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CIMA P1 - Management Accounting Question Tutorial Sample Questions:

1. RT produces two products from different quantities of the same resources using a just-in-time (JIT) production system. The selling price and resource requirements of each of the products are shown below:

Market research shows that the maximum demand for products R and T during June 2010 is 500 units and
800 units respectively. This does not include an order that RT has agreed with a commercial customer for the supply of 250 units of R and 350 units of T at selling prices of $100 and $135 per unit respectively. Although the customer will accept part of the order, failure by RT to deliver the order in full by the end of June will cause RT to incur a $10,000 financial penalty. At a recent meeting of the purchasing and production managers to discuss the production plans of RT for June, the following resource restrictions for June were identified:
Direct labour hours 7,500 hours
Material A 8,500 kgs
Material B 3,000 litres
Machine hours 7,500 hours
(Refer to previous 2 questions.)
You have now presented your optimum production plan to the purchasing and production managers of RT.
During your presentation it became clear that the predicted resource restrictions were rather optimistic. In fact, the managers agreed that the availability of all of the resources could be as much as 10% lower than their original predictions.
Assuming that RT completes the order with the commercial customer, and using linear programming, show the optimum production plan for RT for June 2010 on the basis that the availability of all resources is 10% lower than originally predicted.

A) The optimal plan is to produce 450 units of Product R and 690 units of product T in addition to the contract.
B) The optimal plan is to produce 560 units of Product R and 670 units of product T in addition to the contract.
C) The optimal plan is to produce 500 units of Product R and 550 units of product T in addition to the contract.
D) The optimal plan is to produce 550 units of Product R and 650 units of product T in addition to the contract.
E) The optimal plan is to produce 510 units of Product R and 720 units of product T in addition to the contract.
F) The optimal plan is to produce 520 units of Product R and 620 units of product T in addition to the contract.

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

3. A company's management is considering investing in a project with an expected life of 4 years. It has a positive net present value of $180,000 when cash flows are discounted at 8% per annum. The project's cash flows include a cash outflow of $100,000 for each of the four years. No tax is payable on projects of this type.
The percentage increase in the annual cash outflow that would cause the company's management to reject the project from a financial perspective is, to the nearest 0.1%:

A) 55,6%
B) 45.0%
C) 54.3%
D) 184.0%

4. 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.

A) Yes, the programme should be advertised as the profit will be $82 000
B) No, the programme should not be advertised as there will be a loss $92 000
C) No, the programme should not be advertised as there will be a loss $82 000
D) Yes, the programme should be advertised as the profit will be $92 000

5. A company sells and services photocopying machines. Its sales department sells the machines and consumables, including ink and paper, and its service department provides an after sales service to its customers. The after sales service includes planned maintenance of the machine and repairs in the event of a machine breakdown. Service department customers are charged an amount per copy that differs depending on the size of the machine.
The company's existing costing system uses a single overhead rate, based on total sales revenue from copy charges, to charge the cost of the Service Department's support activities to each size of machine. The Service Manager has suggested that the copy charge should more accurately reflect the costs involved. The company's accountant has decided to implement an activity-based costing system and has obtained the following information about the support activities of the service department:

Calculate the annual profit per machine for each of the three sizes of machine using activity-based costing.

A) Profit Per Machine using ABC: Small $186, Medium $1441, Large $2046
B) Profit Per Machine using ABC: Small $166, Medium $1241, Large $746
C) Profit Per Machine using ABC: Small $376, Medium $2341, Large $986
D) Profit Per Machine using ABC: Small $176, Medium $1341, Large $946
E) Profit Per Machine using ABC: Small $1076, Medium $1041, Large $1946
F) Profit Per Machine using ABC: Small $196, Medium $1191, Large $1046

Solutions: