CBA Model Question Paper C01

CBA Model Question Paper CO1

Paper 1
Question 1
Which of the following words DOES NOT describe a main focus of management accounting?

Planning

Control

External

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

Stakeholders

Owners

Customers

Question 3
Which of the following statements are true?
1. The main role of the management accountant is to produce financial accounts
2. Management accountants always work within the finance function
3. Management accountants always work in partnership with business managers
A

1 and 2 only

2 and 3 only

1 and 3 only

None of the above

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CBA Model Question Paper C01

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

Financial, Internal

Financial, External

Internal, Budget

Question 5
Which THREE of the following statements about CIMA are true?
A

CIMA was established over 90 years ago

CIMA members may only work in the UK

CIMA members and students must comply with the CIMA code of ethics

CIMA members work mainly on the production of financial accounts

CIMA members are not qualified to work as finance directors

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 250 per machine hour.
During the period, the following actual results were recorded:
Standard machine hours 110,000
Fixed production overheads $300,000
Which ONE of the following statements is correct?
A

Overhead was $25,000 over-absorbed

Overhead was $25,000 under-absorbed

Overhead was $50,000 over-absorbed

No under- or over-absorption occurred

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Question 7
The audit fee paid by a manufacturing company would be classified by that company as
A

a production overhead cost

a selling and distribution cost

a research and development cost

an administration cost

Question 8
Cost centres are
A

units of output or service for which costs are ascertained

functions or locations for which costs are ascertained

a segment of the organisation for which budgets are prepared

amounts of expenditure attributable to various activities

Question 9
A company uses the repeated distribution method to reapportion service department costs. The use of
this method suggests
A

the companys overhead rates are based on estimates of cost and activity levels, rather than
actual amounts

there are more service departments than production cost centres

the company wishes to avoid under- or over-absorption of overheads in its production cost
centres

the service departments carry out work for each other

Question 10
Which ONE of the following costs would NOT be classified as a production overhead cost in a food
processing company?
A

The cost of renting the factory building

The salary of the factory manager

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C

The depreciation of equipment located in the materials store

The cost of ingredients

Question 11
An engineering firm operates a job costing system. Production overhead is absorbed at the rate of $8.50
per machine hour. In order to allow for non-production overhead costs and profit, a mark up of 60% of
prime cost is added to the production cost when preparing price estimates.
The estimated requirements of job number 808 are as follows:
Direct materials

$10,650

Direct labour

$3,260

Machine hours

140

The estimated price notified to the customer for job number 808 will be
A

$22,256

$22,851

$23,446

$24,160

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?

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A

Discounts are received on additional purchases of material when certain quantities are
purchased

Employees are paid a guaranteed weekly wage, together with bonuses for higher levels of
production

A licence is purchased from the government which allows unlimited production

Additional space is rented to cope with the need to increase production

Question 13
A hospitals 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
650
940
1260
990
1150

1
2
3
4
5

Total cost ($)

17,125
17,800
18,650
17,980
18,360

Using the high-low method and ignoring inflation, the estimated cost of carrying out health checks on
850 patients in period 6 is:
A

$17,515

$17,570

$17,625

$17,680

Question 14
Which ONE of the following statements is true?
A

The total variable cost varies with a measure of activity

A variable cost is an unavoidable cost

A variable cost is not relevant for decision-making

A variable cost becomes fixed in the long run

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Question 15
The following data have been collected for four cost types W, X, Y, Z at two activity levels.
Cost type

Cost @ 100 units

Cost @ 140 units

8,000

10,560

5,000

5,000

6,500

9,100

6,700

8,580

Where V = variable, SV = semi-variable and F = fixed, assuming linearity, the four cost types W, X, Y and Z
are respectively:
W

SV

SV

SV

SV

SV

SV

Question 16
Fixed costs are conventionally deemed to be:
A

constant per unit of output

constant in total when production volume changes

outside the control of management

those unaffected by inflation

Question 17
Based on the data below, what is the amount of the overhead under-/over-absorbed?
Budgeted overheads
Budgeted machine hours
Actual machine hours
Actual overheads
A

Paper 1

$493,200
10,960
10,493
$514,157

$20,957 under-absorbed

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B

$21,015 over-absorbed

$21,015 under-absorbed

$41,972 under-absorbed

Question 18
The following details have been extracted from the receivables records of X:
Invoices paid in the month after sale
Invoices paid in the second month after sale
Invoices paid in the third month after sale
Bad debts

60%
20%
15%
5%

Credit sales for June to August 2011 are budgeted as follows:

June
July
August

$100,000
$150,000
$130,000

Customers paying in the month after sale are entitled to deduct a 2% settlement discount.
Invoices are issued on the last day of the month.
The amount budgeted to be received in September 2011 from credit sales is
A

$115,190

$116,750

$121,440

$123,000

Question 19
A flexible budget is
A

a budget which by recognising different cost behaviour patterns is designed to change as

the volume of activity changes

a budget for a defined period of time which includes planned revenues, expenses, assets,
liabilities and cash flow

a budget which is prepared for a period of one year which is reviewed monthly, whereby
each time actual results are reported, a further forecast period is added and the
intermediate period forecasts are updated

a budget of semi-variable production costs only

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Question 20
The following extract is taken from the overhead budget of X:
Budgeted activity

50%

75%

Budgeted overhead

$100,000

$112,500

The overhead budget for an activity level of 80% would be

A

$115,000

$120,000

$136,000

$160,000

Question 21
The term budget slack refers to the
A

extended lead time between the preparation of the functional budgets and the master
budget

difference between the budgeted output and the breakeven output

C
D

additional capacity available which can be budgeted for

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 stockouts 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

Paper 1

68,500 units

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B

71,500 units

76,500 units

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 stockouts 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?

347,500 kgs

350,000 kgs

357,500 kgs

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

budgeted revenue expected in a forthcoming period

main budget into which all subsidiary budgets are consolidated

overestimation of revenue budgets and underestimation of cost budgets, which operates as a

safety factor against risk

Question 25
Which of the following would NOT be included in a cash budget?
(i) Depreciation
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(ii) Provisions for doubtful debts
(iii) Wages and salaries
A
B
C
D

(i) and (ii) only

(ii) and (iii) only
(iii) only
(i) only

Question 26
Overtime premium is
A

the additional amount paid for hours worked in excess of the basic working week

the additional amount paid over and above the normal hourly rate for hours worked in excess of
the basic working week

the additional amount paid over and above the overtime rate for hours worked in excess of the
basic working week

the overtime rate

Question 27
A standard cost is
A

the planned unit cost of a product, component or service in a period

the budgeted cost ascribed to the level of activity achieved in a budget centre in a
control period

the budgeted production cost ascribed to the level of activity in a budget period

the budgeted non-production cost for a product, component or service in a period

Question 28
X operates a standard marginal costing system. The following budgeted and standard cost information is
available:

Budgeted production and sales

10,000 units

Direct material cost 3 kg x $10

$30 per unit

Actual results for the period were as follows:

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Production and sales

11,500 units

Direct material 36,000 kg

$342,000

The direct material price variance is

A

$18,000 adverse

$3,000 adverse

$3,000 favourable

$18,000 favourable

Question 29
Y operates a standard marginal costing system. The following budgeted and standard cost information is
available:
Budgeted production and sales

10,000 units

Direct material cost 3 kg x $10

$30 per unit

Actual results for the period were as follows:

Production and sales

11,500 units

Direct material 36,000 kg

$342,000

The direct material usage variance is

A

$15,000 adverse

$14,250 adverse

$14,250 favourable

$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

When estimating the standard product cost, usage of material had been set using ideal
standards

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C

The company had reduced training of production workers as part of a cost reduction exercise

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

31,000

Labour rate variance

Labour efficiency variance

$3,100 (A)
Nil

Based on the above information, the actual wage rate during the period was:
A

$10.35 per hour

$10.60 per hour

$10.85 per hour

$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

$195,000

The variable production overhead expenditure variance is

A

$35,000 adverse

$13,000 adverse

$13,000 favourable

$35,000 favourable

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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
Creditors
Bank

$
50,000
100,000
25,000
175,000

Production overhead control account

?
Balance c/d

$
10,000
125,000
40,000
175,000

The $125,000 credit entry represents the value of the transfer to the
A

cost of sales account

finished goods account

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

26,000

Labour cost

12,000

Production overhead cost

5,700

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

Paper 1

$437

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B

$441

$460

$465

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

Credit the material usage variance account, Debit the raw material control account

Debit the material usage variance account, Credit the work-in-progress account

Credit the material usage variance account, Debit the work-in-progress account

Question 36
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 $250 per kg

Direct labour

$15,000

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 value (to the nearest $) will be credited to the process 1 account in respect of the normal loss?
A

Nil

$3,000

$4,070

$5,250

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Question 37
A company has been asked to quote for a job. The company aims to make a net profit of
30% on sales. The estimated cost for the job is as follows:
Direct materials 10 kg @ 10 per kg
Direct labour 20 hours @ 5 per hour
Variable production overheads are recovered at the rate of 2 per labour hour.
Fixed production overheads for the company are budgeted to be 100,000 each year and
are recovered on the basis of labour hours.
There are 10,000 budgeted labour hours each year. Other costs in relation to selling, distribution and
administration are recovered at the rate of 50 per job.
The company quote for the job should be
A
572
B

637

700

833

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 $250 per kg

Direct labour

$15,000

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

$88,813

$90,604

$91,956

$94,063

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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

debit the work-in-progress account and credit the production overhead account

debit the production overhead account and credit the profit and loss account

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

credit the material price variance account and debit the raw material control account

debit the material price variance account and credit the work-in-progress account

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

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Question 42
The incomplete process account relating to period 4 for a company which manufactures paper is shown
below:

Material
Labour
Production overhead

Process account
Units
$
4,000 16,000 Finished goods
8,125 Normal loss
3,498 Work in progress

Units
2,750
400
700

$
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

$21,052.50

$21,587.50

$22,122.50

$22,656.50

Question 43

Point K on the graph indicates the value of

A

semi-variable cost

total cost

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C

variable cost

fixed cost

Question 44

This graph is known as a

A

conventional breakeven chart

contribution breakeven chart

semi-variable cost chart

profit volume chart

Question 45
W Ltd makes leather purses. It has drawn up the following budget for its next financial period:
Selling price per unit $11.60
Variable production cost per unit $3.40
Sales commission 5% of selling price
Fixed production costs $430,500
Fixed selling and administration costs $198,150
Sales 90,000 units
The margin of safety represents
A

5.6% of budgeted sales

8.3% of budgeted sales

11.6% of budgeted sales

14.8% of budgeted sales

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Question 46
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 total relevant cost to ZK of using skilled and unskilled labour on this job?
A

Nil

$375

$775

$1,540

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?

$1,000

$3,500

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C

$4,500

$5,000

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

(i), (ii), (iii) and (iv)

(i) and (ii) only

(ii) and (iii) only

(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

50,000

120,000

200,000

Using a discount rate of 8%, the net present value of the project to the nearest $000 is $ 26

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Question 50
Which THREE of the following statements are advantages of the internal rate of return (IRR) method of
investment appraisal?
a)
b)
c)
d)
e)
f)

It is a measure of absolute profitability

It considers the time value of money
It is an easy to understand percentage measure
It is based on accounting profits
It considers the whole life of a project
It is a simple measure of risk

Question Answer
Comments / Explanation
1
C
Syllabus area A1a, external refers to financial accounting
2
B
Syllabus area A1
3
D
Syllabus area A2
4
B
Syllabus area A2
5
A,C,F Syllabus area A3
6
B
Syllabus area B1e
7
D
Syllabus area B1a
8
B
Syllabus area B1d
9
D
Syllabus area B1d
10
D
Syllabus area B1a
11
C
Syllabus area B1f
12
A
Syllabus area B2a
13
C
Syllabus area B2d
14
A
Syllabus area B2b
15
B
Syllabus area B2b
16
B
Syllabus area B2a
17
D
Syllabus area B2d
18
C
Syllabus area C1e
19
A
Syllabus area C1h
20
A
Syllabus area C1f
21
D
Syllabus area C1d
22
B
Syllabus area C1b
23
D
Syllabus area C1b must follow q23
24
A
Syllabus area C1b
25
A
Syllabus area C1e
26
B
Syllabus area C2c
27
A
Syllabus area C2b
28
D
Syllabus area C2d
29
A
Syllabus area C2d
30
D
Syllabus area C2f
31
C
Syllabus area C2d
32
C
Syllabus area C2d
33
D
Syllabus area D1b
34
C
Syllabus area D1d
35
A
Syllabus area D1b
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36
37
38
39
40
41
42
43
44
45
46
47
48
49
50

Paper 1

B
C
C
D
A
C
B
D
D
B
B
C
A
8
B,C,E

Syllabus area D1d

Syllabus area D1d
Syllabus area D1d
Syllabus area D1c
Syllabus area D1b
Syllabus area D2b
Syllabus area D1d
Syllabus area E1c
Syllabus area E1c
Syllabus area E1b
Syllabus area E2a
Syllabus area E2a
Syllabus area E2a
Syllabus area E3b
Syllabus area E3b

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