CIMA P1 - Management Accounting Question Tutorial Sample Questions:

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

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

2. 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.
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?

A) The Material price planning variance - Ingredient A was $71 000 F
B) The Material price planning variance - Ingredient A was $72 000 F
C) The Material price planning variance - Ingredient A was $75 000 F
D) The Material price planning variance - Ingredient A was $73 000 F

3. CH is a building supplies company that sells products to trade and private customers.
Budget data for each of the six months to March are given below:

80% of the value of credit sales is received in the month after sale, 10% two months after sale and 8% three months after sale. The balance is written off as a bad debt.
75% of the value of credit purchases is paid in the month after purchase and the remaining 25% is paid two months after purchase.
All other operating costs are paid in the month they are incurred.
CH has placed an order for four new forklift trucks that will cost $25,000 each. The scheduled payment date is in February.
The cash balance at 1 January is estimated to be $15,000.
Prepare a cash budget for each of the THREE months of January, February and March.
Select All the correct answers.

A) The total payments in February will be $405 000
B) The total receipts in January will be $245 000
C) Total payments in March will be $323 000
D) The total receipts in January will be $320 000

4. A master budget comprises the...

A) budgeted income statement and budgeted balance sheet only.
B) budgeted income statement and budgeted cash flow statement only.
C) budgeted income statement, budgeted balance sheet and budgeted cash flow statement only.
D) budgeted income statement and budgeted capital expenditure only

5. RFT, an engineering company, has been asked to provide a quotation for a contract to build a new engine.
The potential customer is not a current customer of RFT, but the directors of RFT are keen to try and win the contract as they believe that this may lead to more contracts in the future. As a result, they intend pricing the contract using relevant costs. The following information has been obtained from a two-hour meeting that the Production Director of RFT had with the potential customer. The Production Director is paid an annual salary equivalent to $1,200 per 8-hour day. 110 square meters of material A will be required. This is a material that is regularly used by RFT and there are 200 square meters currently in inventory. These were bought at a cost of
$12 per square meter. They have a resale value of $10.50 per square meter and their current replacement cost is $12.50 per square meter. 30 liters of material B will be required. This material will have to be purchased for the contract because it is not otherwise used by RFT. The minimum order quantity from the supplier is 40 liters at a cost of $9 per liter. RFT does not expect to have any use for any of this material that remains after this contract is completed. 60 components will be required. These will be purchased from HY. The purchase price is $50 per component. A total of 235 direct labour hours will be required. The current wage rate for the appropriate grade of direct labour is $11 per hour. Currently RFT has 75 direct labour hours of spare capacity at this grade that is being paid under a guaranteed wage agreement. The additional hours would need to be obtained by either (i) overtime at a total cost of $14 per hour; or (ii) recruiting temporary staff at a cost of $12 per hour. However, if temporary staff are used they will not be as experienced as RFT's existing workers and will require 10 hours supervision by an existing supervisor who would be paid overtime at a cost of $18 per hour for this work. 25 machine hours will be required. The machine to be used is already leased for a weekly leasing cost of $600. It has a capacity of 40 hours per week. The machine has sufficient available capacity for the contract to be completed. The variable running cost of the machine is $7 per hour. The company absorbs its fixed overhead costs using an absorption rate of $20 per direct labour hour.
Select ALL the true statements.

A) The company absorbs its fixed overhead costs using an absorption rate of $20 per direct labour hour. This is a relevant cost.
B) Material B was a relevant cost.
C) The relevant cost is $7100
D) The machine is currently being leased and it has spare capacity so it will either stand idle or be used on this work. The lease cost will be a relevant cost or $10 per hour.
E) The relevant cost is $7010
F) The components are to be purchased from HY at a cost of $50 each. This is a relevant cost because it is future expenditure that will be incurred as a result of the work being undertaken.
G) The cost for the production director meeting was a relevant cost.
H) Material A was a relevant cost.
I) The relevant cost is $7080

Solutions: