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  • Exam Name: Management Accounting
  • Last Update: Apr 25, 2024
  • Questions and Answers: 180
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P1 Practice Exam Questions with Answers Management Accounting Certification

Question # 6

A company is basing its budget on predicted sales of one of its products. They have tasked you with forecasting the sales in year 2. The company has found that a fairly accurate prediction can be found when the trend

is calculated like so:

a = 10,000

b = 2,000

The sales of year 1 were affected by seasonal variation and were as follows:

Q1:12,500

Q2:14,200

Q3:15,400

Q4:19,650

You use a multiplicative model and round percentages to the nearest whole percent.

Select ALL the correct quarterly forecasts of year 2 from the list.

A.

Year 2 Q1 = 20,800

B.

Year 2 Q2 = 22,220

C.

Year 2 Q3 = 24,960

D.

Year 2 Q4 = 27,340

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Question # 7

P1 question answer

Calculate the sensitivity of the investment decision to a change in the annual fixed costs.

By how much should the present value of the fixed cost increase, before this project is not viable?

A.

$7698

B.

$6390

C.

$9050

D.

$8675

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Question # 8

For the past year a manufacturing company has recorded the number of units produced (x) each week and the total production cost (y) for that week. The company intends to use this data to predict future costs.

For the circumstance described above, linear regression is more useful and accurate than the high-low method because:

1. It uses all the sets of data observed to calculate the line of best fit.

2. The coefficient of variation can estimate what percentage of x is due to a change in y.

3. Forecasts remain valid for values for x outside of the observed range.

Which of the above statements are true?

A.

1 only

B.

1 and 2

C.

2 and 3

D.

3 only

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Question # 9

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?

A.

Actual operating profit was more than 10% higher than budgeted operating profit.

B.

Actual contribution was less than 10% higher than budgeted contribution.

C.

Actual operating profit was less than 10% higher than budgeted operating profit.

D.

Actual contribution was exactly 10% higher than budgeted contribution.

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Question # 10

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.

The revised budgeted profit would be lower by less than 5%.

B.

The revised budgeted profit would be lower by more than 5%.

C.

The revised budgeted contribution would be lower by less than 5%.

D.

The revised budgeted contribution would be lower by more than 5%.

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Question # 11

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.

P1 question answer

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

A.

$442.50

B.

$497

C.

$54.50

D.

$57.50

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Question # 12

Traditional absorption costing is more suitable than activity-based costing when:

A.

overheads are not driven by production volume.

B.

the company has a diverse product range.

C.

production is specific to customer needs.

D.

overheads are small in comparison to direct costs.

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Question # 13

A company is considering whether to launch a new product. The selling price and costs for each unit of the product are shown in table below:

P1 question answer

The fixed overhead cost is based on expected production of 2,000 units.

The company will only launch the product if it is expected to be profitable.

To which of the following is the decision to launch the product most sensitive?

A.

Sales volume

B.

Selling price

C.

Fixed overhead cost

D.

Material cost

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Question # 14

The performance of a production manager is assessed on efficient use of materials during the production process.

Actual data and data from the fixed budget for Month 4 are as follows:

P1 question answer

What figures should be compared in order to assess the production manager's performance for Month 4?

A.

15,500 kg and 11,000 kg

B.

15,500 kg and 14,000 kg

C.

16,500 kg and 16,000 kg

D.

11,000 kg and 14,000 kg

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Question # 15

A company manufactures a single product. The company absorbs fixed production overhead using a pre-determined rate per unit.

The following data applies for month 7:

P1 question answer

During month 7 fixed production overhead was over absorbed by $40,000.

What was the actual number of units produced during month 7?

A.

16,000

B.

14,000

C.

8,000

D.

6,000

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Question # 16

A company reports planning and operational variances to its managers. The following data are available concerning the price of direct material M in the last period. Material M is the only material used by the company. The company operates a just-in-time (JIT) purchasing system.

P1 question answer

Which TWO of the following statements about last period are definitely correct based on this information?

The direct material price operational variance was adverse.

A.

The direct material usage operational variance was adverse.

B.

The direct material price planning variance was adverse.

C.

The direct material price planning variance was favourable.

D.

The direct material price operational variance was favourable.

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Question # 17

Information about a company's only two products is as follows:

P1 question answer

The revenue from the products must be in the constant mix of 2U:3V. Budgeted monthly sales revenue is $110,000.

Fixed costs are $23,095 each month.

To the nearest $10, what is the budgeted monthly margin of safety in terms of sales revenue?

A.

$35,500

B.

$74,500

C.

$12,140

D.

$38,940

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Question # 18

Which one of the following would NOT be included in a decision to close a division of an organization?

A.

Head office overheads absorbed on the basis of the number of units produced

B.

Sale of unwanted non-current assets

C.

Redundancy pay for employees of the division

D.

Fixed costs directly attributable to the division

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Question # 19

A company is considering the use of Material V in a special order.

The material is used regularly and a sufficient quantity of the material is in inventory.

It could also be sold, at just below the current market price, to a local competitor.

What is the relevant cost of Material V to be used in the special contract?

A.

The replacement cost of the material.

B.

The resale value of the material.

C.

The historic cost of the material in inventory.

D.

Nil

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Question # 20

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

P1 question answer

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Question # 21

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.

A.

Customer returns and refunds

B.

Number of defects per unit

C.

Cost of downtime

D.

Training costs

E.

Environmental costs

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Question # 22

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

appraisal.

Select all the true statements.

A.

Sensitivity analysis enables a company to determine the effect of changes to fixed costs on the planned outcome

B.

Sensitivity analysis enables a company to determine the effect of changes to variables on the planned outcome

C.

In project appraisal, an analysis can be made if all the key variables to ascertain by how much variable would need to change before the net present value (NPV) reaches zero i.e. the indifference point.

D.

In project appraisal, in analysis can be made of all the key variables to ascertain by how much each variable would need to change before the net present value (NPV) reaches 100% i.e. the maximum point.

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Question # 23

You are a management accounting working for a car manufacturer. The company is publicly listed and has been around for many years.

The company produces 2 products. Car 1 and Car 2. Car 1 sells for £20,000 and Car 2 for £27,000.

Car 1 can be upgraded post production to the 1ZC model for £5,000 and Car 2 to the 2ZC model for £3,500.

Post production upgrade the 1ZC sells for £25,500 and the 2ZCfor £30,000.

The company sources all of its supplies for the same supplier and has access to a large workforce. As a result there are no bottlenecks or limiting factors to production.

Based on the information above the company should...

A.

Upgrade both models

B.

Upgrade Car 1 but not Car 2

C.

Upgrade Car 2 but not Car 1

D.

Keep both Cars as base models

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Question # 24

The following information is available regarding a company's two products for last period.

What is the favourable sales quantity profit variance for last period?

P1 question answer

Give your answer to the nearest whole $.

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Question # 25

A medium-sized manufacturing company, which operates in the electronics industry, has employed a firm of consultants to carry out a review of the company’s planning and control systems. The company presently uses a traditional incremental budgeting system and the inventory management system is based on economic order quantities (EOQ) and reorder levels. The company’s normal production patterns have changed significantly over the previous few years as a result of increasing demand for customized products. This has resulted in shorter production runs and difficulties with production and resource planning. The consultants have recommended the implementation of activity based budgeting and a manufacturing resource planning system to improve planning and resource management.

What are the benefits for the company that could occur following the introduction of an activity based budgeting system?

Select ALL the correct answers.

A.

Under an activity based budgeting system, resource allocation is linked to the strategic plan and is prepared after considering alternative strategies. This approach ensures that new activities that are required to meet the company’s strategic objectives are included in the budget.

B.

Under a traditional incremental budgeting system the focus is on existing resources and operations. Adjustments are then made for changes in activity and price which results in past inefficiencies being perpetuated. Under an activity based budgeting system, only resources that are needed to perform activities required to meet the budgeted production and sales volumes are included.

C.

Activity based techniques including activity based budgeting focus on the outputs of a process rather than the input to the process. This approach provides a clear framework for understanding the link between costs and the level of activity. It allows the ranking of activities and the determination of how limited resources should be allocated across competing activities.

D.

Activity Based Budgeting Systems present costs under functional headings i.e. the emphasis is on the nature of the cost. The weakness if this approach is that it gives little indication of the link between the level of activity and the cost incurred.

E.

The approach under an Activity based Budgeting System is to make arbitrary cuts in order to meet overall financial targets.

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Question # 26

When a moving average is plotted onto a graph, where should the plotted points be located?

A.

At the mid-point of the period to which they apply.

B.

At the end of the period to which they apply.

C.

At the beginning of the period to which they apply.

D.

Anywhere within the period to which they apply.

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Question # 27

Since there is no likelihood of them receiving a pay rise in the foreseeable future, your colleagues are considering leaving their current employment and starting their own business.

When preparing the data to evaluate their decision, their current salaries would be:

A.

Incremental costs

B.

Opportunity costs

C.

Sunk costs

D.

Past costs

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Question # 28

XY can choose from four mutually exclusive projects. The projects will each last for one year and their net cash inflows will be determined by market conditions. The forecast net cash inflows for each of the possible outcomes are shown below.

P1 question answer

If the company applies the maximax criterion the project chosen would be:

A.

Project A

B.

Project B

C.

Project C

D.

Project D

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Question # 29

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

P1 question answer

What is the fixed production overhead efficiency variance?

A.

$400,000 favourable

B.

$400,000 adverse

C.

$1,000,000 favourable

D.

$1,000,000 adverse

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Question # 30

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

P1 question answer

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.

A.

The solution from the graph is to produce 330 units of J and 280 units of L. (A simplex solution shows the true optimum to be 332.333 units of J and 283.333 units of L.)

B.

The solution from the graph is to produce 310 units of J and 280 units of L. (A simplex solution shows the true optimum to be 308.333 units of J and 283.333 units of L.)

C.

The solution from the graph is to produce 330 units of J and 290 units of L. (A simplex solution shows the true optimum to be 332.333 units of J and 293.333 units of L.)

D.

The solution from the graph is to produce 315 units of J and 290 units of L. (A simplex solution shows the true optimum to be 316.333 units of J and 293.333 units of L.)

E.

The solution from the graph is to produce 312 units of J and 295 units of L. (A simplex solution shows the true optimum to be 312.333 units of J and 294.999 units of L.)

F.

The solution from the graph is to produce 317 units of J and 270 units of L. (A simplex solution shows the true optimum to be 316.666 units of J and 269.666 units of L.)

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Question # 31

MBB is considering the costs to be incurred in respect of a special order.

The order would require 625 kg of Material K.

This is a material that is readily available and regularly used by the organization in its other products.

There are 265 kg of Material K in inventory which cost $1,590 when it was purchased.

The current market price is $6.48 per kg.

Material K is normally used to make Product X. Each unit of Material X requires 3 kg of Material K, and if Material K is costed at $6 per kg, each unit of Product X yields a contribution of $30.

The relevant cost of Material K to be included in the costing of the special order is:

A.

$3,990

B.

$4,050

C.

$3,923

D.

$6,250

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Question # 32

Explain THREE benefits that organizations gain from using budgetary planning and control systems.

Select ALL the true statements.

A.

The budget acts as a variable mechanism, with actual results being compared with budget.

B.

Budgeting forces an organization’s management to look ahead and set performance targets.

C.

The budget provides an external benchmark against which performance against which performance can be evaluated.

D.

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.

E.

Another benefit of budgeting is to set targets to motivate managers and optimize their performance.

F.

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.

G.

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.

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Question # 33

A flexible budget is a budget that is:

A.

set prior to the control period and not subsequently changed in response to changes in activity period has expired

B.

continuously updated by adding a further accounting period when the earliest accounting period has expired

C.

changed in response to changes in the level of activity

D.

changed in response to changes in costs

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Question # 34

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

P1 question answer

A.

£10

B.

£8

C.

£5.50

D.

£2.50

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Question # 35

Your company want to know how many units they'd have to sell this season to break even. However, you have some reservations over whether or not breakeven analysis is suitable for the company.

Which of these assumptions over product range limit the accuracy of break even analysis? Select ALL that apply.

A.

The company only sells one product

B.

The company has a consistent selling ratio across all products

C.

The company sells multiple products

D.

Variable costs remain consistent at any level of production

E.

Fixed costs remain the same regardless of activity

F.

The company has a variable selling ratio across all products

G.

Prices and demand of products will remain steady

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Question # 36

The term ‘budgetary slack’ refers to the:

A.

Lead time between the preparation of the functional budgets and the approval of the master budget by senior management

B.

Difference between the budgeted output and the actual output

C.

Difference between budgeted capacity utilization and full capacity

D.

Intentional over estimation of costs and/or under estimation of revenue in a budget

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Question # 37

A company makes and sells three products A, B and C. The products are sold in the ratio of A:B:C = 1:1:4.

Monthly fixed costs are $150,000. Product details are shown below:

P1 question answer

What sales value of product C is required to achieve a target profit of $72,000 next month?

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

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Question # 38

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

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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:

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