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CIMA Operational
P1
Management Accounting Questions and Answers

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Viewing questions 61-70 out of questions

Questions # 61:

The following 5 statements apply the principles of either, both or neither absorption costing and marginal costing.

Place the option labels against the relevant statements.

Question # 61

Options:

Answer

Answer:

Questions # 62:

A time series (TS) is made up of two main components i.e. trend (T) and the seasonal variation (SV).

The equation that represents the seasonal variation under the additive model is:

Question # 62

Options:

Answer

Answer:

Questions # 63:

Explain how probability analysis could be used to assess the risk of the evaluated projects.

Select all the true statements.

Options:

The company can determine a range of possible outcomes for each of the cash flows in the project, for example, a high, low and medium estimate of each cash flow could be determined.

The net present value (NPV) of the project, if all high, low or medium estimates occurred, can be calculated along with the combined probabilities of their occurrence.

The probabilities can be combined to calculate the expected value of each cash flow element and of the project as a whole

The NPVs of a sample range of possible outcomes and the probability of each NPV can be calculated. If a small sample is taken the distribution of outcomes can be used to calculate the zero activities deviation of the NPVs and the probability of success of the projects.

Answer

A, B, C

Explanation

References:

Questions # 64:

Which of the following statements about expected value is NOT correct?

Options:

It assumes that the decision is repeated a very large number of times.

It draws management attention to the possibility of very high or very low outcomes.

It is the weighted average outcome based on the probability of each outcome.

It represents the distribution of possible outcomes by a single figure.

Answer

Questions # 65:

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.

What are the benefits for the company that could occur following the introduction of an activity based budgeting system?

Select ALL the correct answers.

Options:

Under an activity based budgeting system, resource allocation is linked to the strategic plan and 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.

Under a traditional incremental 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 an activity based budgeting system, only resources that are needed to perform activities required to meet the budgeted production and sales volumes are included.

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.

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

The approach under an Activity based Budgeting System is to make arbitrary cuts in order to meet overall financial targets.

Answer

A, B, C

Explanation

References:

Questions # 66:

Which of the following distinguishes risk from uncertainty?

Options:

Risk can be quantified whereas uncertainty cannot.

Risk can have both upside and downside whereas uncertainty is always downside.

Risk should be taken into account in decision making whereas uncertainty should not.

Risk is relevant to financial decisions whereas uncertainty is relevant to non-financial.

Answer

Questions # 67:

Information about a company's two products is as follows:

Question # 67

The products are currently sold in equal quantities.

Monthly fixed costs are $360,000.

What is the monthly breakeven sales revenue assuming a sales quantity mix of 50/50?

Give your answer to the nearest $.

Options:

Answer

Answer:

$1600000

Questions # 68:

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

Options:

Fixed costs / weighted average contribution to sales ratio

Fixed costs / weighted average profit per unit

Fixed costs / weighted average contribution per unit

Fixed costs / weighted average revenue per unit

Answer

Questions # 69:

The following extract from a decision tree has been prepared for a decision that is to be made to choose between options P, Q and R.

Question # 69

What is the maximum expected value of profit at decision point Z?

B. $4 million

C. $6 million

D. $36 million

$2.4 million

Options:

Answer

Answer:

Questions # 70:

GH manufactures a product using skilled labour and high quality materials. The company operates a standard costing system and a just-in-time (JIT) purchasing and production system. The standard selling price and variable costs for one unit of the product are as follows:

Question # 70

Prepare a statement that reconciles the budgeted contribution with the actual contribution for October. Your statement should show the variances in as much detail as possible.

What was the actual contribution for October?