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Title: Cima P1 Exam Questions

CIMA P1 - Management Accounting
What is CIMA?
The Chartered Institute of Management Accountants
(CIMA) is a UK professional accountancy body
whose focus is on the training and qualifying of
accountants in business. It represents financial
managers and accountants who work in industry,
commerce, not-for-profit and public sector
CIMA P1 - Management Accounting
It combines accounting, finance and management
with the leading edge techniques needed to drive
successful businesses. Management accountants
operate in financial and non-financial roles
throughout organizations and carry out all their
training and experience requirements within
business itself, providing them with a unique
insight into how their organizations operate.
Here are some questions that you will get same in
your exam.
Question No 1
A purchasing manager is deciding how many units
of a product to purchase for the winter season.
The demand for the product is uncertain. The
purchasing manager has prepared a regret matrix
showing the regret based on the contribution that
each of the possible outcomes would earn.
Regret Matrix
Quantity purchased
(units) Demand 10,000 15,000 20,000 25,000
10,000 0 35,000 70,000 105,000 15,000
21,000 0 32,000 62,000 20,000 120,000
26,000 0 33,000 25,000 180,000
120,000 22,000 0
If the manager applies the minimax regret
criterion to make decisions, which quantity would
be purchased? A 10,000 units B 15,000 units C
20,000 units D 25,000 units
The maximum regret if 10,000 units are purchased
is 180,000 The maximum regret if 15,000 units
are purchased is 120,000 The maximum regret if
20,000 units are purchased is 70,000 The
maximum regret if 25,000 units are purchased is
105,000 Therefore if the manager wants to
minimise the maximum regret 20,000 units will be
purchased. The correct answer is C.
Question No 2
A company is considering an investment project
for which the possible cash inflows and their
respective probabilities are given in the table
Year 1 Year 2 Cash inflow 000 Probability
Cash inflow 000 Probability 200 0.2 100
0.6 300 0.7 320 0.4 360 0.1
The cash flows for Year 1 and Year 2 are
independent. The initial cash outflow for the
project is 300,000. The companys cost of
capital is 10 per annum. Ignore tax and
Expected cash inflow in Year 1 (200k x 0.2)
(300k x 0.7) (360k x 0.1) 286k Expected
cash inflow in Year 2 (100 x 0.6) (320 x
0.4) 188k Expected net present value Year
Cash flow Discount factor Present value
0 (300,000) 1.000 (300,000) 1 286,000
0.909 259,974 2 188,000 0.826 155,288
Net present value 115,262
Question No 3
A certificate of deposit is best described
as A. A debt instrument which offers a fixed
rate of interest over a fixed period of time and
with a fixed redemption value. B. A negotiable
instrument which provides evidence of a fixed
term deposit with a bank. C. A document which
sets out a commitment to deposit a sum of money
at a specified point in time. D. A certificate
which shows ownership of part of the share
capital of a company. Answer B
Question No 4
A company is considering offering its customers
an early settlement discount. The company
currently receives payments from customers on
average 65 days after the invoice date. The
company is considering offering a 2 early
settlement discount for payment within 30 days of
the invoice date. The effective annual interest
rate of the early settlement discount using
compound interest methodology and assuming a 365
day year is A 22.94 B 20.86 C 23.45 D
27.85 Answer C
Question No 5
The material mix variance for August is A.
1,540 Favorable B. 1,540 Adverse C. 1,288
Favorable D. 1,288 Adverse Answer A
Question No 6
The material yield variance for August is A.
200 Adverse B. 1,740 Adverse C. 200
Favorable D. 1,740 Favorable Answer B
Question No 7
A company budgets maintenance costs by analysing
past data and then adjusting for inflation. The
relationship between the monthly maintenance
costs and activity levels, before adjusting for
inflation, was determined to be y 22,000
0.025x2 where y total monthly maintenance costs
() and x machine hours An inflation rate of 4
was then applied to the above formula to
determine the budgeted costs for August. In
August the actual machine hours were 1,820 and
the actual maintenance cost incurred was
106,500. Required Calculate the maintenance
cost variance for August.
Answer Budgeted maintenance cost for August y
22,000 0.025x2 y 22,000 0.025(1,8202) y
22,000 82,810 y 104,810 Increase for
inflation 104,810 x 1.04 109,002 The
maintenance cost variance for August is
therefore 109,002 - 106,500 2,502
Question No 8
A Treasury bill with 91 days to maturity and a
face value of 1,000 is issued at a discount
yield of 7 per annum. Required (i) Calculate
the issue price of the Treasury bill, to the
nearest 0.01, assuming there are 365 days in the
year. (ii) State FOUR features of a Treasury bill.
Answer (i) The discount 1000 x 7 x 91/365
17.45 The issue price is therefore 1,000 -
17.45 982.55 (ii) Treasury bills are
negotiable instruments issued by the Government
They have a maturity of less than one year,
normally 91 days They have high credit quality
and therefore low risk and low return They are
redeemable at face value They are issued at a
discount to face value There is a large and
active secondary market in treasury bills
CIMA P1 - Management Accounting