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Sample Exam Paper
Question 1
Which of the following words DOES NOT describe a main focus of management accounting?
A. Planning B. Control C. External D. Decision-making
Question 2
CIMA defines management accounting as:
“The application of the principles of accounting and financial management to create, protect,
preserve and increase value for the _________________ of for-profit and not-for profit enterprises in the public and private sectors”.
A. Auditors B. Stakeholders C. Owners D. Customers
Question 3
Which of the following statements are true?
- The main role of the management accountant is to produce financial accounts
- Management accountants always work within the finance function
- Management accountants always work in partnership with business managers
A. 1 and 2 only B. 2 and 3 only C. 1 and 3 only D. None of the above.
Question 4
Which of the following words complete the statement below?
____________ accounts are prepared for external stakeholders. Management accounts are prepared for _____________ stakeholders.
A. Shadow, Internal B. Financial, Internal C. Financial, External D. Internal, Budget
Question 5
Which THREE of the following statements about CIMA are true?
A. CIMA was established over 90 years ago B. CIMA members may only work in the UK C. CIMA members and students must comply with the CIMA code of ethics D. CIMA members work mainly on the production of financial accounts E. CIMA members are not qualified to work as finance directors F. CIMA members work in all areas of business
Question 6
ABC absorbs fixed production overheads in one of its departments on the basis of machine hours. There were 100,000 budgeted machine hours for the forthcoming period. The fixed production overhead absorption rate was £2·50 per machine hour.
During the period, the following actual results were recorded:
Standard machine hours 110, Fixed production overheads $300,
Which ONE of the following statements is correct?
A. Overhead was $25,000 over-absorbed B. Overhead was $25,000 under-absorbed C. Overhead was $50,000 over-absorbed D. No under- or over-absorption occurred
Question 7
The audit fee paid by a manufacturing company would be classified by that company as:
A. A production overhead cost B. A selling and distribution cost C. A research and development cost D. An administration cost
Question 8
Cost centres are
A. Units of output or service for which costs are ascertained. B. Functions or locations for which costs are ascertained. C. A segment of the organisation for which budgets are prepared. D. Amounts of expenditure attributable to various activities.
Question 9
Question 12
The diagram represents the behaviour of a cost item as the level of output changes.
Which ONE of the following situations is described by the graph?
A. Discounts are received on additional purchases of material when certain quantities are purchased. B. Employees are paid a guaranteed weekly wage, together with bonuses for higher levels of production. C. A licence is purchased from the government which allows unlimited production. D. Additional space is rented to cope with the need to increase production.
Question 13
A hospital’s records show that the cost of carrying out health checks in the last five accounting
periods have been as follows:
Period Number of patients seen
Total cost ($)
1 650 17, 2 940 17, 3 1260 18, 4 990 17, 5 1150 18,
Using the high-low method and ignoring inflation, the estimated cost of carrying out health
checks on 850 patients in period 6 is:
A. $17,
B. $17,
C. $17,
D. $17,
Question 14
Which ONE of the following statements is true?
A. The total variable cost varies with a measure of activity. B. A variable cost is an unavoidable cost. C. A variable cost is not relevant for decision-making. D. A variable cost becomes fixed in the long run.
Question 15
The following data have been collected for four cost types; W, X, Y, and Z at two activity levels.
Cost type Cost @ 100 units
Cost @ 140 units W 8,000 10, X 5,000 5, Y 6,500 9, Z 6,700 8,
Where V = variable, SV = semi-variable and F = fixed, assuming linearity, the four cost types W,
X, Y and Z are respectively:
W X Y Z
A. V F SV V
B. SV F V SV
C. V F V V
D. SV F SV SV
Question 16
Fixed costs are conventionally deemed to be:
A. Constant per unit of output B. Constant in total when production volume changes C. Outside the control of management D. Those unaffected by inflation
Question 20
The following extract is taken from the overhead budget of X:
Budgeted activity 50% 75%
Budgeted overhead $100,000 $112,
The overhead budget for an activity level of 80% would be
A. $115, B. $120, C. $136, D. $160,
Question 21
The term “budget slack” refers to the
A. Extended lead time between the preparation of the functional budgets and the master budget. B. Difference between the budgeted output and the breakeven output. C. Additional capacity available which can be budgeted for. D. Deliberate over-estimation of costs and under-estimation of revenues in a budget.
Question 22
RS is currently preparing the production budget for Product A and the material purchase budget for material X for the forthcoming year. Each unit of Product A requires 5 kgs of material X.
The anticipated opening inventory for Product A is 5,000 units and the company wishes to increase the closing inventory by 30% by the end of the year.
The anticipated opening inventory for material X is 50,000 kgs and in order to avoid stock outs the required closing inventory has been increased to 60,000 kgs.
The Sales Director has confirmed a sales requirement of 70,000 units of Product A.
How many units of Product A will need to be produced?
A. 68,500 units B. 71,500 units C. 76,500 units D. 80,000 units
Question 23
RS is currently preparing the production budget for Product A and the material purchase budget
for material X for the forthcoming year. Each unit of Product A requires 5 kgs of material X.
The anticipated opening inventory for Product A is 5,000 units and the company wishes to
increase the closing inventory by 30% by the end of the year.
The anticipated opening inventory for material X is 50,000 kgs and in order to avoid stock outs
the required closing inventory has been increased to 60,000 kgs.
The Sales Director has confirmed a sales requirement of 70,000 units of Product A. What will be the purchases budget for material X?
A. 347,500 kgs B. 350,000 kgs C. 357,500 kgs D. 367,500 kgs
Question 24
The principal budget factor is the
A. Factor which limits the activities of the organisation and is often the starting point in budget preparation. B. Budgeted revenue expected in a forthcoming period. C. Main budget into which all subsidiary budgets are consolidated. D. Overestimation of revenue budgets and underestimation of cost budgets, which operates as a safety factor against risk.
A- The principal budget factor can also be known as the limiting factor as this factor usually indicates which budget should be prepared first. Failure to identify the principal budgeting factor at an early stage could lead to delays at a later stage when managers realise targets that were set are not feasible.
Question 25
Which of the following would NOT be included in a cash budget?
(i) Depreciation (ii) Provisions for doubtful debts (iii) Wages and salaries
A. (i) and (ii) only B. (ii) and (iii) only C. (iii) only D. (i) only
Question 26
Overtime premium is
A. The additional amount paid for hours worked in excess of the basic working week. B. The additional amount paid over and above the normal hourly rate for hours worked in excess of the basic working week. C. The additional amount paid over and above the overtime rate for hours worked in excess of the basic working week. D. The overtime rate.
B. $14,250 adverse C. $14,250 favourable D. $15,000 favourable
Question 30
Which ONE of the following factors could explain a favourable direct material usage variance?
A. More staff were recruited to inspect for quality, resulting in a higher rejection rate. B. When estimating the standard product cost, usage of material had been set using ideal standards. C. The company had reduced training of production workers as part of a cost reduction exercise. D. The material price variance was adverse.
Question 31
G repairs electronic calculators. The wages budget for the last period was based on a standard repair time of 24 minutes per calculator and a standard wage rate of $10.60 per hour.
Following the end of the budget period, it was reported that:
Number of repairs 31,
Labour rate variance $3,100 (A) Labour efficiency variance Nil
Based on the above information, the actual wage rate during the period was:
A. $10.35 per hour B. $10.60 per hour C. $10.85 per hour D. $11.10 per hour
Question 32
P operates a standard marginal costing system. The following budgeted and standard cost
information is available:
Budgeted production and sales 10,000 units
Variable production overheads – 5 hours x $4 $20 per unit
Actual results for the period were as follows:
Production and sales 11,500 units
Variable production overheads – 52,000 hours $195,
The variable production overhead expenditure variance is
A. $35,000 adverse B. $13,000 adverse C. $13,000 favourable D. $35,000 favourable
Question 33
XYZ operates an integrated accounting system. The material control account at 31 March 2011 shows the following information:
Material control account
$ $ Balance b/d 50,000 Production overhead control account 10, Creditors 100,000? 125, Bank 25,000 Balance c/d 40, 175,000 175,
The $125,000 credit entry represents the value of the transfer to the
A. Cost of sales account B. Finished goods account C. Profit and loss account D. Work-in-progress account
Question 34
R makes one product, which passes through a single process. Details of the process account
for period 1 were as follows:
$
Material cost – 20,000 kg 26,
Labour cost 12, Production overhead cost 5,
Output 18,800 kg
Normal losses 5% of input
There was no work-in-progress at the beginning or end of the period. Process losses have no value.
The cost of the abnormal loss (to the nearest $) is
A. $ B. $ C. $ D. $
Question 35
In a standard cost bookkeeping system, when the actual material usage has been greater than
the standard material usage, the double entry to record this is:
A. Debit the material usage variance account, Credit the raw material control account
Question 38
A company produces a single product that passes through two processes. The details for
process 1 are as follows:
Materials input 20,000 kg at $2·50 per kg Direct labour $15, Production overheads 150% of direct labour
Normal losses are 15% of input in process 1 and without further processing any losses can be sold as scrap for £1 per kg.
The output for the period was 18,500 kg from process 1. There was no work-in-progress at the beginning or end of the period.
What is the value (to the nearest $) of the output to process 2?
A. $88, B. $90, C. $91, D. $94,
Question 39
In an integrated bookkeeping system, when the actual production overheads exceed the absorbed production overheads, the accounting entries to close off the production overhead account at the end of the period would be:
A. Debit the production overhead account and credit the work-in-progress account. B. Debit the work-in-progress account and credit the production overhead account. C. Debit the production overhead account and credit the profit and loss account. D. Debit the profit and loss account and credit the production overhead account.
Question 40
In a standard cost bookkeeping system, when the actual material price exceeds the standard price, the double entry to record the difference in price is:
A. Debit the material price variance account and credit the raw material control account B. Credit the material price variance account and debit the raw material control account C. Debit the material price variance account and credit the work-in-progress account D. Credit the material price variance account and debit the work-in-progress account
Question 41
Which of the following are characteristics of service costing?
(i) High levels of indirect costs as a proportion of total cost (ii) Use of composite cost units (iii) Use of equivalent units A. (i) only B. (ii) only
C. (i) and (ii) only D. All of them
Question 42
The incomplete process account relating to period 4 for a company which manufactures paper is shown below:
Process account Units $ Units $ Material 4,000 16,000 Finished goods 2, Labour 8,125 Normal loss 400 700 Production overhead 3,498 Work in progress 700
There was no opening work in process (WIP). Closing WIP, consisting of 700 units, was complete as shown:
Material 100% Labour 50% Production overhead 40%
Losses are recognised at the end of the production process and are sold for $1.75 per unit.
The total value of the units transferred to finished goods was
A. $21,052. B. $21,587. C. $22,122. D. $22,656.
Question 43
Point K on the graph indicates the value of
A. Semi-variable cost B. Total cost C. Variable cost D. Fixed cost
The materials required for the job are currently held in inventory at a book value of $5,000. The
materials are regularly used by ZK and the current replacement cost for the materials is $4,500. The total scrap value of the materials is $1,000.
What is the total relevant cost to ZK of using skilled and unskilled labour on this job?
A. Nil B. $ C. $ D. $1,
Question 47
ZK has been asked to quote a price for a special job that must be completed within one week.
The job requires a total of 100 skilled labour hours and 50 unskilled labour hours. The current
employees are paid a guaranteed minimum wage of $525 for skilled workers and $280 for unskilled workers for a 35-hour week.
Currently, skilled labour has spare capacity amounting to 75 labour hours each week and unskilled labour has spare capacity amounting to 100 labour hours each week. Additional skilled
workers and unskilled workers can be employed and paid by the hour at rates based on the wages paid to the current workers.
The materials required for the job are currently held in inventory at a book value of $5,000. The
materials are regularly used by ZK and the current replacement cost for the materials is $4,500. The total scrap value of the materials is $1,000.
What is the relevant cost to ZK of using the materials in inventory on this job?
A. $1, B. $3, C. $4, D. $5,
Question 48
For decision-making purposes, which of the following are relevant costs? (i) Avoidable cost
(ii) Future cost
(iii) Opportunity cost (iv) Differential cost
A. (i), (ii), (iii) and (iv) B. (i) and (ii) only C. (ii) and (iii) only D. (i) and (iv) only
Question 49
A project requires an initial investment of $300,000.
The following cash inflows have been estimated for the life of the project:
Year $
1 50,
2 120,
3 200,
Using a discount rate of 8%, the net present value of the project to the nearest $’000 is $
Yr 0: 300,000 X 1 = (300,000)
Yr 1: 50,000 x .926 = 46, Yr 2: 120,000 x .857 = 102,
Yr 3: 200,000 x .794 = 158, 7,940 rounds to $8,
Note : Discount rates can be found within the maths tables that will be available onscreen in
exam.
Question 50
Which THREE of the following statements are advantages of the internal rate of return (IRR)
method of investment appraisal?
A. It is a measure of absolute profitability B. It considers the time value of money C. It is an easy to understand percentage measure D. It is based on accounting profits E. It considers the whole life of a project F. It is a simple measure of risk
C01 – Explanations
1. External; Management accounting focuses on the business needs, therefore you should decide what management accounting is and eliminate that most obvious. 2. Stakeholders; These can include shareholders, customers, suppliers, employees or anyone
that could be affected by the company internally or externally. For a more detailed explanation of management accountants please visit the website.
3. None of the above; Management accountants can work in a variety of roles and also across a range of departments. To find out more about what CIMA students and members do please visit their profiles on the global website 4. Financial, Internal; Financial accounts of companies are publicly available to any stakeholders who may need to view financial accounts and are usually created annually or bi-annually. Management accounts are used internally for planning and control and are usually developed monthly. 5. A, C, F; for a detailed history of CIMA, students can visit the global homepage in about us section. 6. Overhead was $25,000 under-absorbed.
Budget hrs 100, Standard hrs 110,
Difference 10,000 x $2.50 = $25,
7. Administration cost; it cannot be allocated under any of the other costs as audit fees are for the whole company, therefore it must be an admin cost. 8. Functions or locations for which costs are ascertained; a cost centre is a production or service location, a function, an activity or an item of equipment for which costs are accumulated e.g. canteen within a company 9. When relating overheads to end units it is difficult to relate service centre overheads due to the very nature of the name service, so attempt is made to re-apportion such cost to production centres making it eventually convenient to relate to end units, but when there are two or more service centres giving each other services (reciprocal) getting the service centre cost fully related to each production centre becomes problematic, hence a repeated distribution. 10. The cost of ingredients; Ingredients would be classified as the raw material and not a production overhead. 11. Production cost equals;
Direct Materials $10, Direct Labour $3, Machine Cost (140 x $8.5) $1, Total Production Cost $15, Plus 60% of prime cost $8,346 ($10,650+$3,260= $13,910x60%)
Estimated Price $23,
12. If at higher production bonuses are paid the line should increase at a faster trajectory at higher output. 13. $17,625;
Patients Cost $
Low (650) (17,125) High 1,260 18, 610 1,
Obtain variable cost per patient as $1,525/610 = $2.5 per patient Therefore fixed cost is $17,125 - $1,625 ($2.50 x 650) = $15,
Variable cost for 850 patients would be $2.50 x 850 = $2, Therefore total cost for 850 patients = $17,625 ($15,500 + $2,125)
14. Understand the difference between a variable and fixed cost. Variable costs will always change dependent on level of activity. 15. You need to adopt the high low method for each cost type to understand whether the cost is variable, semi-variable or fixed.
W:
Units Cost $
100 8, 140 10, 40 2,
$2,560/40 = $64 per unit; $8,000- (100x$64) $6,400 = $1,600 fixed cost
140 x $64 = $8,960 + $1,600 = $10,560, therefore semi-variable so either answer B or D
Y:
Units Cost $ 100 6, 140 9, 40 2,
$2,600/40 = $65 per unit; $6,500 – (100x$65) $6,500 = $0 fixed cost, therefore variable cost and answer is B.
Hint: The reason I choose to calculate Y after W as the answer could only have been B or D, you would have noticed with product X and Z the answers were the same for B and D.
16. As said previously it is important to understand the difference between a fixed and variable costs, fixed costs will always remain fixed regardless of production volume changes.
