CIMA CIMAPRO15-P01-X1-ENG : P1 - Management Accounting Question Tutorial

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. $184 900
• B. $150 200
• C. $145 000
• D. $100 200
• E. $130 200
• F. $160 690
• G. $170 400

A marketing manager is trying to decide which of four potential selling prices to charge for a new product. The state of the economy is uncertain and may show signs of recession, growth or boom. The manager has prepared a regret matrix showing the regret for each of the possible outcomes depending on the decision made.

If the manager applies the minimax regret criterion to make decisions, which selling price would be chosen?

• A. $45
• B. $55
• C. $40
• D. $50

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.
What was the budgeted machine set up cost per unit of product Q?

• A. $0.37 per unit
• B. $0.56 per unit
• C. $0.39 per unit
• D. $0.48 per unit

Explain why sensitivity analysis is useful when dealing with uncertainty in project appraisal.
Select all the true statements.

• A. 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.
• B. Sensitivity analysis enables a company to determine the effect of changes to fixed costs on the planned outcome
• C. 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.
• D. Sensitivity analysis enables a company to determine the effect of changes to variables on the planned outcome

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.
Select ALL the benefits for the company that could occur following the introduction of an activity based budgeting system.

• A. ABB systems present costs under functional headings i.e. the emphasis is on the nature of the cost. The weakness of this approach is that it gives little indication of the link between the level of activity and the cost incurred.
• B. Under an activity based budgeting system, resource allocation is linked to the strategic plan 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.
• 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 allows the identification of value added and non-value added activities and ensures that cuts are made to non-value added activities. ABB is also useful for review of capacity utilization.
• E. The approach under an activity based system is to make arbitrary cuts in order to meet overall financial targets.
• F. Under an activity based 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 a traditional budgeting system, only resources that are needed to perform activities required to meet the budgeted production and sales volumes are included.