CIMA P1 - Management Accounting Question Tutorial - CIMAPRO15-P01-X1-ENG Exam Questions [2026]

QUESTION NO: 1
XY, a not-for-profit charity organization which is funded by public donations, is concerned that it is not making the best use of its available funds. It has carried out a review of its budgeting system and is considering
replacing the current system with a zero-based budgeting system.
Select ALL the potential advantages AND disadvantages for the charity of a zero-based budgeting system.

A. In applying traditional budgeting, 'activities' may result in functional departments rather than cross functional activities and thus distract attention from the real cost-reduction issues. B. The creation of decision packages and their subsequent ranking by top management is very time consuming and costly. The charity will need to assess whether the benefits of the system outweigh the costs involved. C. It discourages a questioning approach by focusing attention not only on the cost of the activity but on the benefits it provides. The charity managers will not articulate the benefits encouraging them to think clearly about the activities. D. It avoids the complacency inherent in the traditional incremental approach where it is assumed that future activities will be very similar to current ones. E. Preparation of the decision packages will normally require the environment of many employees. This environment may produce useful ideas and promote job satisfaction. F. In an organization like a charity, the decision packages are not very disparate and difficult t compare.

Correct Answer: B,D,E

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QUESTION NO: 2
'A zero-based budgeting system involves establishing decision packages that are then ranked in order of their relative importance in meeting the organization's objectives'.
Which of the following is true regarding he difficulties that a not-for-profit organization may experience when trying to rank decision packages.
Select ALL true statements.

A. Each decision package is evaluated. Its costs are compared to its benefits and net present values or other measures calculated. B. Management may decide to reject packages even though the activity was done last year. In this way the organization is said to be starting from a zero base with each package given due consideration. C. Some of these packages will be inclusive and will require operations to select the best solution to the issue involved. D. The activities that are being proposed in a budget are described in variable packages. There will often be more less than one decision package proposed for an activity. E. In a public sector body, for example, decision packages will relate profit making activities. F. In a public sector body, for example, decision packages will relate to very disparate activities. G. The activities that are being proposed in a budget are described in decision packages. There will often be more than one decision package proposed for an activity. H. Some of these packages will be mutually inclusive and will require management to select the best solution to the issue involved. I. Management may decide to accept packages even though the activity was done last year. In this way the organization is said to be starting from a 100% cost base with each package given due consideration.

Correct Answer: A,B,F,G,H

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QUESTION NO: 3
XY can choose from four mutually exclusive projects. The projects will each last for one year and their net cash inflows will be determined by market conditions. The forecast net cash inflows for each of the possible outcomes are shown below.

If the company applies the maximin criterion the project chosen would be:

A. Project C B. Project D C. Project A D. Project B

Correct Answer: C

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QUESTION NO: 4
A company uses an activity based costing system. The company manufactures three products, details of which are given below:

A. $0.35 B. $0.23 C. $0.27 D. $0.31

Correct Answer: C

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QUESTION NO: 5
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. 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. B. 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. C. 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. D. 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. 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. A manufacturing resource planning approach to the management of all the company's manufacturing
resources including inventory, labour and machine capacity.

Correct Answer: C,D,E,F

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QUESTION NO: 6
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. 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. B. The shadow price equals the additional contribution that would be earned from one extra unit of a scarce resource. C. 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. 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 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.

Correct Answer: A,B

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QUESTION NO: 7
RS is a travel company providing daily tours of a major European capital city. The market is highly competitive and RS has commissioned some market research to help with the pricing decision for a new tour. The research identified the probability of three possible market conditions and the number of tickets that would be sold each day at three different price levels.

Demonstrate, using a decision tree and based on expected value, which ticket price RS should choose.

A. RS should charge a ticket price of $80. B. RS should charge a ticket price of $100. C. RS should charge a ticket price of $70. D. RS should charge a ticket price of $75 E. RS should charge a ticket price of $90.

Correct Answer: E

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