PDF P1 Study Guide

Management Accounting Questions and Answers

Question 17

A snowboard manufacturer is considering investing in technology that will give a good indication of how heavy snowfall will be in the future. The predictions tend to be reasonably accurate.

The current budgeted profit for the year is £2,560,000 but if they invest in this technology and it works, the expected profit will be £2,640,000. The manufacturer is willing to invest a maximum of £40,000 into the venture.

What is the expected profit if the investment is NOT made?

Options:

£2,560,000

£2,640,000

£2,520,000

£2,600,000

Question 18

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.

Select TWO potential benefits of using an activity based budgeting system.

Options:

Activity based budgeting allows the ranking of activities and the determination of how limited resources should be allocated across competing activities.

Activity based budgeting provides a clear framework for understanding the link between turnover and the level of activity.

Activity based budgeting is useful for the review of quality systems utilization.

Activity based budgeting allows the identification of value added and non-value added activity and ensures that any budget cuts are made to non-value added activities.

Question 19

Which THREE of the following statements relating to fixed overhead variances are correct?

Options:

The total fixed overhead cost variance in an absorption costing system is the amount of fixed overhead that has been under- or over-absorbed in the period.

The total fixed overhead variance is made up of the fixed overhead expenditure variance, the fixed overhead efficiency variance and the fixed overhead capacity variance.

The fixed overhead volume variance can be split into the fixed overhead efficiency variance and the fixed overhead capacity variance.

The total fixed overhead cost variance in an absorption costing system is the difference between budgeted fixed overhead and actual fixed overhead incurred.

In a marginal costing operating statement reconciling budgeted contribution to actual profit only the fixed overhead expenditure variance and the fixed overhead volume variance are shown.

Question 20

What type of budget is prepared on an annual basis taking current year operating results and adjusting them for expected growth and inflation?

Options:

Rolling budget

Incremental budget

Flexed budget

Zero-based budget

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Management Accounting Questions and Answers

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