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CIMA P1 - Management Accounting Question Tutorial Sample Questions:

1. TP makes wedding cakes that are sold to specialist retail outlets which decorate the cakes according to the customers' specific requirements. The standard cost per unit of its most popular cake is as follows:

The general market prices at the time of purchase for Ingredient A and Ingredient B were $23 per kg and $20 per kg respectively. TP operates a JIT purchasing system for ingredients and a JIT production system; therefore, there was no inventory during the period.
Discuss the usefulness of the planning and operational variances calculated for TP's management.
Select ALL the TRUE statements.

A) If planning and operational variances are not distinguished, there is potential for dysfunctional behavior especially where the manager has been operating efficiently and performance is being judged by factors outside the manager's control. In the case of TP it became evident during the period that the prevailing market prices for materials were significantly less than those set during the budget process.
B) The purchasing manager's performance can't be compared with the adjusted standards that reflect the conditions the manager actually operated under during the reporting period.
C) Standards that failed to anticipate known market trends when they were set will reflect faulty standard setting.
D) Where a revision of standards is required due to environmental changes that were not foreseeable at the time the budget was prepared, the planning variances are controllable.
E) The use of planning and operational variances will enable TP's management to draw a distinction between variances caused by factors extraneous to the business and planning errors (planning variances) and variances caused by factors that are within the control of management (operational variances).

2. 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.
How will a manufacturing resource planning system improve the planning of purchases and production for the company?
Select ALL the correct answers.

A) A manufacturing resource planning approach to the management of all the company's manufacturing
resources including inventory, labour and machine capacity.
B) The correct inventory management system relies on the assumption that there is constant demand. An MRP system begins with the setting of a master production schedule specifying both the timing and quantity demanded of each of the finished goods items and then works backwards to determine the resource requirements at each stage of the production process.
C) The technique will not enable managers to track orders through the manufacturing process and will not assist the purchasing and production control departments to move the right amount of material or sub- assemblies at the right time to the right place.
D) It seeks to ensure that resources are available just before they are needed by the next stage of production or dispatch. It also seeks to ensure that resources are delivered only when required so that raw material inventory is kept to a minimum.
E) It aims to generate an estimation of materials requirements after taking account of the number of employees quality and waste. The TQS model can be used within MRP provided that the major assumption in the TQS model of constant demand applies.
F) The traditional approach to determine material requirements is to monitor inventories constantly; whenever they fall to a predetermined level, a preset order is placed to replenish them. This traditional approach (involving re-order levels and economic order quantity calculations originates in the pre-computer era.

3. '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) 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.
B) Some of these packages will be mutually inclusive and will require management to select the best solution to the issue involved.
C) Each decision package is evaluated. Its costs are compared to its benefits and net present values or other measures calculated.
D) 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.
E) In a public sector body, for example, decision packages will relate to very disparate activities.
F) 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.
G) 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.
H) In a public sector body, for example, decision packages will relate profit making activities.
I) Some of these packages will be inclusive and will require operations to select the best solution to the issue involved.

4. 'Public sector organizations are often judged by their economy, efficiency and effectiveness. Consequently, they should use an approach to budgeting other than incremental budgeting.' Required:
Explain ONE advantage and TWO disadvantages of public sector organizations using incremental budgeting.
Select all true statements.

A) The incremental approach encourages managers in public sector organizations to look at the efficiency and effectiveness of activities undertaken.
B) Public sector organizations tend to be fairly complex and in many cases outputs cannot be measured in monetary terms therefore the link between inputs and outputs is difficult to establish. An incremental approach can therefore provide a cost effective approach to budgeting.
C) An incremental; approach is not as easy and fast to implement than other forms of budgeting approaches e.g. zero based budgeting.
D) The incremental approach means that budget holders in public sector organizations will be encouraged to use up this year's budget will be as high as possible.
E) The main advantage of incremental budgeting is that the cost of past activities becomes fixed and any inefficiencies or wastage is perpetuated.
F) Under an incremental approach to budgeting, existing operations and the current budgeted allowance for these existing activities are taken as the base level for preparing the budget.

5. 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) $17 890
B) $18 750
C) $17 750
D) $18 600

Solutions: