CIMA P1 - Management Accounting Question Tutorial : CIMAPRO15-P01-X1-ENG

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

CIMA P1 - Management Accounting Question Tutorial Sample Questions:

1. '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) 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.
B) Each decision package is evaluated. Its costs are compared to its benefits and net present values or other measures calculated.
C) Some of these packages will be mutually inclusive and will require management to select the best solution to the issue involved.
D) In a public sector body, for example, decision packages will relate to very disparate activities.
E) Some of these packages will be inclusive and will require operations to select the best solution to the issue involved.
F) 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.
G) 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.
H) In a public sector body, for example, decision packages will relate profit making activities.
I) 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.

2. A company produces trays of pre-prepared meals that are sold to restaurants and food retailers. Three varieties of meals are sold: economy, premium and deluxe.


Discuss the benefits of flexible budgeting for planning and control purposes.
Select all the true statements.

A) The fixed budget however provides more insight into actual performance.
B) If actual sales revenue is compared to a fixed budget it is possible to tell whether a favourable sales variance is due to an increase in units sold or an increase in sales price.
C) If sales volumes were well above budget, adverse variable cost variances will probably be reported, against the fixed budget, since more variable costs have to be incurred to support the higher level of activity.
D) Reporting against a fixed budget tells management nothing about the efficiency of operations.
E) If a flexible budget is prepared then the budget variances calculated will provide a better indication of performance since actual results will be compared against an appropriate benchmark.
F) A fixed budget will provide meaningful control information when actual activity differs from budget and variable costs are significant.

3. QR uses an activity based budgeting (ABB) system to budget product costs. It manufactures two products, product Q and product R. The budget details for these two products for the forthcoming period are as follows:

The total budgeted cost of setting up the machines is $74,400.
What was the budgeted machine set up cost per unit of product Q?

A) $0.48 per unit
B) $0.37 per unit
C) $0.56 per unit
D) $0.39 per unit

4.
Select the benefits to a company of using sensitivity analysis in investment appraisal.
(Select all the true statements.)

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

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

Solutions: