P1 Practice Exam Questions with Answers Management Accounting Certification

Which of the following managers is most likely to be responsible for an favourable labour efficiency variance?

Which THREE of the following are functional budgets?

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

Assuming that RT completes the order with the commercial customer, prepare calculations to show, from a financial perspective, the optimum production plan for June 2010 and the contribution that would result from adopting this plan. 

The contribution per unit for R and T will be...?

A manufacturing company has fixed production overhead costs, direct material costs and direct labour costs. The number of units of closing finished goods inventory is lower than the opening inventory.

Which of the following statements is true?

‘Public sector organizations are often judged by their economy, efficiency and effectiveness. Consequently, they should use an approach to budgeting other than incremental budgeting.’

Required:

Explain ONE advantage and TWO disadvantages of public sector organizations using incremental budgeting.

Select all true statements.

A company's initial budget for month 3 includes sales of $100,000, a contribution to sales (C/S) ratio of 40% and fixed costs of $20,000.

If the budgeted sales volume in month 3 is reduced by 5% but contribution per unit, total fixed costs and sales mix are unchanged, which of the following statements, about the change to the budgeted profit or contribution in month 3 is true?

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;

MDS is facing a temporary shortage of Material H which is used to produce all three of its products.

In order to maximise its profitability, which product should be manufactured first?

A time series (TS) is made up of two main components i.e. trend (T) and the seasonal variation (SV).

The equation that represents the seasonal variation under the additive model is:

A company uses an activity based costing system. The company manufactures three products, details of which are given below:

Place the components of the time series next to the example about the impact on sales that they best represent.

A company has a budgeted contribution to sales (C/S) ratio of 30% and a budgeted operating profit margin of 20%. Budgeted sales were $100,000.

In month 2, actual production and sales volumes and all costs were as budgeted. The actual C/S ratio was 33% .

Which of the following statements, about the company's contribution and operating profit in month 2, is correct?

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?

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.

Select TWO potential benefits of using an activity based budgeting system.

A company has budgeted to produce 5,000 units of Product B per month. The opening and closing inventories of Product B for next month are budgeted to be 400 units and 900 units respectively. The budgeted selling price and variable production costs per unit for Product B are as follows:

Total budgeted fixed production overheads are $29,500 per month. The company absorbs fixed production overheads on the basis of the budgeted number of units produced. The budgeted profit for Product B for next month, using absorption costing, is $20,700.

Prepare a marginal costing statement which shows the budgeted profit for Product B for next month.

What was the difference between the profit calculation using marginal costing and the profit calculation using absorption costing?

State whether the following costs are relevant or non-relevant in the context of short-term decision making scenarios.

XY manufactures a range of products and uses an activity based costing system.

Budgeted production of Product B is 7,500 units.

Overheads have been identified by activity and related to appropriate cost drivers.

Product B is produced in batches of 250 units. Machines have to be reset after every batch and quality inspections are carried out on every third batch.

What is the total overhead cost per unit of Product B?

Give your answer to two decimal places.

The manager of a recently opened cafe is deciding how many sandwiches to make each day.

The sandwiches are made in the morning before the cafe opens.

If demand exceeds the number of sandwiches made in the morning no extra sandwiches can be made during the day. Any unsold sandwiches are thrown away at the end of each day.

Daily demand is uncertain but is predicted to be 10, 20, 30 or 40 sandwiches.

The following regret matrix has been prepared:

If the minimax regret criterion is used to make the decision, the manager will choose to make:

A bakery manager is deciding how many batches of birthday cakes to decorate each day.

Demand for the birthday cakes varies from 12 to 15 batches per day. Each batch decorated and sold earns a contribution of $40 but each batch unsold leads to loss of contribution of $15.

The payoff table below shows the total $ contribution from each of the possibilities:

Based on expected values, the number of batches of birthday cakes the bakery manager should decorate each day is:

Company LGF seeks to maximize profits and has a 'risk seeker' attitude when making decisions. The company has to choose between mutually exclusive projects. A range of possible profit outcomes has been estimated for each project along with their associated probabilities.

Company LGF would choose the project with the:

Place the correct label against each item to categorise the cost of the item within the quality cost framework.

A company is considering whether to develop an overseas market for its products. The cost of developing the new market is estimated to be $250,000. There is a 70% probability that the development of the new market will succeed and a 30% probability that the development of the new market will fail and no further expenditure will be incurred.

If the market development is successful, the profit from the new market will depend on prevailing exchange rates. There is a 50% chance that exchange rates will be in line with expectations and a profit of $500,000 will be made. There is a 20% chance that exchange rates will be favorable and a profit of $630,000 will be made and a 30% chance that exchange rates will be adverse and a profit of $100,000 will be made.

The profit figures stated are before taking account of the development costs of $250,000.

Use a decision tree to decide whether the company should develop an overseas market for its products.

Select one correct answer.

The following details are available for a company's production overhead costs at different levels of activity:

The company uses the high-low method to calculate its budgeted production overhead costs.

What is the budget for production overhead costs at an activity level of 8,500 units?

Give your answer as a whole number.

FGH used to manufacture components that required raw material Q.

Currently there are 80 kg of material Q in inventory.

The company has no use for the material in the foreseeable future and intends to sell it for scrap.

A potential new customer has asked for a price for a large order.

This order would require 100 kg of material Q.

The company management has decided to quote a price for this work on a relevant cost basis.

Details of costs for material Q are as follows:

What would be the relevant cost of Material Q to use in this order?

Assume that you have made profit calculations based on standard profit calculation methods and activity based costing methods.

In which ways will this information be beneficial to the management team?

Select all the true statements.

A company is forecasting its revenue for May and has established that sales will be either high, medium or low. The expected value of sales revenue for May has been calculated as $160,000. The following table includes data which relate to the potential sales in May.

Revenue Probability Expected Value

High $250,000 0.2 C

Medium A 0.5 D

Low $100,000 B $30,000

Place the figures given in to the spaces marked with the letters A, B, C and D, to complete the above table.

RS is a travel company providing daily tours of a major European capital city. The market is highly competitive and RS has commissioned some market research to help with the pricing decision for a new tour. The research identified the probability of three possible market conditions and the number of tickets that would be sold each day at three different price levels.

Demonstrate, using a decision tree and based on expected value, which ticket price RS should choose.

For a company that does not have any production resource limitations, what would be the correct sequence for budget preparation?

A master budget comprises which of the following?

Which of the following statements is true?

The following information is available about direct material T for the last period.

A JIT purchasing system is in operation.

Calculate the actual price paid per kg of material T.

Give your answer to 2 decimal places.

A company is preparing its annual budget and is estimating the number of units of Product A that it will sell in each quarter of year 2. Past experience has shown that the trend for sales of the product is represented by the following relationship:

y = a + bx where

y = number of sales units in the quarter a = 10,000 units b = 3,000 units x = the quarter number where 1 = quarter 1 of year 1

Actual sales of Product A in Year 1 were affected by seasonal variations and were as follows:

Quarter 1:14,000 units Quarter2: 18,000 units Quarter 3: 18,000 units Quarter 4: 20,000 units

Calculate the expected sales of Product A (in units) for each quarter of year 2, after adjusting for seasonal variations using the additive model.

Find the weighted average contribution per unit using the following information:

Company X is deciding which of Projects A, B or C to undertake. The profit earned from each of the projects is dependent on economic conditions.

The table below details the profit for each of the possible outcomes and the expected value of each of the projects.

What is the maximum amount that should be paid for perfect information about the economic conditions?

XY, a not-for-profit charity organization which is funded by public donations, is concerned that it is not making the best use of its available funds. It has carried out a review of its budgeting system and is considering replacing the current system with a zero-based budgeting system.

Select ALL the potential advantages AND disadvantages for the charity of a zero-based budgeting system.

The following 5 statements apply the principles of either, both or neither absorption costing and marginal costing.

Place the option labels against the relevant statements.

Two products being produced by a company require the same material which is limited to 2,600 kgs.

What is the optimal production plan?

A company makes and sells three products A, B and C.

The selling prices and costs of the three products, using a traditional absoprtion costing system, are shown in the table below.

The company has undertaken an analysis of overhead costs using activity-based costing (ABC).

The revised overhead costs for products A, B and C are $6, $32 and $55 respectively.

When comparing the figures obtained under the two costing methods, which of the following statements are true?

Select ALL that apply.

Your company operates using TQM. As the accountant you have been tasked with producing a quality report so that management can understand how well their new range of products is being received and how the

quality of the products has improved. In order to produce the report you have requested information from different departments, but you soon realise not all the information is relevant. You have information regarding the

following:

Cost of downtime Training costs Environmental costs Customer returns and refunds Number of defects per unit

Which pieces of information are relevant to your report? Select ALL that apply.

PQR is preparing the production budget for one of its products, the DX1, for the forthcoming year.

The following information is available:

How many units of the DX1 will need to be produced in the forthcoming year?

Which TWO of the following statements are true for obtaining a reliable forecast from a time series?

Explain why sensitivity analysis is useful when dealing with uncertainty in project

appraisal.

Select all the true statements.

For the forthcoming period, the number of units of product L produced must be no more than four times the number of units of product M produced.

The equation to represent this constraint in a linear programming exercise is:

The term ‘budgetary slack’ refers to the:

Christian the management accountant at a car manufacturer has been given a list of costs that have been incurred due to accidents and errors either occurring or being prevented.

Which of the following are examples of non-conformance costs? Select ALL that apply.

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

The optimal solution in 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.

What is the additional contribution that can be earned?

A decision tree is being evaluated back to a decision point.

There are two alternatives at this point:

1. To abandon the project and generate a return of $435,000;

2. To continue with the project and generate the following possible returns:

What value should be included at the decision point?

Where sales volume is the principal budget factor, which of the following is the correct order in which budgets have to be prepared?

The daily demand for a perishable product has the following probability distribution:

Each unit of the product costs $6 and is sold for $10.

Unsold items are thrown away at the end of the day.

Orders must be placed each morning before the daily demand is known.

The payoff table below shows the profit that would be earned for each of the combinations of purchases and demand.

The number of units that should be purchased at the beginning of each day in order to maximize expected profit is:

The simplex method has been used to determine the optimum output of products P, Q, R and S with constraints on resources J, K and L.

In the final simplex tableau, the figure in the product R row and the column for slack variable K is 80.

Which of the following statements is correct?

EF manufactures and sells three products, X, Y and Z. The following production overhead costs are budgeted for next year:

Required:

Calculate the total budgeted production overhead cost for each product using activity based budgeting.

When preparing data for a short term decision, which THREE of the following are relevant costs?

A manufacturing company uses activity-based costing to charge overheads to its three products. One of the main activities is quality inspection. The cost driver is the number of inspections and the budgeted cost is $211,200.

Additional budgeted data.

What is the budgeted quality inspection cost for a unit of product F?

Which of the following is a definition of a rolling budget?

The inventory level of Product Y has reduced by 40 units over a single period. The cost card for Product Y is as follows:

The profit for Product Y using marginal costing is $26,000.

If the company used absorption costing, what would the profit for Product Y be?

Give your answer to the nearest whole $.

A company manufactures a range of products. It is deciding whether to make one of its products internally or to buy the product partially completed from an external source and complete the manufacture in-house. The table below gives details of the variable costs of the two alternatives. Fixed production costs will remain the same under both alternative.

What is the sensitivity of the decision to a change in the external purchase price?

Give your answer as a whole percentage.

An ice cream manufacturer experiences regular fluctuations in sales.

Which component in a time series do these fluctuations represent?

A company has to choose between three mutually exclusive projects. Market research has shown that customers could react to the projects in three different ways depending on their preferences. There is a 30% chance that customers will exhibit preferences 1, a 20% chance they will exhibit preferences 2 and a 50% chance they will exhibit preferences 3. The company uses expected value to make this type of decision.

The net present value of each of the possible outcomes is as follows:

A market research company believes it can provide perfect information about the preferences of customers in this market.

What is the maximum amount that should be paid for the information from the market research company?

A company is forecasting sales volume using time series analysis. The following equation has been derived from past data and is considered to be a reliable predictor of future sales volume:

y = 20,000+80x

Where y is the total sales units each quarter and x is the time period (the first quarter of year 1 is time period 1).

The following set of seasonal variations for each quarter has been calculated using the additive model.

What is the forecast sales units for the second quarter of year 3?

A company has only 10,100 hours of skilled labour available next period.

Data for its three products for next period are as follows.

At least 500 units of each product must be sold each period.

No inventories are held.

How many units of Product X should be manufactured next period in order to maximise profit?

A company operates a customer complaints department.

How will the cost of the customer complaints department be classified in a system focussed on quality related costs?

A company is launching a new product with a selling price of $20.

Demand and variable cost are both uncertain and possible demand levels and variable costs are given below:

Outcomes for demand and variable cost are independent.

What is the expected contribution from the product?

Give your answer as a whole number.

Company Y absorbs fixed production overheads using a rate per machine hour. Budgeted and actual data for month 8 are as follows:

What is the fixed production overhead efficiency variance?

JL is preparing its cash budget for the next three quarters. The following data have

been extracted from the operational budgets:

Additional information is available as follows:

• JL sells 20% of its goods for cash. Of the remaining sales value, 70% is received within the same quarter as sale and 30% is received in the following quarter. It is estimated that trade receivables will be $125,000 at the beginning of Quarter 1. No bad debts are anticipated.

• 50% of payments for direct material purchases are made in the quarter of purchase, with the remaining 50% in the quarter following purchase. It is estimated that the amount owing for direct material purchases will be $60,000 at the beginning of Quarter 1.

• JL pays labour and overhead costs when they are incurred. It has been estimated that labour and overhead costs in total will be $303,600 per quarter. This figure includes depreciation of $19,600.

• JL expects to repay a loan of $100,000 in Quarter 3.

• The cash balance at the beginning of Quarter 1 is estimated to be $49,400 positive.

Required:

Prepare a cash budget for each of the THREE quarters.

What will the closing balance of cash flows in quarter THREE be?

A company manufactures headphones.

70% of production costs are prime costs. Production overhead costs are driven by the number of headphones produced.

Which costing system would be most appropriate for product profitablilty analysis?

MBM is considering introducing a new product and has to decide if the sales price should be $80, $90, $100 or $120.

There is a 30% chance that demand could be high, a 50% chance that demand will be at a medium level and a 20% chance that demand will be low.

A payoff table below shows the profits based on the sales price and the level of demand.

MBM has decided, using an expected value approach, that the sales price should be set at $80 as this gives the highest expected profit of $860,000.

A market research company has since approached MBM offering to provide perfect information on the demand level.

What is the maximum amount that should be paid for the perfect information?

Give your answer as a whole number (in '000s).

Forecast sales demand of product W next period is 6,800 units. Product W requires 5 kg of material Y, seven hours of skilled labour and six hours of semi-skilled labour.

Availability of resources for next period is forecast as follows:

No inventories are held.

What is the principal budget factor for next period?

A company is launching a new product.

The company accountant has constructed a payoff table to show the estimated profit at different levels of production and demand.

How many units should the company produce if the minimax regret criterion is applied?

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

Identify, using graphical linear programming, the weekly production schedule for products J and L that will maximize the profits of JRL during the next four weeks.

You are a trainee management accountant working for a prestigious manufacturing firm. One day you go to a business meeting a business meeting and the managing director is there. They stand up and say that the

company is losing too much money through wastage and losses and so they have decided to implement a total quality management system. They go on to say this system will:

1:Allow the company to improve on a consistent and continual basis

2:Allow the company to identify and allocate quality accountability to certain departments

3:Help the company detect error and fraud

Are ALL of these statements correct?

A company makes a product using two materials, X and Y.

The standard materials required for one unit of the product are:

What is the materials yield variance?

Give your answer as a whole number.

Which of the following distinguishes risk from uncertainty?

A company manufactures a single product. The following budgeted data applies to month 6:

What was the budgeted fixed production overhead for month 6?

Give your answer to the nearest whole $ (in '000s).