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TitleC01-Fundamentals of management accounting - CIMA
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Page 1

C01-Fundamentals of management accounting

Updated: October 2013 1

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?

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
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

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C01-Fundamentals of management accounting

Updated: October 2013 2

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 110,000
Fixed production overheads $300,000

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

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C01-Fundamentals of management accounting

Updated: October 2013 14

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 2,750
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. $21,052.50
B. $21,587.50
C. $22,122.50
D. $22,656.50

Question 43

Point K on the graph indicates the value of

A. Semi-variable cost
B. Total cost
C. Variable cost
D. Fixed cost

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C01-Fundamentals of management accounting

Updated: October 2013 15

Question 44

This graph is known as a

A. Conventional breakeven chart
B. Contribution breakeven chart
C. Semi-variable cost chart
D. 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
B. 8.3% of budgeted sales
C. 11.6% of budgeted sales
D. 14.8% of budgeted sales

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.

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Updated: October 2013 27

e.g. The new supervisors salary for the new building is future relevant cost, However if
we were to anyway recruit a new supervisor in 6 months time (future)and we were to use
him in the new project then his salary becomes irrelevant because its future committed

(iii) Opportunity costs are the next best alternatives forgone due to the decision we make
so we must consider them as relevant
e.g. Currently a MA giving up his job to start up his own business
(MA’s salary is opportunity cost in this decision)

(iv) This is another name for Incremental costs (at the moment we are paying a rent of
$6,000 and due to the expansion we have to pay $8500 as rent differential cost of $2500
is relevant to the decision of expanding)


A project requires an initial investment of $300,000.
The following cash inflows have been estimated for the life of the project:

Year $

1 50,000

2 120,000

3 200,000

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 = 46,300
Yr 2: 120,000 x .857 = 102,840
Yr 3: 200,000 x .794 = 158,800
7,940 rounds to $8,000

Note: Discount rates can be found within the maths tables that will be available onscreen in


B, C, E:

B) DCF is used to calculate NPV so that this methods believes that today’s money is more
worth than tomorrow’s (This TVM concept is considered to be essential in long term decision

C) NPV is difficult to be understood by managers but % is not. The decision criteria using IRR
is that if the project’s IRR is more than the COC then it should be accepted.
If mutually exclusive projects are there then the highest MOS giving project should be
chosen (MOS = IRR-COC)

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Updated: October 2013 28

E) Unlike Payback which only considers the point which recovers the initial investment this is a
better measure of risk which looks at the whole life of the project. (To calculate IRR we
calculate NPV for the same project at 2 different COCs. So the entire project will be

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