Management Accounting Flashcards
7 cards from real CIMA practice questions. Tap to flip, then mark Knew It or Still Learning — missed cards come back until you master them.
Read the first 7 Management Accounting flashcards as text
Which performance measure is calculated as Net Profit Before Interest and Tax ÷ Capital Employed?
Answer: Return on capital employed (ROCE)
ROCE = PBIT ÷ Capital Employed and measures how efficiently a business uses its capital to generate profit.
Residual income (RI) is superior to return on investment (ROI) as a divisional performance measure because:
Answer: RI encourages managers to accept projects that exceed the cost of capital even if they lower ROI
RI deducts a capital charge from profit, so managers are incentivized to accept any project earning above the cost of capital, avoiding the ROI sub-optimization problem.
A company uses a balanced scorecard. Which perspective evaluates metrics such as employee training hours and innovation rates?
Answer: Learning and growth perspective
The learning and growth perspective of the balanced scorecard focuses on employee capabilities, information systems, and organizational culture that enable future performance.
In a make-or-buy decision, a company should buy externally if:
Answer: The external price is lower than the relevant (incremental) cost of making
The financial decision hinges on comparing the external buy price to the relevant (avoidable) cost of making, not the full absorbed cost.
Which inventory valuation method results in the highest closing inventory value during a period of rising prices?
Answer: FIFO (First In, First Out)
Under FIFO, older (cheaper) costs are charged to cost of goods sold first, leaving newer (more expensive) units in closing inventory — giving the highest closing inventory value when prices rise.
An under-absorbed overhead situation arises when:
Answer: Actual overhead exceeds overhead absorbed into production
Under-absorption occurs when the overhead charged to production (absorbed) is less than the overhead actually incurred, leaving a debit balance to write off.
Which of the following best describes 'kaizen costing'?
Answer: Continuous incremental cost reduction during the production phase
Kaizen costing focuses on continuous small improvements to reduce costs incrementally during the manufacturing phase of a product's life.