CIMA CIMAPRO19-P01-1 Exam Practice Test Instant Access

Question 1

A major company sells a range of electrical, clothing and homeware products through a chain of department stores. The main administration functions are provided from the company's head office. Each department store has its own warehouse which receives goods that are delivered from a central distribution center.

The company currently measures profitability by product group for each store using an absorption costing system. All overhead costs are charged to product groups based on sales revenue. Overhead costs account for approximately one-third of total costs and the directors are concerned about the arbitrary nature of the current method used to charge these costs to product groups.

A consultant has been appointed to analyses the activities that are undertaken in the department stores and to establish an activity based costing system.

The consultant has identified the following data for the latest period for each of the product groups for the X Town store:

Calculate the total profit for each of the product groups:

.... using the current absorption costing system;

AThe profit or loss in $ was.... Clothing 122; Electrical 56; Homeware (178)

BThe profit or loss in $ was.... Clothing (175); Electrical 86; Homeware 22

CThe profit or loss in $ was.... Clothing 85; Electrical 36; Homeware (28)

DThe profit or loss in $ was.... Clothing 192; Electrical (56); Homeware 148

Answer : D

Question 2

A university is trying to decide whether or not to advertise a new post-graduate degree programme. The number of students starting the programme is dependent on economic conditions. If conditions are poor, it is expected that the programme will attract 40 students without advertising. There is a 60% chance that economic conditions will be poor. If economic conditions are good it is expected that the programme will attract only 20 students without advertising. There is a 40% chance that economic conditions will be good.

If the programme is advertised and economic conditions are poor, there is a 65% chance that the advertising will stimulate further demand and student numbers will increase to 50. If economic conditions are good, there is a 25% chance the advertising will stimulate further demand and numbers will increase to 25 students.

The profit expected, before deducting the cost of advertising, at different levels of student numbers are as follows:

The cost of advertising the programme will be $15,000.

Required:

Demonstrate, using a decision tree, whether the programme should be advertised.

AYes, the programme should be advertised as the profit will be $82000

BYes, the programme should be advertised as the profit will be $92000

CNo, the programme should not be advertised as there will be a loss $82000

DNo, the programme should not be advertised as there will be a loss $92000

Answer : A

References:

Question 3

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.

What was the material yieldvariance?

AThe material yield variance was $98500 A

BThe material yield variance was $175500 A

CThe material yield variance was $155000 A

DThe material yield variance was $175 000 A

EThe material yield variance was $155500 A

Answer : D

Question 4

What was the material price planning variance for ingredient B?

AThe material price planning variance -- Ingredient B was $54 000 F

BThe material price planning variance -- Ingredient B was $64 000 F

CThe material price planning variance -- Ingredient B was $57 000 F

DThe material price planning variance -- Ingredient B was $59 000 F

Answer : A

Question 5

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.

Prepare a statement which reconciles the flexed budget material cost and the actual material cost. Your statement should include the material price planning variances, and the operational variances including material price, material mix and material yield.

What was the material price planning variance for ingredient A?

AThe Material price planning variance -- Ingredient A was $73000 F

BThe Material price planning variance -- Ingredient A was $72000 F

CThe Material price planning variance -- Ingredient A was $71000 F

DThe Material price planning variance -- Ingredient A was $75000 F

Answer : B

Question 6

JRL manufactures two products from different combinations of the same resources. Unit selling prices and unit cost details for each product are as follows:

* Refer to your answer in the previous question.

The optimal solution to the previous question shows that the shadow prices of skilled labour and direct material A are as follows:

Skilled labour $ Nil Direct Material A $11.70

Explain the relevance of these values to the management of JRL.

Select ALL the true statements.

AThe shadow price equals the additional contribution that would be earned from one extra unit of a scarce resource.

BIn a situation such as this, where a number of resources are scarce, the shadow price of any particular scarce resource will depend on whether or not the resource is not binding.

CThe shadow price for skilled labour is NIL because although there is a shortage of skilled labour it does have a constraining effect on output of JR as other resources are more scarce.

DSince material A is one of the binding constraints, if the availability of material A could be increased by one unit, this would change the optimal plan.

EThe decrease in contribution as a result of this change is the value of the shadow price of material A. The shadow price thus represents the maximum premium that should be paid for an additional unit of material A.

Answer : A, D

References:

Question 7

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.

AA purposes of budgeting is to act as a control mechanism, with actual results being compared against budget.

BAnother purpose of a budget is to set targets to motivate managers and optimize their performance.

CThe 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.

DParticipation 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.

EParticipation 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.

FManagers will not 'empire build' because they don't believe that the size of their budget reflects their importance within the organization.

Answer : A, B, C, D, E

References:

CIMAPRO19-P01-1 P1 Management Accounting Exam Practice Test