Online Access Free P1 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.The main advantage of incremental budgeting is that the cost of past activities becomes fixed and any inefficiencies or wastage is perpetuated.
• C.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.
• D.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.
• 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.An incremental; approach is not as easy and fast to implement than other forms of budgeting approaches e.g. zero based budgeting.

A company is considering the use of Material V in a special order.
The material is used regularly and a sufficient quantity of the material is in inventory.
It could also be sold, at just below the current market price, to a local competitor.
What is the relevant cost of Material V to be used in the special contract?

• A.The replacement cost of the material.
• B.Nil
• C.The historic cost of the material in inventory.
• D.The resale value of the material.

Company X is deciding which of Projects A, B or C to undertake. The profit earned from each of the projects is dependent on economic conditions.
The table below details the profit for each of the possible outcomes and the expected value of each of the projects.

What is the maximum amount that should be paid for perfect information about the economic conditions?

• A.$442.50
• B.$54.50
• C.$497
• D.$57.50

A manufacturing company has fixed production overhead costs, direct material costs and direct labour costs. The number of units of closing finished goods inventory is lower than the opening inventory.
Which of the following statements is true?

• A.The profit using marginal costing will be higher than if absorption costing is used.
• B.The profit using absorption costing will be higher than if marginal costing is used.
• C.The profit using marginal costing will be higher than if throughput costing is used.
• D.The profit using absorption costing will be higher than if throughput costing is used.

In short-term decision making, which TWO of the following are relevant costs?

• A.Avoidable costs
• B.Notional costs
• C.Sunk costs
• D.Opportunity costs
• E.Committed costs