Free CIMA CIMAPRO19-P01-1-ENG Exam Questions

Question 1

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?

A : $2870

B : $3010

C : $2950

D : $3610

E : $2750

Answer: C

Question 2

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

Answer: A,B,C

Question 3

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 : cost for the production director meeting was a relevant cost.

B : terial A was a relevant cost.

C : terial B was a relevant cost.

D : 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.

E : 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 : company absorbs its fixed overhead costs using an absorption rate of $20 per direct labour hour. This is a relevant cost.

G : relevant cost is $7010

H : relevant cost is $7080

I : relevant cost is $7100

Answer: A,C,D

Question 4

Explain how probability analysis could be used to assess the risk of the evaluated projects.

Select all the true statements.

A : company can determine a range of possible outcomes for each of the cash flows in the project, for example, a high, low and medium estimate of each cash flow could be determined.

B : net present value (NPV) of the project, if all high, low or medium estimates occurred, can be calculated along with the combined probabilities of their occurrence.

C : probabilities can be combined to calculate the expected value of each cash flow element and of the project as a whole

D : NPVs of a sample range of possible outcomes and the probability of each NPV can be calculated. If a small sample is taken the distribution of outcomes can be used to calculate the zero activities deviation of the NPVs and the probability of success of the projects.

Answer: A,B,C

Question 5

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.

A : expected sales for year 2 Quarter 4 was 32700 units

B : expected sales for year 2 Quarter 4 was 32000 units

C : expected sales for year 2 Quarter 4 was 33000 units

D : expected sales for year 2 Quarter 4 was 40000 units

Answer: B