Online Access Free CIMAPRO15-P01-X1-ENG Practice Test

'Public sector organizations are often judged by their economy, efficiency and effectiveness. Consequently, they should use an approach to budgeting other than incremental budgeting.' Required:
Explain ONE advantage and TWO disadvantages of public sector organizations using incremental budgeting.
Select all true statements.

• A.The incremental approach encourages managers in public sector organizations to look at the efficiency and effectiveness of activities undertaken.
• B.Under an incremental approach to budgeting, existing operations and the current budgeted allowance for these existing activities are taken as the base level for preparing the budget.
• C.An incremental; approach is not as easy and fast to implement than other forms of budgeting approaches e.g. zero based budgeting.
• D.Public sector organizations tend to be fairly complex and in many cases outputs cannot be measured in monetary terms therefore the link between inputs and outputs is difficult to establish. An incremental approach can therefore provide a cost effective approach to budgeting.
• E.The incremental approach means that budget holders in public sector organizations will be encouraged to use up this year's budget will be as high as possible.
• F.The main advantage of incremental budgeting is that the cost of past activities becomes fixed and any inefficiencies or wastage is perpetuated.

A company has to choose between three mutually exclusive projects. Market research has shown that customers could react to the projects in three different ways depending on their preferences. There is a 30% chance that customers will exhibit preferences 1, a 20% chance they will exhibit preferences 2 and a 50% chance they will exhibit preferences 3. The company uses expected value to make this type of decision.
The net present value of each of the possible outcomes is as follows:

A market research company believes it can provide perfect information about the preferences of customers in this market.
What is the maximum amount that should be paid for the information from the market research company?

• A.$125 000
• B.$140 000
• C.$135 000
• D.$145 000

THS produces two products from different combinations of the same resources. Details of the products are shown below:

Identify, using graphical linear programming, the optimal production plan for products E and R to maximize THS's profit in the month.

• A.The solution (from the graph0 is to produce 495 units of E and 470 units of R.
• B.The solution (from the graph0 is to produce 375 units of E and 870 units of R.
• C.The solution (from the graph0 is to produce 475 units of E and 770 units of R.
• D.The solution (from the graph0 is to produce 675 units of E and 470 units of R.
• E.The solution (from the graph0 is to produce 495 units of E and 670 units of R.
• F.The solution (from the graph0 is to produce 375 units of E and 750 units of R.

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.
What are the benefits for the company that could occur following the introduction of an activity based budgeting system?
Select ALL the correct answers.

• A.Activity based techniques including activity based budgeting focus on the outputs of a process rather than the input to the process. This approach provides a clear framework for understanding the link between costs and the level of activity. It allows the ranking of activities and the determination of how limited resources should be allocated across competing activities.
• B.Under an activity based budgeting system, resource allocation is linked to the strategic plan and is prepared after considering alternative strategies. This approach ensures that new activities that are required to meet the company's strategic objectives are included in the budget.
• C.The approach under an Activity based Budgeting System is to make arbitrary cuts in order to meet overall financial targets.
• D.Activity Based Budgeting Systems present costs under functional headings i.e. the emphasis is on the nature of the cost. The weakness if this approach is that it gives little indication of the link between the level of activity and the cost incurred.
• E.Under a traditional incremental budgeting system the focus is on existing resources and operations.
  Adjustments are then made for changes in activity and price which results in past inefficiencies being perpetuated. Under an activity based budgeting system, only resources that are needed to perform activities required to meet the budgeted production and sales volumes are included.

A company has budgeted to produce 5,000 units of Product B per month. The opening and closing inventories
of Product B for next month are budgeted to be 400 units and 900 units respectively. The budgeted selling price and variable production costs per unit for Product B are as follows:

Total budgeted fixed production overheads are $29,500 per month.
The company absorbs fixed production overheads on the basis of the budgeted number of units produced. The budgeted profit for Product B for next month, using absorption costing, is $20,700.
Prepare a marginal costing statement which shows the budgeted profit for Product B for next month.
What was the marginal costing profit for the next month?

• A.$18 750
• B.$17 750
• C.$17 890
• D.$18 600