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

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. 54.3%
• B. 55,6%
• C. 45.0%
• D. 184.0%

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 520 units of Product R and 620 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 510 units of Product R and 720 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 500 units of Product R and 550 units of product T in addition to the contract.
• F. The optimal plan is to produce 450 units of Product R and 690 units of product T in addition to the contract.

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.
Discuss the usefulness of the planning and operational variances calculated for TP's management.
Select ALL the TRUE statements.

• A. The purchasing manager's performance can't be compared with the adjusted standards that reflect the conditions the manager actually operated under during the reporting period.
• B. Standards that failed to anticipate known market trends when they were set will reflect faulty standard setting.
• C. Where a revision of standards is required due to environmental changes that were not foreseeable at the time the budget was prepared, the planning variances are controllable.
• D. If planning and operational variances are not distinguished, there is potential for dysfunctional behavior especially where the manager has been operating efficiently and performance is being judged by factors outside the manager's control. In the case of TP it became evident during the period that the prevailing market prices for materials were significantly less than those set during the budget process.
• E. The use of planning and operational variances will enable TP's management to draw a distinction between variances caused by factors extraneous to the business and planning errors (planning variances) and variances caused by factors that are within the control of management (operational variances).

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.


Calculate, for the original budget, the budgeted fixed overhead costs, the budgeted variable overhead cost per tray and the budgeted total overheads costs.

• A. Original budget contribution = $272 000, Flexed budget contribution = $ 248 200, Actual Contribution $ 321 960
• B. Original budget contribution = $172 000, Flexed budget contribution = $ 148 200, Actual Contribution $ 221 960
• C. Original budget contribution = $242 000, Flexed budget contribution = $ 148 200, Actual Contribution $ 121 960
• D. Original budget contribution = $162 000, Flexed budget contribution = $ 178 200, Actual Contribution $ 201 960

Explain THREE benefits that organizations gain from using budgetary planning and control systems.
Select ALL the true statements.

• A. It provides a standard which managers may be motivated to achieve. It can also encourage inefficiency
  and conflict between managers particularly if the budget is imposed from above, whereby it may act as a threat rather than as a challenge.
• B. The budget is a useful device of influencing an operator's thoughts and motivating operators to perform in line with the organization's marketing budget.
• C. The budget acts as a variable mechanism, with actual results being compared with budget.
• D. Budgeting forces an organization's management to look ahead and set performance targets.
• E. Another benefit of budgeting is to set targets to motivate managers and optimize their performance.
• F. The budget ensures actions of different parts of the organization are coordinated are reconciled otherwise managers take actions for the benefit of their own part of organization that may not benefit the organization as a whole.
• G. The budget provides an external benchmark against which performance against which performance can be evaluated.