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CIMA CIMAPRO15-P01-X1-ENG Exam Syllabus Topics:

CIMA P1 - Management Accounting Question Tutorial Sample Questions:

1.
Select the benefits to a company of using sensitivity analysis in investment appraisal.
(Select all the true statements.)

A) Sensitivity analysis enables identification of fixed costs that are of special significance.
B) Sensitivity analysis enables a company to assess the risk associated with a project.
C) Sensitivity analysis enables risk management strategies to be put in place to focus on those variables of special significance.
D) Sensitivity analysis enables a company to determine the effect of changes to variables on the planned outcome.

2. 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:

A) $55, 600 F
B) $15, 600 F
C) $32, 900 F
D) $17, 800 F

3. A decision maker that makes decisions using the minimax regret criterion would be classified as:

A) Risk averse
B) Risk neutral
C) Risk spreading
D) Risk seeking

4. 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 = 600 T = 710
B) Contract: R = 250, T = 360 and Market: R = 500 T = 710
C) Contract: R = 250, T = 360 and Market: R = 500 T = 700
D) Contract: R = 250, T = 360 and Market: R = 650 T = 710
E) Contract: R = 250, T = 360 and Market: R = 660 T = 720

5. 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) Another purpose of a budget is to set targets to motivate managers and optimize their performance.
B) 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.
C) Managers will not 'empire build' because they don't believe that the size of their budget reflects their importance within the organization.
D) 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.
E) 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.
F) A purposes of budgeting is to act as a control mechanism, with actual results being compared against budget.

Solutions: