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.
What was the material price planning variance for ingredient B?

A) The material price planning variance - Ingredient B was $64 000 F
B) The material price planning variance - Ingredient B was $59 000 F
C) The material price planning variance - Ingredient B was $57 000 F
D) The material price planning variance - Ingredient B was $54 000 F

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.
What was the material yield variance?

A) The material yield variance was $175 500 A
B) The material yield variance was $155 500 A
C) The material yield variance was $175 000 A
D) The material yield variance was $98 500 A
E) The material yield variance was $155 000 A

3. 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) 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.
B) Managers will not 'empire build' because they don't believe that the size of their budget reflects their importance within the organization.
C) 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.
D) Another purpose of a budget is to set targets to motivate managers and optimize their performance.
E) 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.
F) A purposes of budgeting is to act as a control mechanism, with actual results being compared against budget.

4. 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) Material A was a relevant cost.
D) The relevant cost is $7010
E) 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.
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 relevant cost is $7080
H) The cost for the production director meeting was a relevant cost.
I) The relevant cost is $7100

5. 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) $0.56 per unit
B) $0.37 per unit
C) $0.39 per unit
D) $0.48 per unit

Solutions: