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

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.
How will a manufacturing resource planning system improve the planning of purchases and production for the company?
Select ALL the correct answers.

• A. It seeks to ensure that resources are available just before they are needed by the next stage of production or dispatch. It also seeks to ensure that resources are delivered only when required so that raw material inventory is kept to a minimum.
• B. A manufacturing resource planning approach to the management of all the company's manufacturing
  resources including inventory, labour and machine capacity.
• C. It aims to generate an estimation of materials requirements after taking account of the number of employees quality and waste. The TQS model can be used within MRP provided that the major assumption in the TQS model of constant demand applies.
• D. The technique will not enable managers to track orders through the manufacturing process and will not assist the purchasing and production control departments to move the right amount of material or sub- assemblies at the right time to the right place.
• E. The correct inventory management system relies on the assumption that there is constant demand. An MRP system begins with the setting of a master production schedule specifying both the timing and quantity demanded of each of the finished goods items and then works backwards to determine the resource requirements at each stage of the production process.
• F. The traditional approach to determine material requirements is to monitor inventories constantly; whenever they fall to a predetermined level, a preset order is placed to replenish them. This traditional approach (involving re-order levels and economic order quantity calculations originates in the pre-computer era.

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.

• A. Activity based budgeting is useful for the review of quality systems utilization.
• B. Activity based budgeting provides a clear framework for understanding the link between turnover and the level of activity.
• C. Activity based budgeting 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 activity and ensures that any budget cuts are made to non-value added activities.

A healthcare company specializes in hip, knee and shoulder replacement operations, known as surgical procedures. As well as providing these surgical procedures the company offers pre operation and post operation in-patient care, in a fully equipped hospital, for those patients who will be undergoing the surgical procedures.
Surgeons are paid a fixed fee for each surgical procedure they perform and an additional amount for any follow-up consultations. Post procedure follow-up consultations are only undertaken if there are any complications in relation to the surgical procedure. There is no additional fee charged to patients for any follow up consultations. All other staff are paid annual salaries.
The company's existing costing system uses a single overhead rate, based on revenue, to charge the costs of support activities to the procedures. Concern has been raised about the inaccuracy of procedure costs and the company's accountant has initiated a project to implement an activity-based costing (ABC) system. The project team has collected the following data on each of the procedures.

Calculate the profit per procedure for each of the three procedures using activity-based costing.
What was the profit for the knee procedure, using ABC costing?

• A. $781
• B. $2305
• C. $1808
• D. $2466

JRL manufactures two products from different combinations of the same resources. Unit selling prices and unit cost details for each product are as follows:

* Refer to your answer in the previous question.
The optimal solution to the previous question shows that the shadow prices of skilled labour and direct material A are as follows:
Skilled labour $ Nil Direct Material A $11.70
Explain the relevance of these values to the management of JRL.
Select ALL the true statements.

• A. The shadow price equals the additional contribution that would be earned from one extra unit of a scarce resource.
• B. The decrease in contribution as a result of this change is the value of the shadow price of material A. The shadow price thus represents the maximum premium that should be paid for an additional unit of material A.
• C. Since material A is one of the binding constraints, if the availability of material A could be increased by one unit, this would change the optimal plan.
• D. In a situation such as this, where a number of resources are scarce, the shadow price of any particular scarce resource will depend on whether or not the resource is not binding.
• E. The shadow price for skilled labour is NIL because although there is a shortage of skilled labour it does have a constraining effect on output of JR as other resources are more scarce.

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. $55
• B. $50
• C. $45
• D. $40