and control systems. The company presently uses a traditional incremental budgeting system and the inventory management system is based on economic order quantities (EOQ) and reorder levels. The company’s normal production patterns have changed significantly over the previous few years as a result of increasing demand for customized products. This has resulted in shorter production runs and difficulties with production and resource planning.

The consultants have recommended the implementation of activity based budgeting and a manufacturing resource planning system to improve planning and resource management.

Select ALL the benefits for the company that could occur following the introduction of an activity based budgeting system.

A.

Under an activity based budgeting system, resource allocation is linked to the strategic plan is prepared after considering alternative strategies. This approach ensures that new activities that are required to meet the company’s strategic objectives are included in the budget.

B.

Under an activity based budgeting system the focus is on existing resources and operations. Adjustments are then made for changes in activity and price which results in past inefficiencies being perpetuated. Under a traditional budgeting system, only resources that are needed to perform activities required to meet the budgeted production and sales volumes are included.

C.

Activity based techniques including activity based budgeting focus on the outputs of a process rather than the input to the process. This approach provides a clear framework for understanding the link between costs and the level of activity. It allows the ranking of activities and the determination of how limited resources should be allocated across competing activities.

D.

ABB systems present costs under functional headings i.e. the emphasis is on the nature of the cost. The weakness of this approach is that it gives little indication of the link between the level of activity and the cost incurred.

E.

The approach under an activity based system is to make arbitrary cuts in order to meet overall financial targets.

F.

Activity based budgeting allows the identification of value added and non-value added activities and ensures that cuts are made to non-value added activities. ABB is also useful for review of capacity utilization.

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.

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.

Where sales volume is the principal budget factor, which of the following is the correct order in which budgets have to be prepared?

A.

Sales budget, production budget, material usage budget, material purchases budget

B.

Sales budget, production budget, materials purchases budget, material usage budget

C.

Production budget, sales budget, material usage budget, material purchases budget

D.

Prodcution budget, material usage budget, material purchases budget, sales budget

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

A.

Depreciation costs

B.

Incremental costs

C.

Sunk costs

D.

Variable overhead costs

E.

Committed costs

A manager has not yet used all oh his budget. He is worried that his budget maybe reduced next year if he is not seen to have needed all the funds. He decides to spend the remaining £1,580 on another team building

exercise as well as a catered lunch for his department.

This example falls under which behavioural aspect of budgetary control?

A.

Irrational spending

B.

Motivation

C.

Budget negotiation

D.

Short term focus

A master budget comprises which of the following?

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.

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 90%.

B.

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

C.

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

D.

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