Deck 4: BA2 - Strategic Management Question Tutorial

Question 1

Which of the following statements relating to risk and uncertainty is correct?

A) Risk exists when we do not know all of the possible outcomes.
B) Risk exists when we know all of the possible outcomes but not their probabilities.
C) Uncertainty exists when we know all of the possible outcomes but not their probabilities.
D) Uncertainty exists when we know all of the possible outcomes and their probabilities.

Answer 1

C

Question 2

A company that uses standard costing wishes to reconcile the difference between the profit for a period calculated using absorption costing with that calculated using marginal costing. Which TWO of the following will NOT help with this reconciliation? (Choose two.)

A) The actual fixed production overheads.
B) The closing inventory.
C) The opening inventory.
D) The under or over absorbed fixed production overheads.
E) The fixed production overhead absorption rate.

Answer 2

A,E

Question 3

The following data relate to the latest period. 11ec37eb_8baf_3476_97b9_6b632ba0e6a0__00 A statement is to be prepared that reconciles the difference between the flexible budget profit and the actual profit. Which TWO of the following will appear on this statement? (Choose two.)

A) A favourable labour rate variance.
B) A favourable sales volume contribution variance.
C) An adverse sales price variance.
D) An adverse labour efficiency variance.
E) An adverse material price variance.

Answer 3

C,D

Question 4

A small airport's management accountant has prepared the following management report on the performance of its four retail outlets. 11ec37eb_8bad_fbf0_97b9_bfdbdffb20a4__00 Which retail outlet has the highest contribution per square metre?

A) Outlet A
B) Outlet B
C) Outlet C
D) Outlet D

Question 5

Which of the following is a relevant cost?

A) A sunk cost
B) A committed cost
C) An incremental cost
D) A historical cost

Question 6

A company makes and sells a range of products. The standard details per unit for one of these products, product X, are as follows. 11ec37eb_8baf_0d65_97b9_dbf4e7f6ef95__00 To meet sales demand, the company must obtain 2,000 units of product X next month. There is sufficient labour capacity to produce 1,500 of these units in-house during normal time. However, any production above this level would require overtime working which would be paid at a premium of 50%. The company can buy as many units of product X as it wishes next month from an external supplier at a price of $120 per unit. What is the total financial benefit to the company of purchasing the appropriate number of units from the external supplier rather than producing them in-house?

A) $20,000
B) $30,000
C) $27,500
D) $5,000

Question 7

In responsibility accounting, costs and revenues are grouped according to:

A) the budget holder.
B) their function.
C) the service provided.
D) their behaviour.

Question 8

Based upon extensive historical evidence, a company's daily sales volume is known to be normally distributed with a mean of 1,728 units and a standard deviation of 273 units. What is the probability that, on any one day, the sales volume will be at least 1,300 units?

A) 5.82%
B) 73.89%
C) 44.18%
D) 94.18%

Question 9

A company is considering investing $57,000 in a machine that will last for five years, after which time it will have no value. The machine will generate additional revenue of $190,000 each year. Annual running costs, including depreciation of $11,400 will amount to $168,400. Assuming that all cash flows occur evenly, the payback period of the investment in the machine is closest to:

A) 2 years 8 months
B) 1 year 9 months
C) 1 year 7 months
D) 2 years 6 months

Question 10

A new product requires an investment of $200,000 in machinery and working capital. The total sales volume over the product's life will be 5,000 units. The forecast costs per unit throughout the product's life are as follows: 11ec37eb_8bae_7122_97b9_9563b4522be1__00 The product is required to earn a return on investment of 35%. What unit selling price needs to be achieved?

A) $54.00
B) $50.77
C) $47.00
D) $44.55

Question 11

Every month for the last three years, a company has recorded the number of new customers for that month. The data have been summarised and grouped as follows: 11ec37eb_8bae_e654_97b9_ad266ba46be0__00 What is the arithmetic mean of the number of new customers per month?

A) 6.22
B) 6.50
C) 6.38
D) 8.50

Question 12

A company operates an integrated standard cost accounting system. The standard price of raw material A is $20 per litre. At the start of period 1, the inventory of 500 litres of raw material A was valued at $20 per litre. During period 1, 100 litres of raw material A were purchased at an actual price of $21 per litre. During period 2, 550 litres of raw material A were issued to Job 789. In respect of the above events, which TWO of the following statements are correct? (Choose two.)

A) The raw material inventory at the end of period 1 should include 100 litres valued at $21 per litre.
B) An adverse material price variance should be recorded in the statement of profit or loss for period 1.
C) The raw material inventory at the end of period 2 should be valued at $20 per litre.
D) An adverse material price variance should be recorded in the statement of profit or loss for period 2.
E) The first 500 litres of raw material A issued should be debited to the Job 789 account at $20 per litre, and the remaining 50 litres at $21 per litre.

Question 13

A company uses standard absorption costing. Budgeted and actual data for the latest period are as follows. 11ec37eb_8bae_2301_97b9_89cced9f71b7__00 What was the production overhead absorption rate per unit?

A) $21
B) $27
C) $35
D) $29

Question 14

Which of the following would NOT require taking into account the time value of money?

A) Deciding to make a long-term investment in a project on the basis of its payback period.
B) Selecting an investment project on the basis that it has a positive net present value (NPV).
C) Calculating the present value of a five-year annuity.
D) Taking a long-term investment decision on the basis of the project's internal rate of return (IRR).

Question 15

The year-to-date results at the end of month 9 included sales revenue of $3,600,000 and variable costs of $2,100,000. During month 10, sales revenue was $450,000 and variable costs were $270,000. What year-to-date contribution to sales ratio (C/S ratio) would be reported at the end of month 10?

A) 58,5%
B) 70,9%
C) 41,5%
D) 40,0%

Question 16

Assume that a unit of output is the cost object. Which of the following statements is valid?

A) Royalties paid on per unit basis are an example of an indirect expense.
B) Materials consumed in the maintenance of machinery used to manufacture several different products are an example of a direct material cost.
C) The salaries of supervisors who oversee the manufacture of several different products are an example of a direct labour cost.
D) Rent paid for a factory in which several different products are produced is an example of an indirect expense.

Question 17

A company's management accountant wishes to calculate the present value of the cost of renting a delivery vehicle. There will be five annual rental payments of $5,000, the first of which is due immediately. The company's discount rate is 12%. Which TWO of the following are valid ways to calculate the present value of the rental payments? (Choose two.)

A) $5,000 + ($5,000 x 3.605)
B) $5,000 + $5,000/1.12 + $5,000/(1.12) 2 + $5,000/(1.12) 3 + $5,000/(1.12) 4 $5,000 + $5,000/1.12 + $5,000/(1.12) 2 + $5,000/(1.12) 3 + $5,000/(1.12) 4
C) $5,000/1.12 + $5,000/(1.12) 2 + $5,000/(1.12) 3 + $5,000/(1.12) 4 + $5,000/(1.12) 5 $5,000/1.12 + $5,000/(1.12) 5
D) $5,000 x 3.605
E) $5,000 + ($5,000 x 3.037)

Question 18

The following is an extract from a budgetary control report for the latest period: 11ec37eb_8bae_9833_97b9_1fd3c29e0753__00 The budget variance for prime cost is:

A) $3,260 adverse
B) $18,580 adverse
C) $3,340 adverse
D) $3,260 favourable

Question 19

Which of the following is a valid definition of a cash budget?

A) A detailed budget of estimated cash inflows and outflows incorporating both revenue and capital items.
B) A detailed budget of estimated cash inflows only, incorporating receipts from cash sales as well as from credit customers.
C) A detailed budget of estimated cash inflows and outflows incorporating revenue items only.
D) A detailed budget of estimated cash outflows only, incorporating both depreciation and capital expenditure.

Question 20

Which of the following is NOT a valid purpose of budgeting?

A) To communicate targets to managers.
B) To comply with financial reporting requirements.
C) To coordinate the different activities of an organisation.
D) To authorise managers to incur expenditure.

Question 21

A company has spent $5,000 on a report into the viability of using a subcontractor. The report highlighted the following: A machine purchased six years ago for $30,000 would become surplus to requirements. It has a written-down value of $10,000 but would be resold for $12,000. A machine operator would be made redundant and would receive a redundancy payment of $40,000. The administration of the subcontractor arrangement would cost the company $25,000 each year. Which THREE of the following are relevant for the decision? (Choose three.)

A) A relevant cost of $5,000 for the viability report.
B) A relevant cost of $30,000 for the machine.
C) A relevant cost of $40,000 for the redundancy payment.
D) A relevant cost of $10,000 for the machine.
E) A relevant cost of $25,000 each year for administration.
F) A relevant revenue of $12,000 for the machine.

Question 22

Which THREE of the following are included in the Global Management Accounting Principles? (Choose three.)

A) Accountability
B) Influence
C) Value
D) Professional behaviour
E) Relevance
F) Integrity

Question 23

Which THREE of the following are parts of the master budget? (Choose three.)

A) Finished goods inventory budget.
B) Budgeted statement of profit or loss.
C) Cash flow budget.
D) Sales budget.
E) Administration overhead budget.
F) Budgeted statement of financial position.

Question 24

A company produces a single product for which the following cost data are available. 11ec37eb_8bb0_45ee_97b9_b1d66e52d626__00 Analysis by the management accountant has shown that 100% of direct material cost and 50% of direct labour cost are variable costs. 50% of production overhead and 100% of selling and distribution overhead are variable costs. What is the marginal cost per unit?

A) $6
B) $7
C) $8
D) $9

Question 25

The budget and actual cost statements for the production department for the latest period were as follows. 11ec37eb_8baf_8298_97b9_bbe728f13da1__00 Notes. The 10% increase in production was required to meet unexpected additional sales demand. The production manager is responsible for negotiating the price of materials with suppliers. The normal working time is 900 hours per period. Any overtime worked above these 900 hours is paid at a premium of 50%. In preparing the flexible budget for the latest period, which TWO of the following statements are correct? (Choose two.)

A) The fixed costs should be flexed to $40,000 + 10% = $44,000.
B) The material quantity should be flexed to 60,000 + 10% = 66,000 kg.
C) The basic pay hours should not be flexed; they should remain at 1,000 hours.
D) The overtime hours should be flexed to (1,000 + 10%) - 900 = 200 hours.
E) The material price should be flexed to the actual figure of $3.10 per kg.

Question 26

The possible returns and associated probabilities of two independent projects are as follows: 11ec37eb_8bb0_1edc_97b9_f397002659f4__00 It has been decided that both projects are to be launched. Which TWO of the following statements are correct? (Choose two.)

A) The expected value of the total return is $41,500 gain.
B) The probability of the total return being a loss is 0.10.
C) The probability of making a total return of exactly $5,000 gain is 0.02.
D) The probability of the total return being a gain is less than 1.00.
E) The expected value of the total return is $40,000 gain.

Question 27

Which of the following statements regarding variances is valid?

A) Using higher quality material than standard could explain an adverse labour efficiency variance.
B) Improved maintenance of production machinery could explain an adverse material usage variance.
C) An adverse labour rate variance could explain a favourable labour efficiency variance.
D) Poor supervision could explain a favourable labour rate variance.

Question 28

A company is appraising two projects. Both projects are for five years. Details of the two projects are as follows. 11ec37eb_8baf_5b87_97b9_2559fdf87bff__00 Based on the above information, which of the following statements is correct?

A) An annuity could be used to calculate the net present value of the projects.
B) The annuity factor for project A would be lower than the annuity factor for the project B.
C) A perpetuity could be used to calculate the net present value of the projects.
D) The annuity factor for project A would double the annuity factor for project B.

Question 29

The forecast costs per unit for a new product are as follows: 11ec37eb_8bb0_1edd_97b9_57796e7a54f9__00 The company uses marginal cost plus pricing and all products are required to achieve a 40% margin. What would be the selling price per unit?

A) $37.80
B) $46.20
C) $45.00
D) $55.00

Question 30

A company has two production departments and two service departments (Maintenance and Stores). The overhead costs of each of the departments are as follows. 11ec37eb_8bb0_6cff_97b9_8dc28be6d6c9__00 The following equations represent the reapportionment of each of the service department overheads to the other. M = 4,700 + 0.1S S = 5,800 + 0.2M Where M = total Maintenance overhead after reapportionment from Stores S = total Stores overhead after reapportionment from Maintenance 60% of the total Maintenance overhead and 50% of the total Stores overhead are to be apportioned to Production Department 1. The total production overhead for Production Department 1 after reapportionment of the service departments' overhead costs is closest to:

A) $71,672
B) $75,500
C) $70,720
D) $71,821

Question 31

An organisation's management report contains the following data: 11ec37eb_8baf_f7cb_97b9_859e6dd55657__00 Which division has the highest operating margin percentage?

A) Division A
B) Division B
C) Division C
D) Division D

Question 32

A company which manufactures and sells one product has fixed costs of $80,000 per period. The selling price per unit of $25 generates a contribution/sales ratio of 40%. How many units would need to be sold in a period to earn a profit of $10,000?

A) 9,000
B) 8,000
C) 36,000
D) 32,000

Question 33

A sales manager has analysed a sample of 350 sales transactions from the latest period. The manager wishes to investigate: how many customers made their purchase online using the internet and how many purchased by telephone. how many were new customers and how many were placing repeat orders. The following table shows the results of the analysis. 11ec37eb_8baf_d0ba_97b9_ab016a67b222__00 If the pattern of sales occurs next period, the probability of a particular sale being a repeat order placed online is closest to:

A) 0.11
B) 0.40
C) 0.16
D) 0.35

Question 34

A company uses an integrated accounting system. The following data relate to the latest period. 11ec37eb_8baf_a9a9_97b9_41705c90d720__00 At the end of the period, the entry in the production overhead control account in respect of under or over absorbed overheads will be:

A) $22,672 debit.
B) $2,208 credit.
C) $2,208 debit.
D) $22,672 credit.

Question 35

According to CIMA's Code of Ethics, CIMA members should not allow bias, conflict of interest of the influence of other people to override their professional judgement. This is an example of:

A) objectivity.
B) professional behaviour.
C) integrity.
D) professional competence and due care.

Question 36

Which of the following is NOT a characteristic of useful operational level information?

A) Sufficiently accurate.
B) Focused on the decision to be made.
C) Available immediately.
D) Governed by financial reporting standards.